There has never been a more challenging time to purchase a home than in 2023. Interest rates are soaring, and home prices haven’t decreased to reduce the monthly payments.
Therefore, first-time home buyers need more money for a down payment and higher incomes for bigger mortgage payments.
The burning question is if buying and owning a home is worth it in 2023. In this article, I will discuss the advantages of owning a home (wealth creation). In my next article, I will discuss the other side of the coin (wealth destruction). Let’s begin.
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What is wealth? Let’s start by defining what wealth is to the average person. Wealth is the ability to solve problems using assets, information, and contacts in your sphere.
Let’s say your son is going to college, and it costs $2,000 per month. The standard middle-class person would have a tough time paying this within the confines of their budget. They would most likely take a loan.
A wealthy person has many ways to solve this issue. They can use a home equity loan, cash-out refinance, rent a home, or rent a room. They also have other assets, such as dividends, to help generate income for this occasion.
So, can a home help you create wealth? Absolutely. In fact, owning a home is one of the best ways for the average person to create generational wealth.
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Nothing comes for free. However, just owning a home will not create the wealth you envision—even if you live in California.
The cost of becoming wealthy is seeking information. I’m from San Diego, California, and I have many friends who own homes there.
They use their home equity every few years to fund their expensive lifestyles. Over time, they never pay off their loans because they only know how to borrow against their primary residence. This isn’t wealth.
To create wealth, you must understand money. More specifically, you must understand that money operates on the principle of value.
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People who rely on home equity to fund their lives are not adding value to anyone; they are simply riding the market to their benefit.
Creating wealth through homeownership. Owning a home grounds you in reality. You cannot just pick up and leave for another town or job.
With this reality comes the knowledge you must continue to generate income at all times—we call this passive income. We cannot simply buy a home and rest on our laurels.
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With your knowledge of passive income as a backdrop, you can leverage your home to build multiple income streams for the future.
Let’s say you have $100,000 of home equity available to withdraw. The payment of the home equity loan will be $1,000 over ten years.
A poor or middle-class person will use this money to purchase an SUV, boat, RV, or home renovation. To them, this is free money that requires no higher purpose.
A wealthy person sees this as an opportunity to increase their cash flow. They use this money to purchase dividend stocks, a business, a rental car, ATMs, or another rental property.
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With their investment, the wealthy person generates more than $1,000 per month within 2-3 years, allowing them to pay off the loan quickly.
The middle-class person will work more hours and suffer under the weight of this home equity loan. However, once they finish the loan, they are eager to get another one.
Building a wealthy mindset. Why do most lottery winners lose their money in five or so years? They do not have a wealthy mindset.
Wealth is the excess cash flow between income and expenses. Therefore, you are wealthy if you earn $8,000 per month but spend $5,000.
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Most people focus on being rich, meaning they want to own things worth a lot of money. However, these assets do not generate income for their owners.
Wealthy people understand that the world runs on income and constantly seek to add more income to their bottom line.
Your home can be a massive wealth generator by allowing you to rent rooms, build a farm, set up storage rentals, or create a dog park.
There is virtually a limitless number of ways to make money using your primary residence as a base of operations. However, you have to see a path toward generating wealth.
My path to wealth. My wife and I had massive credit card debt five years ago. We were a standard family, making unremarkable decisions about personal finance.
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One day, we got sick and tired of being broke and started renting rooms. We rented rooms for 4.5 years, paid off our credit cards, and amassed over $200,000 in a dividend portfolio.
We own three homes that all have a large amount of home equity we can tap for future endeavors (once interest rates reset).
Did we use our homes to build wealth? Absolutely. However, the 150 books I have read over the last four years gave me the path forward.
Our wealth comes at the expense of information collection. If I pulled $100,000 in home equity tomorrow, I know exactly how to leverage it to create more cash flow.
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Start building a wealth mindset. Your primary residence is just a tool to create more cash flow. Sure, your home has sentimental value, but don’t let that affect your decision-making abilities.
Let’s say you are in debt to the tune of $50,000. Your parents invite you to live with them until you repay your debt. You can rent your home for a $2,000 profit.
Are you willing to live with your parents for two years to finish paying off your debts? That’s the difference between being wealthy and poor.
Sure, wealthy people who received money from their parents may not have to make sacrifices like you. But, somewhere in their lineage, someone made a massive sacrifice.
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They may have had to travel to California from Virginia during the gold rush. Or they may have been house-poor for years to keep their home in San Francisco—someone paid the price.
Conclusion. Wealth requires knowledge and sacrifice. If you buy a home waiting for the market to rise, you are running a fool’s errand.
Your primary residence is perhaps the most incredible tool you can use to create cash flow and generational wealth; however, you have to understand what these things represent.
My wife and I have a rags-to-riches story, retiring at ages 39 and 42. Our homes played a massive role in our journey and will prevent our kids from traveling down the same difficult path as us.
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But I would trade my homes for the 150 books I read in a heartbeat. My mind is the true wealth generator. It can make money in any place, climate, or interest-rate environment.
If you are on the fence about buying a home, I say go for it—with the right mindset. It is a tool to generate more cash flow.
Yes, we all love what our homes represent to our families. However, wealthy people don’t let emotions cloud their judgment when making tough decisions.
Your home is your chance to change your family’s destiny, but you must change your mindset first. Good Luck!
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Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. I am an Amazon Affiliate. Please research any investment vehicles that are being considered. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. All Right Reserved Military Family Investing
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