5 Reasons Why Money Smart People Own Real Estate
Andrew Carnegie, the wealthiest man in America during the early 20th century, once ruminated that “90 percent of all millionaires become so through owning real estate.”
I’m not sure Carnegie had any big data to back up his stats but he makes a very good point – money smart people see the value of owning real estate. Here’s a bit of bid data however that does supports the rich entrepreneur: In the past 15 years, the net worth of the typical homeowner has ranged between 31 and 46 times that of the net worth of the typical renter.
Data from the 2014 Federal Reserve Survey of Consumer Finances also shows that median homeowners had nearly $200,000 in net worth, 36 times that of the median renter who had just over $5,000. The median value of owners’ homes was just $170,000.
Now that you’ve got the big picture, let’s break down 5 specific reasons why money smart people own real estate.
- Real Estate is the most commonly leveraged investment. When you have equity in your home, you can borrow against it. Few households are interested in borrowing money to buy stocks and bonds and few lenders are willing to lend them the money. As a result, homeownership allows households to amplify any appreciation on the value of their homes by a leverage factor.
- You’re already paying a mortgage. If you rent, you’re simply paying your landlord’s mortgage. If you buy your own home, your monthly check will go down to reducing your own principal. Why not pay down your own debt instead of some one else’s? Who knows, soon you could be managing an investment property or two and have someone else pay your mortgage…
- Owning forces you to save. Or at least that’s kind of what it’s like when you pay your mortgage each month. With each monthly payment you are building up more valuable equity in your home. Building equity in your home makes your net worth start climbing!
- Tax benefits. You can deduct the mortgage interest you pay from your taxes. For most people that’s a huge deduction since interest payments are the largest portion of your mortgage payment in the first years of homeownership. Property tax is also deductible as well as some closing costs. For a more in-depth look at the tax benefits of being a homeowner read Getting a Grip on New Homeowner Tax Deductions.
- Beat inflation at it’s own game. Housing costs and rents over time tends to go up at or higher than the rate of inflation, making owning an attractive proposition. While its impossible to predict future home price appreciation, historically if you stay in a home for a long period of time (5 years or more), the odds are in your favor!
To learn more about the financial benefits of owning a home and creative strategies for getting into real estate and investing, call Jeff at 800.951.9484.
Thank you for reading. I hope you found this information useful.
Jeff Pittman, Realtor in Ladera Ranch – Orange County, California