Owning real estate is a huge piece of the puzzle when it comes to building wealth and net worth. Plus, home ownership gives you financial security, which many people are concerned about right now as inflation continues to rise.
Net Worth of Homeowners vs Renters The National Association of Realtors (NAR) recently put out a report that outlines the average net worth of homeowners for renters. They found that the net worth of a homeowner was about $300,000 while that of a renter’s was $8,000 in 2021. That means homeowners’ net worth is nearly 40 times that of a renters’ net worth.
Why Home Ownership is the Key to Building Wealth
The reason there is such a big difference in the net worth of homeowners versus renters is because of equity. Equity is the difference between what you owe on your mortgage and what your home is currently worth. So you build equity as your home appreciates in value and you pay down your mortgage each month.
As a renter, you are helping your landlord pay their mortgage and build more equity for them, but not building any for yourself. You will never see a return on that money.
As a homeowner, when you go to sell, all of that equity you’ve built up will come back to you and acts as a forced savings account. The equity you build in your home can create many opportunities - the biggest is potentially making a profit when you sell the home.
If you don’t want to sell the home, you could become a landlord and rent the home out to generate cash flow. Your house can be both a home and an investment with a big return and a number of different possibilities.
