On the subject of wealth building, homeowners have a big advantage over renters.
2007 Median Net Worth
Based on the U.S. Federal Reserve’s Survey of Consumer Finances in 2007, homeowners are better at accumulating wealth than renters. Although this does not mean that buying a home is the key to becoming wealthy, there are many reasons why residential real estate is an excellent vehicle to help increase your net worth.
Let’s look at return on investment and see how the purchase of residential real estate is a great way to build your net worth:
You buy a foreclosed property valued by the county at $200,000 and you pay $160,000. The down payment on the home is $16,000.
Because you bought it at a great price, the home appreciates a minimum of 2% each year for five years, which brings the value to $176,653.
Since your down payment was $16,000, you have more than doubled your investment in five years and increased your net worth by $16,653. What other investment vehicle can allow you to double your money in five years?
How about the stock market? We all know how that works but an average of 7% per year would constitute a very respectable return. It doesn’t come close to Real Estate.
We all know that housing prices have not been going up in the past couple of years but by most estimates we are at or very near the bottom of the housing recession. Even Warren Buffett, during his annual shareholders meeting, stated that he anticipates housing prices to start going up by 2012.
Forecasting an average of 2% annual increase in the value of a home is a reasonable if not conservative assumption. Based on the U.S Census, homes in the U.S had an average increase in value of 2.77% per year from 1970 to 2000 (this does not include the bubble or bust that took place during our last decade.)
Building net worth? Advantage Homeowners!