Why Buy? Growing Family Wealth

Like most people, as the new year approaches, I've begun to think about next year. We begin to think about what we're going to do in the new year. Where should we go on vacation? Should I get a new job? Should I buy a new car before this one dies out? What life changes should I make that are best for my family.

These kinds of short-term questions are important, but we also need to be thinking in the next 10, 20 and 30 years down the road. It can be shocking to find out how many people live paycheck to paycheck or are not ready for retirement when the time comes.

Owning your own home can provide at least one foundational leg for growing long term wealth. Research shows the value of homes appreciate over time. In fact, over the past three years, my own home has appreciated 30% in value. And while my home is worth substantially more, my mortgage payment has not changed and will not change.

Unfortunately, this is not the case if I were to be renting my living space. When we rent, we are really paying the landlord’s mortgage payment, insurance payment, property taxes, condo and/or condo fees and possibly parking fees. The rest of the payment is cash for the owner.

In today's market, there is a severe shortage of housing which allows landlords to increase rent to current market value each time the lease is renewed. Rent payments rarely go down.

Most mortgages are paid back over 30 years. Each payment includes interest and principal. At first, you pay much more in interest, but as time goes by, you pay more and more for the balance of the loan until you own it all.

To a large extent, that is what the above graphic is trying to show. Paying the principle on the loan and the appreciation of home value combine for significant growth in family wealth. Meanwhile, the renter not only does not get those benefits, but they are providing them for some else’s family.