Here’s some fat to chew on: the average net worth of a homeowner will be 45 times greater than that of a renter by next year!
Sounds almost like an inconceivable difference, but it’s accurate. According to research conducted by the Federal Reserve as part of their Survey of Consumer Finances, the average wealth of a homeowner is $194,500, compared to a mere $5,400 for renters. This is based on 2013 data – the next installment of the survey will be out in 2016.
So as you continue to bust your butt paying off someone else’s mortgage, your neighbor who owns his property is paying himself.
Think about it: every time a mortgage payment is made, a good chunk of it goes towards the equity of the home. It’s like a form of savings. But in this case, you’re essentially being forced to save, rather than sporadically putting a few bucks away wherever you can – which is probably never.
On the other hand, it’s almost like making a hole in the water with every rent payment made. None of that money goes towards any equity in the property – at least not for you. And when you do have some extra cash after paying your rent and all your other monthly bills, saving a significant amount of money is nearly impossible if you don’t have a solid goal in place.
Homeownership is a Must For Building Wealth
Real estate has long been the investment vehicle of choice for many Americans, compared to riskier investments like the stock market. Even if you pay a lot more in interest compared to the principle of your mortgage every month, you’re still building wealth, since real estate tends to increase in value over time.
Sure, there may be the odd lull in the market, but history shows that property values increase over the long haul, no matter how gradually.
It’s a tough go, we get it. Homeownership isn’t as easy as it used to be with more stringent lending criteria and steeper housing prices these days. And rent isn’t exactly cheap, either.
Renters, Take Comfort
If you’re a renter, don’t throw in the towel just yet. There may still be some ways to get into a homeownership position sooner than you may think.
OK, so homes close to the city are expensive. And houses with more square footage and a massive yard are pricey too. So why not make your entry into the world of ownership a little easier by considering moving a bit farther out of the cityscape, or get yourself some digs that are smaller than that 3,000 square foot home complete with the white picket fence?
Condos and townhouses are excellent options to consider when you’re just getting your foot in the real estate door. New housing construction is also a great way to pay an entry-level price for a property, only to have the value increase by the time it’s ready for you to move into.
You’ve got to start somewhere.
Of course, you want to be smart about this move. It’s a big one after all. The last thing you want is to get stuck with sky-high mortgage payments that are almost entirely made of interest when you can’t comfortably cover such expenses.
That’s where a good real estate agent and mortgage specialist come into the picture. They can help crunch your numbers to find out how much you can comfortably afford without being “house poor” and putting yourself in a risky position should another housing bubble burst.
There really is no substitute for homeownership when it comes to building wealth. If you’re currently renting and are considering buying some time soon, get together with an experienced real estate agent to find out what kind of purchase makes the most sense for you so you can start building wealth today.