Wealth Building Through Homeownership
For potential or current homeowners, there is plenty of benefits to keep you ahead of the curve. There is a link between financial security and homeownership that is often overlooked in today’s “get rich quick” environment. What is especially true in times of high inflation is that real estate is a safe haven asset that is protected from the decreasing buying power of your dollar. However, many current or potential homeowners do not take these often ignored benefits to heart. The quickest way to build your overall net worth is through homeownership. Here is how wealth building through homeownership works and why you should strive for homeownership.
According to Leslie Rouda Smith, President of National Association of Realtors (NAR):
“Homeownership is rewarding in so many ways and can serve as a vital component in achieving financial stability.”
There are a few reasons why this is true, and why homeownership should be an overall goal for many Americans. If you are looking to see an increase in your financial well-being and stability, homeownership is a goal to strive for. Homeownership is a worthwhile goal, and allows the ability to set out on your journey to financial freedom.
Homeownership Is Crucial To Wealth Building
According to one of NAR’s most recent reports, homeownership trends and statistics show a telling story about wealth. Homeownership trends and statistics include the net worth of homeowners versus renters. In the report, a general overview of the difference of net worth could assumed. The report finds:
“. . . the net worth of a homeowner was about $300,000 while that of a renter’s was $8,000 in 2021.”
The difference is overwhelming, but within reason. As a homeowner, you build equity through your payments, as well as through price appreciation. As a renter, you help your landlord build wealth while you are stuck with a potentially increasing cost of residency. To put that into perspective, here is a graphic from Keeping Current Matters that allows a visual representation of net worth appreciation versus money burning money.
Equity Gains And Net Worth
The gap we see between owners versus renters might seem overwhelming, but is logical. Of course, the reason for the difference is clear as well. Homeowners pay into a savings account essentially when they pay their mortgage. Mortgage payments are usually returned through the sale of the home, minus commissions and closing costs. When renting, you get nothing back besides the security deposit… if they decide you lived with bubble wrap around the home.
As a homeowner, you benefit not only from having a fixed monthly payment, but also from a home price appreciation aspect. Through the current landscape of the real estate market, home price appreciation is making homeowners more money at accelerated rates. Couple unprecedented equity gains with the fact that your mortgage never increases, and homeowners clearly have the net worth edge.
For those who own a home, you benefit by paying your monthly mortgage payment on time and in full. Like mentioned earlier, these payments are essentially paying yourself back money that you earned through kind of a forced savings account. And honestly, who does not pay their mortgage, as long as they can? When selling, any equity advances is money straight into your pocket, as well as the return of most mortgage payments. As a renter, you never see a return on the money you spend month to month, and can possibly never see your safety deposit again. To sum it up perfectly, NAR states:
“Homeownership has always been an important way to build wealth.”
Remember, almost every millionaire owns real estate.