As you grow older, the issue of wealth building comes front and center. You want to have savings for when you retire or have something to pass on to those closest to you. Wealth building simply refers to increasing the net value of your total assets but it can also mean so much more than that. Over time, you’ll begin to see that it’s more of just homeownership and more of a road map for your future.
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’ve gained $250,000 in wealth.
Appreciation is the second wealth-building advantage to homeownership. Each year, the value of your home will increase or decrease slightly based on market prices. Over time, real estate has always appreciated. 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 for homeowners.
Let’s look at a simple demonstration of how advantageous homeownership can be. Assume you buy a home in 2005 for $400,000 and, for 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.
Advantages. Advantages For All
As you can see, homeownership begins to build your savings account over time. Additionally, if you were to rent out the property, you would be able to pay off the mortgage sooner while also possibly putting some in your pocket as well. By investing in real estate, you can win either way. Whether you sell the house or keep it and rent it out, you are still able to build your wealth.
Plan and make sure that your assets are protected. The last thing that you would want is to spend years building your fortune, only to have it be stripped away in a possible lawsuit. By protecting your assets from the start, you’re giving yourself a safety net from those who are after what you have. It’s important to protect yourself and your future, as well as being one step ahead.