As you grow older, the issue of wealth building comes front and center.
Wealth building simply refers to increasing the net value of your total assets.
Wealth building over time is one of the advantages of home ownership.
Building Equity In Home Ownership
Owning a home can help you build wealth in two ways.
First, you build equity by paying down your mortgage. A certain percentage of each mortgage payment goes towards a reduction in the total amount owed. Typically, payments in the first few years of the mortgage are primarily applied to interest on the loans. As time passes, however, more and more of each payment is applied to the outstanding loan amount.
Before you know it, the $300,000 loan is down to $50,000 and you have gained $250,000 in wealth.
Second, Appreciation is the wealth building advantage to home ownership. Each year, the value of your home will increase or decrease slightly based on market prices. Over time, real estate has always appreciated in value.
In the current market, homes in some parts of the country are appreciating at rates as high as fifteen to twenty percent!
Appreciation is a very popular subject with homeowners.
Home Wealth Building Example
Let’s look at a simple demonstration of how advantageous home ownership can be.
Assume you buy a home in 2005 for $400,000 and, for the purpose of simply mathematics, pay no down.
Over the next 10 years, your mortgage payments reduce the outstanding mortgage by $100,000 and the home increases in value to $600,000. The value of your home as a net asset has grown to $300,000 ($600,000 minus $300,000)!
If you had rented during this period, you would have missed out on $300,000 in wealth. This simple example should show you the advantage of home ownership.
Historically – Home Ownership Builds Wealth
During the past 50 years, despite a few housing declines, it’s become generally accepted among buyers that a home was more than a simple shelter; it was a financial investment in the future.
A few of my friends told me during this past real-estate bubble that they were staking their entire retirement on the value of their home. With prices skyrocketing year after year and homes selling before they were even on the market, the strategy seemed like a no-lose proposition to them.
Now, of course, the flaws in that plan have become painfully evident: not only in lost real-estate value, but in the fact that homes are not selling quickly or at all in this market.
What people fail to see is the “human flaw” in the Market Pricing. That flaw is called GREED! The Government was basically giving away money to anyone who was breathing, to buy a home. The Market reacted with increased new home construction. Then the spec homes, and spec condos started rising in the Marketplace. People were buying and selling properties before they were even built.
Hence, the price SHOT UP in 5-9 years, basically 2000-2007 – and then the crash came.
Prices have fallen, but really they have adjusted back to the time before people messed up the natural Marketplace values. Remember this. You can not over price your home if you are a Seller. The Marketplace of Sellers and Buyers agreeing on a selling/purchase price will always rule. The price will always be the perceived VALUE of your home based on location, condition, and features.
Historically, home ownership is one the best ways for families to build wealth. If you don’t currently own a home, you should start looking for one. The prices have fallen back to normal values, and there has NEVER been lower rates for mortgages than right now.
If you need help in getting started and don’t know the first steps to buying your first home, let me help you with some information. I have an EMAIL SERIES named “The Ten Steps To Home Ownership” and I want to give you this for free.