Sometimes it takes work to distinguish between value and price. In my last article, I discussed the true costs of owning a home.
However, you can deal with the costs if you understand the value. Owning a home is difficult but can be an essential investment in the long run.
Inflation protection. The best reason to own a home is to protect yourself against inflation. What is inflation?
Inflation is the rising cost of goods and services. If you are a renter, you are at the mercy of the homeowner/property manager/landlord.
This is not a good position to stay in for a long time. Over time, rents will continue to rise, and you will lose spending power in other areas of your life.
When you own a home, your property taxes and insurance will increase almost annually. However, your mortgage keeps your principal and interest in one place.
In 4-5 years, your mortgage will look like a steal compared to the going rate of home prices and rent costs. Once you pay off your mortgage, you are in the clear forever.
Rental opportunities. There are tons of rental opportunities to pursue as a homeowner. You can Airbnb a room, your garage, or your parking space.
You can rent a room, your basement, or your attic. You can start a garden, a woodworking shop, or a dog park.
There are many ways to make money from your home; however, it's much easier as a homeowner because you don't have to ask for permission.
Leverage home equity. Home prices generally go up over time. Rising home prices will give you home equity you can leverage in various ways.
Most people use home equity to finance liabilities such as renovations, boats, and cars. They also use it to pay down debt that they immediately start racking up again.
The better approach is to use home equity to purchase assets such as dividend-paying stocks, businesses, and more real estate.
You can use home equity via a home equity loan, home equity line of credit, or a cash-out refinance.
Pay for college with real estate. If you have a long-term mindset, you can use your home to pay for your kids' college.
I wrote a series on the benefits of using real estate to pay for college. With a little finessing, you can do very well with this approach.
- Pay for College with Real Estate 101: Real Estate vs. 529 Plan
- Pay for College with Real Estate 102: Buy a House, Sell a House
- Pay for College with Real Estate 103: Home Equity Loans
- Pay for College with Real Estate 104: Cash-Out Refinance
- Pay for College with Real Estate 105: Rental Wins
Your home as a retirement plan. Most people will need more income to survive retirement. It is nearly impossible to save $3 million for a comfortable retirement (this gives you $10,000/month passive income).
However, a paid-off house puts many options at your disposal. You can reverse mortgage your home and turn it into immediate income as an income-investing portfolio.
You can sell your home, move to a small place or cheaper city, and invest the difference. This gives you an income portfolio and a paid-off house.
Or you can live below your means while enjoying the simple life of having a paid-off home. You can also rent rooms to give you immediate cash flow.
Building generation wealth. Perhaps the biggest reason to own a home is to leave it to your children.
Most people need to do a better job of building generational wealth for their families. Even if they own a home, they keep doing cash-out refinances and never pay off the property.
Creating generational wealth is more than owning a home; it is having a plan for the resources. This means building a land or revocable trust to manage the property.
A trust keeps the property in the family and directs someone to maintain the property while distributing dividends to the family.
Over time, this will be a powerful method to keep the home in the family for multiple generations. This method differs from splitting it among your children immediately upon death.
The value versus the costs. Nowadays, the media is telling you to avoid buying a home. I admit it is tough to purchase today.
However, you will fall behind if you do not own property. Rents will continue to rise as investors move into your neighborhoods.
Soon homeownership will only be for the rich. The average person will be lucky to afford an apartment to rent.
The true value is knowing that you have some control over your housing costs. Property taxes and insurance can be a nuisance, but it is better than renting.
How to get into a home. It will take a lot of work to get into a property. You will have to be diligent to save enough for a down payment.
Don't worry; I have you covered. I wrote an entire series on how to save for a home down payment.
- Saving for a House Down Payment #1: Single, Small City
- Saving for a House Down Payment #2: Single, Big City
- Saving for a House Down Payment #3: Couple, Small City
- Saving for a House Down Payment #4: Couple, Big City
- Saving for a House Down Payment #5: Family, Small City
- Saving for a House Down Payment #6: Family, Big City
Conclusion. Value versus cost will always be an eternal struggle. Homes are expensive today, and the value doesn't seem apparent.
However, looking long-term, the situation will only get worse. More individual investors, REITs, foreign investors, and institutions are looking to buy residential single-family homes.
This intense investment market means that the costs of homes will continue to rise, but more importantly, rents will skyrocket.
These entities only care about how much they can charge you for renting. They have loyalty to your neighborhood, county, or state.
Even worse, if they own the entire neighborhood, they can raise rents in tandem; they will set comparable rents for the whole place.
Don't let the media convince you to be a renter—it's time to become a homeowner. The best way to purchase is to understand finances. Good Luck!
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