What if I told you there was a single decision in your life that would determine if you’d retire comfortably or broke?
And I know this might be controversial to some and that’s not my intention at all, but when you look at the actual data it’s pretty clear…
If you make the decision to become a homeowner you will likely retire comfortably.
And if you decide to stay a renter there’s a very small chance you’ll actually be able to retire. And that’s not retire comfortably, it’s straight up be able to retire.
In this article I’m going to do a breakdown of all the data comparing homeowners to renters. I am not putting down renters at all but rather want to show how important homeownership has truly been for Americans at retirement. I’ll also review the benefits of being a homeowner.
Now there’s no denying it – we’re in a very tough market right now. Prices have gone up a ton recently, interest rates are through the roof, and there is still somehow way more buyers than houses for sale.
So I’m going to also share with you a couple of the best strategies you can use to become a homeowner. Renting may be the comfortable alternative for many right now given how tough things are but after this article I think you’ll see why to’s so important to create a plan to become a homeowner at some point in your life.
The key point in that I want to stress is at some point in your life. It doesn’t have to be right now or even this year, but I strongly believe everyone should aspire to be a homeowner at some point in their life. And not just aspire, but actually plan for it. I’ll also show you some of my best strategies at the end.
At retirement the median net worth for homeowners is 40 times higher than that of renters according to a recent Federal Reserve study…
Homeowners had a median net worth of $255,000 and renters had just $6,300.
The median amount of home equity homeowners have at retirement is $204,000. That represents 80% of their total net worth. Renters have no equity.
At retirement a homeowner has a median savings of $51,000 while renters have just $1,000.
A 2022 NAR study shows 62% of middle class wealth is from homeownership and their house is their largest asset. “Home ownership is a catalyst for building wealth,” Lawrence Yun chief economist said.
According to NAR data from April of this year homeowners have a net worth that is 40 times greater than that of renters.
Let’s break it down further…
“American’s financial stability hinges on homeownership.” That was an article from Credit Karma.
Homeowners are twice as likely as renters to feel financially stable – 62% vs. 33%. In the same article it gave some more interesting data…
72% of homeowners have credit scores of 660 and above, only 37% of renters do.
1/4 of all renters have $0 in savings, in comparison only 10% of homeowners have $0 in savings.
1/4 of homeowners have more than $50,000 in savings, just 6% of renters in comparison have that amount.
41% of renters have no money saved for retirement, 85% of homeowners do.
Lastly 54% of renters believe they could never afford a home.
The majority of middle class wealth – 60-75% – is directly from a primary residency. That’s the house they live in, not a rental property. When you pull that piece out the financial equation it’s no surprise renters are in such a tough spot.
80% of middle class net worth (in this study that was under $500,000) is from a primary residence and pension.
In comparison the upper income net worth ($500,000-10,000,000) it drops to 50%.
And lastly the ultra wealthy net worth ($10,000,000+) is 50% from business equity and real estate investments, not a primary residence. A primary residence only represents 10% of their net worth.
The top 20% earners in the US have 10-30% of their wealth directly from a primary residence. 1/3 of their wealth is from business equity and more real estate (not a primary residence, usually rental properties). The remainder is pension accounts and financial securities. They are the most diversified.
So this means – the majority of middle class Americans get the majority of their net worth from homeownership and that’s the home they live, nothing else. This is why home ownership is so important.
Section 2 The Benefits Of Homeownership
So now that we’ve seen all the data let’s review some of the benefits of homeownership over renting –
Tax savings: Homeowners can deduct mortgage interest and property taxes from their federal income taxes. This can save homeowners thousands of dollars each year. This is especially beneficial for retirees, who are often in a lower tax bracket.
Forced savings account: A percentage of every payment you make, especially further into a 15 or 30 year mortgage is building ownership in the property and is a type of forced savings account.
Appreciation creates equity growth: Over time, the value of homes typically appreciate in value. Historically they go up 5% every year. This can provide homeowners with a significant financial gain when they sell their home. The appreciation of your home increases your net worth by simply being a homeowner.
Fixed payment: Your monthly mortgage payment is fixed, so you know exactly how much you will be paying each month. This can help you budget and save for other expenses, like retirement. It’s predictable in contrast to renting which can go up every year and will definitely go up when you move out and rent a different property.
Equity to access: As you pay down your mortgage and it appreciates in value, you build equity in your home. This equity can be used to access cash for a variety of purposes, such as paying for home improvements, traveling, medical expenses, schooling, more real estate, or even retirement.
Stability: Homeowners have a sense of stability that renters do not have. They know that they have a place to live that they own and they can’t be evicted. This can be a valuable asset, especially in times of economic uncertainty. One of the top priorities of retirees is stability and homeownership provides it unlike renting. I think we can all agree home is the foundation of personal and financial stability and peace of mind.
Section 3 Create A Strategy to Become A Homeowner
Now I’m sure you think all this data and information is great, but you might be overwhelmed by the process. That data says 54% of renters believe they could never afford a home. I don’t believe that, I think they can with some proper planning and information. Here are a couple tips to help you become a homeowner…
Audit your situation right now – what do you like and don’t like about where you’re at now? Would you want more space or less? The same location or a different one? How much are you spending for it? How much do you have saved? Have total clarity on your current position.
Know the entire process in detail – I wrote a book on the entire homebuying process, if you’d like a copy let me know. As with anything in life the unknown is scary. The first step to seeing yourself as a homeowner is demystifying the process. It’s important to have a general idea of the process including how much it costs and how long it takes.
Thoroughly review your lifestyle and financial goals – One of the top mistakes homebuyers make is they simply don’t review what their lifestyle goals are before buying and how their next home aligns with them. Here it is.
Have patience and urgency – you’re probably thinking Jeff how can I be patient and urgent? Let me explain – Take a step back before taking a big step forward. Create a plan now and even if takes you a couple years that is perfectly fine. Do not quit or give up. Be patient because it will take time. But also commit to a deadline that is sooner than later. Time goes by fast and without have a plan in place five years could go by in a rush.
Get an accountability partner – I’ll gladly be this for you. I will walk you through the process, help you create a plan, go through that exercise together, and be a support system for you. I’ll be with you every step of the way.
The goal of this article is not to insult, but rather a cautionary tale. All of us have family and friends that have owned homes and then used them to fund their retirement. Some real talk for a moment – I have many family and family friends I love that were only able to retire because of their home.
When we review the data we can see for the majority of America homeownership was the best financial investment they’ve ever made. I wrote this article because I’m very concerned because there’s a ton of noise right now that is discouraging people – especially older people – from buying a home. The news and quite frankly most of the real estate industry is more interested is spreading drama instead of solutions. Every week there is a flood of negative articles about why you shouldn’t be a homeowner and most of them are completely detached from reality.
In 2019 it was the market might crash.
In 2020 it was the market was definitely going to crash.
In 2021 it was the market is too hot don’t buy.
In 2022 it was rates are way too high.
And now we’re back to the market is going to crash.
It’s the same cycle of negative uninformed news every year.
But here’s the thing, the market never crashed. Those articles only get pushed because they get a lot of clicks, not because they are truthful. Since 2019 the median home price in Las Vegas has gone up 26%. That’s $70,000. So if people looked at the actual data and not the drama the news pushes they would have added $70,000 to their net worth along with all the other benefits I outlined.
I do not think renting is bad and I do encourage a lot of people I know to go that route. However, I don’t feel people should be renters forever. Unfortunately time goes by fast and most are overwhelmed by the process which delays things further. My challenge to you is if you’re someone who has wanted to become a homeowner and agrees with all this to call me on the phone directly at 702-305-7312. I want to learn more about what your goals are and go through the process with you. This way at a minimum you now have a solid plan to get started. Thanks for reading!