I want to share with you some of the wisdom I've gathered from over 27 years in the mortgage and real estate industry and as a homeowner and real estate investor.
I hope these blog posts help you move closer to financial freedom by showing you the key long term leverage points that will make the biggest impact in growing your nest egg. If they're not for you, no hard feelings! Just hit the unsubscribe link at the bottom.
Before we start, I’m going to be totally transparent. I believe home ownership is a foundational pillar to true financial independence. That doesn’t mean everyone can or should buy today but home ownership needs to be a key part of your long term plan.
With that in mind, let's dive in.
Whether you already own a home or want to buy one, you probably are aware that home prices are at all time highs, and interest rates are at levels we haven’t seen in 40 years.
As a result, right now some people think it's better to rent than to own a home. It can be tough for some to buy a home in the current market, but I want to walk you through why homeowners are 40 times richer than renters.
The average American has a net worth of $121,000. But when we split it into owners and renters, you’ll find that owners have a $255,000 median net worth to just $6,300 for renters, according to the 2020 US CENSUS Survey of Household Finance.
I know numbers can be tricky, so let me clear something up. Owning a home isn't the ONLY reason homeowners build more wealth. There are other things at play, like age, income and education.
But with nearly half of a homeowner's wealth in their home's value, it’s easy to see that owning a home is an essential element of building wealth.
What does this mean for you?
Well, there's a simple factor at play called "self-liquidating debt." Let's break it down and see how you can get it working in your favor.
Imagine a restaurant that buys a pizza oven with a loan. They make extra money from selling pizzas, and that money pays off the loan. Once the loan is paid, the oven is theirs, and the extra pizza money is pure profit.
Buying a home with a mortgage is a lot like that. You're using borrowed money to buy a house, and then you pay back the loan with the money you'd otherwise spend on rent. Even though you're living in the house and not renting it out, you're still using what would be rent money to pay off your mortgage.
In simple terms, you have to live somewhere and unless you have a rich Aunt that let’s you live rent free in a spare home, you’re going to have to pay to put a roof over your head.
For a renter, that money is gone, never to be seen again. For an owner, that mortgage payment becomes a seed that will grow over time into a giant oak over time. Owning your home is truly the ultimate plan to get rich slowly AND inevitably.
Need more reasons why is this so great?
Owning a home with self liquidating debt helps you build wealth easily.
Instead of giving your money to a landlord; you're using it to pay off your mortgage. Over time, as your income increases, your fixed mortgage payment takes up less and less of your total income. That frees up your money to put into other things that make even more money. It's like a snowball effect of wealth building.
Next week, we’ll do a deep dive into these 3 factors and how they help homeowners build wealth, with detailed examples so you can see how to put these forces to work for you.
If you have any questions, just let me know. I'm here to help.
Looking forward,
Josh Lewis
Josh Lewis is a mortgage industry veteran with over 25 years of experience. Josh is committed to empowering you with the knowledge and resources you need to navigate the complex world of real estate. Josh creates content to help guide you through financial pitfalls, provide clarity, and help you on your successful journey to home ownership.
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