Owning a home can be a great tool for building wealth and achieving financial freedom. History has shown time and again that people who own homes create more wealth than renters. A study conducted by Federal Reserve shows that homeowners in the United States have a net worth over forty times bigger than that of renters' median net worth. Curious? Let's see how investing in a home can yield massive returns over time.
What is Wealth?
In layman's terms, wealth is the net worth of an individual that measures the value of all their assets. It consists of assets like homes, cars, and money in the bank account minus any debts. In essence, wealth is not something only the super-rich can achieve. Anyone can attain their financial goals by simply having more valuable assets than their debts.
So how homeownership is linked to wealth building?
Homeowners can enjoy plenty of advantages that can help them save money and earn more passive income. While there is not a surefire way to succeed in the housing market, by keeping some consistent historical trends in mind you can build wealth faster and more efficiently than other methods.
1. Predictable Payments
Home rents are always on the rise. So, if you don't own a home, it will be difficult to predict the cost of your housing down the line. On the other hand, the mortgage payments for home loans stay more or less consistent throughout the loan except for a few variations due to changes in insurance costs and tax rates, etc. This means, there is a much higher degree of predictability in mortgage rates than in paying rent every month. Being a homeowner allows you to invest your money in several other wealth-building programs.
2. Increase in Home’s Value (Appreciation)
While it's true that homeowners also have to deal with some short-term unpredictability, when it comes to the long-term results, it has always delivered solid returns to homeowners and real estate investors. The value of an average home in the U.S. gets doubled in just 10-20 years. Moreover, if the home is located at a highly desirable location, its value increases even faster.
3. Income Tax Benefits
You may be eligible for itemized deductions (to a specific limit) on your property taxes, mortgage interest you pay, and your private mortgage insurance. If you invest in energy-efficient improvements or you are a first-time buyer, you may even earn income tax credits.
4. An Effective Tool to Combat Inflation
In simple terms, inflation happens when the cost of goods and services rises due to a higher production cost. This will cause a surge in the demand for products while reducing the purchasing power of people at the same time. As far as the housing market goes, a locked-in interest rate can protect you from constantly increasing housing costs. Real estate investment will help you create wealth through appreciation. For the uninitiated, appreciation is the increase in the value of a home over time.
5. Building Home Equity
Equity is essentially the difference between your total assets and total liabilities. When it comes to housing, it is the present value of your house minus what you owe on it. We have already mentioned that houses, in general, appreciate over time. So, it would not be wrong to say that as you pay down your mortgage, your home's equity will automatically increase down the road.
The Bottom-line
When you consider all the benefits of owning a home that we have listed above, you'll realize the immense benefits of paying yourself first. Creating wealth starts with devising a solid financial plan. You need to take time to figure out your financial goals. And homeownership provides you with the right structure to accomplish these goals.
Reach out to Louisiana Landsource to learn more about building wealth using your home!
Also Read About- Outdoor Space is the Coolest New Home Amenity
