We all want to build wealth. Who doesn’t have dreams of financial security and having a financial legacy to pass down to future generations?
While there are many ways to build wealth, one of the most rewarding is through homeownership. Here are some ways you can build wealth for yourself and your family simply by taking steps to purchase a home of your own.
You can build wealth every time you pay your mortgage.
Every time you make a mortgage payment, you become wealthier. While part of your mortgage payment goes toward interest, another part goes toward the principal of the loan. That means each month, you are closer to paying off your house and owning it out-right.
Equity is the difference between what your home is worth and what you owe. If your house is worth $300,000 and you owe $150,000 on your mortgage, you have $150,000 in equity. Every time your house increases in value or you pay your mortgage, your equity increases.
You may be able to use your equity to pay for other things such as education or medical bills. You can also use equity to pay off more expensive debts. Even if you choose not to use your equity, imagine the satisfaction you can feel by knowing that each time you pay your mortgage you are a little wealthier than you were the day before.
You can build wealth each year when tax time rolls around.
Chances are you don’t look forward to paying Uncle Sam. However, if you are a homeowner, tax time might not be so bad after all because homeownership comes with a number of tax benefits.
If you are a homeowner, you may be able to deduct your mortgage interest payments. If you pay mortgage insurance premiums, you may also be able to deduct them when you pay your taxes. On top of that, homeowners may be able to deduct the money they spend on real estate taxes.
All of that means you may end up with a bigger refund or keep more money in your pocket in the first place. With that money you can add to your savings, invest it or pay off debt. Whichever of those choices you make, you will be increasing your overall wealth and improving your financial picture.
You can build wealth by making home improvements.
When your house increases in value, your equity increases. For example, if you bought your house at $250,000 and your house increases in value to $375,000, you gain $125,000 in equity.
One way to increase the value of your house is to make certain upgrades or improvements to your home. For example, buyers may be willing to pay more for your house if you’ve remodeled your kitchen or added a deck.
Even if you don’t plan to move anytime soon, you may find that you enjoy your house even more when you make home improvements you’ve always dreamed about. At the same time, your house may appraise for more money thanks to the home improvements you have made. That means you may benefit from more money if you are looking to refinance and take cash out or if you ultimately decide to sell.
You can build wealth by taking on a tenant.
If you have ever rented an apartment or a house, you know what it’s like to make payments on someone else’s property. You may have even been helping your landlord become rich. However, when you own a home, you may get to benefit from having someone else make payments on your property.
For example, say you buy a house and then find a roommate who agrees to pay rent. That rent money would go toward your mortgage, which would cut down on how much you would have to pay each month. The money you save can go toward other things such as paying down debt or investing in stocks. HomeFree-USA helped Nyia refinance her home so that she could renovate it and take in a tenant.
You may even decide at some point to buy a rental property and become a landlord. If so, you can build wealth by collecting rent from tenants. The money you make can even be used to buy other properties.
You can build wealth by using your equity to start a business.
The wealth you gain from your house doesn’t have to stop there. When you have equity, you can use it to finance other money-making ventures, such as your own business. There are many stories of entrepreneurs who have used their home equity to start a business. This is another example of using your house to build wealth.
You can build wealth by passing your house down to future generations.
You don’t have to be the only person who benefits from your house. Your children and grandchildren can also build wealth from the house you buy today. Generational wealth refers to financial assets that are passed down from one generation to another.
When one generation inherits money or property from a previous generation, they often experience an easier life. For example, if your grandchild inherits money from you, that grandchild may be able to use the money for a down payment and may be able to become a homeowner at an earlier age than you were able to buy a house. That same grandchild would then be on a path to building wealth that surpasses everyone in previous generations. That’s how families build wealth over time.
By passing your house down to future generations, you give your descendants an asset that they can sell, rent out or live in. In any of those scenarios, your loved ones can benefit financially. In fact, they may be able to use your house as a foundation for building even more wealth for their children and grandchildren.
Building wealth is a process that often takes time. There are also many ways that you can approach the wealth-building process. Buying a house gives you a place to set down roots while building wealth for a better future for yourself and the generations to come.