Building Wealth Through Real Estate: Unlocking Financial Growth

how owning a home can build net worth and help you hedge against inflation

Both buyers and renters do the same thing: make a monthly payment for shelter over their heads. But there's actually a huge difference between those payments! Renters aren't earning any equity. But homeowners paying a mortgage can actually be building their personal wealth AND hedging against inflation. Here's how.

Introduction

Hey, everyone! It's Brent the Broker here, and today, we're going to discuss how homeownership is a vital element in your journey to building wealth. But before we dive into today's topic, please consider subscribing to the channel and turning on notifications. If you find our content valuable, drop a like; we appreciate your support. Stick around until the end for our buyer and seller Pro Tip of the Day.

What is Wealth?

To kick things off, let's clarify what we mean by wealth. It's the value of everything you own minus everything you owe. This is where homeownership can play a significant role. Homeowners and renters both make monthly payments for shelter. However, in 2021, a homeowner's net worth was approximately 40 times higher than a renter's. The average homeowner's net worth was around $300,000, while the average renter's net worth was only about $8,000.

Homeownership and Wealth

So, why does homeownership contribute to higher net worth? Well, every time you make a payment on your mortgage, it reduces the balance of your mortgage. Meanwhile, your home tends to appreciate in value, resulting in an increase in equity, which is a crucial part of your net worth.

On the other hand, renters make similar monthly payments, but these payments go into the landlord's pocket, with no gains from the property's appreciation or debt reduction. This substantial gap between homeowners’ and renters' net worth is primarily due to these differences.

Hedge Against Inflation

Now, homeownership offers an additional advantage during times of inflation. Inflation means that the prices of goods and services are rising. When you own a home, its value often increases during inflation, serving as a hedge against the rising costs of goods and services.

However, as a renter, the opposite is true. Landlords, facing increasing costs, often raise rent to cover those expenses. When you're a homeowner with a fixed mortgage, your housing payment remains stable over time. Since housing payment is typically the most substantial part of a household budget, having a stable housing cost allows you to retain more of your hard-earned money.

Pro Tip of the Day

In San Diego County, average incomes have increased by approximately 4.6% each year since 2010. With an average household income of $87,000, a 4.6% increase translates to an extra $4,000 per year. By stabilizing your housing payment through a fixed mortgage, you free up more money as your income rises. This can be used to invest in assets that appreciate in value, such as stocks and real estate, further boosting your wealth-building potential.

And that wraps it up for today, folks. If you found this video helpful, consider subscribing to the channel, and don't forget to drop a like. We'll see you again next time.