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A Homeowner’s Net Worth Is 40x Greater Than a Renter’s

A Homeowner’s Net Worth Is 40x Greater Than a Renter’s | MyKCM
 

One of the best ways to build your family’s financial future is through homeownership. Recent data from the Federal Reserve indicates the net worth of a homeowner is actually over 40 times greater than that of a renter. Maybe it’s time to start thinking about buying a home, especially when they’re so affordable in today’s market.

Every three years the Survey of Consumer Finances shows the breakdown of how owning a home helps build financial security. In the graph below, we see that the average net worth of homeowners continues to grow, while the net worth of renters tends to hold fairly steady and be significantly lower than that of homeowners. The gap between owning and renting just keeps getting wider over time, making homeownership more and more desirable for those who are ready.A Homeowner’s Net Worth Is 40x Greater Than a Renter’s | MyKCM

Owning a home is a great way to build family wealth.

For many families, homeownership serves as a form of ‘forced savings.’ Every time you pay your mortgage, you’re contributing to your net worth by increasing the equity you have in your home (See chart below):A Homeowner’s Net Worth Is 40x Greater Than a Renter’s | MyKCMThe impact of home equity is part of why Gallup reports that Americans picked real estate as the best long-term investment for the seventh year in a row. According to this year’s survey, 35% of Americans chose real estate over stocks, savings accounts, gold, and bonds.

Today, there are great opportunities available for those planning to buy a home. The housing market has made a full recovery, and all-time low interest rates are giving homebuyers a big boost in purchasing power. If you’re ready, buying a home this fall can set you up to increase your net worth and create a safety net for your family’s future.

Bottom Line

To learn how you can use your monthly housing cost to build your family’s net worth, let’s connect so you have a trusted professional to guide you through the homebuying process.kmi

 

 

 

 

 

Move-Up vs. Second Home: Which One Is Right For You?

 

 

The pandemic has changed the way many of us live, work, and attend school—and those changes have impacted our priorities when it comes to choosing a home.

 

According to a recent survey by The Harris Poll, 75% of respondents who have begun working remotely would like to continue doing so—and 66% would consider moving if they no longer had to commute as often. Some of the top reasons were to gain a dedicated office space (31%), a larger home (30%), and more rooms overall (29%).1

 

And now that virtual school has become a reality for many families, that need for additional space has only intensified. A growing number of buyers are choosing homes further from town as they seek out more room and less congestion. In fact, a recent survey found that nearly 40% of urban dwellers had considered leaving the city because of the COVID-19 outbreak.2

 

But not everyone is permanently sold on suburban or rural life. Instead, some are choosing to purchase a second home as a co-primary residence or frequent getaway. Without the requirements of a five-day commute, many homeowners feel less tethered to their primary residence and are eager for a change of scenery after spending so much time at home.

 

If you’re feeling cramped in your current space, you’ve probably considered a move. But what type of home would suit you best: a move-up home or a second home? Let’s explore each option to help you determine which one is right for you.

 

 

WHY CHOOSE A MOVE-UP HOME?

 

A move-up home is typically a larger or nicer home. It’s a great choice for families or individuals who simply need more space, a better location, or want features their current home doesn’t offer—like an inground pool, a different floor plan, or a dedicated home office.

 

Most move-up buyers choose to sell their current home and use the proceeds as a downpayment on their next one. If you’re struggling with a lack of functional or outdoor space in your current home, a move-up home can greatly improve your everyday life. And with mortgage rates at their lowest level in history, you may be surprised how much home you can afford to buy without increasing your monthly payment.3,4

 

To learn more about mortgage rates, contact us for a free copy of our recent report!
“Lowest Mortgage Rates in History: What It Means for Homeowners and Buyers”

 

One major benefit of choosing a move-up home is that you can typically afford a nicer place if you spend your entire budget on one property. However, if you’re longing for that vacation vibe, a second home may be a better choice for you.

 

 

WHY CHOOSE A SECOND HOME?

 

Once reserved for the ultra-wealthy, second homes have become more mainstream. Home sales are surging in many resort and bedroom communities as city dwellers search for a place to escape the crowds and quarantine in comfort.5 And with air travel on hold for many families, some are channeling their vacation budgets into vacation homes that can be utilized throughout the year.

 

A second home can also be a good option if you’re preparing for retirement. By purchasing your retirement home now, you can lock in a low interest rate, start paying down the mortgage, and begin enjoying the perks of retirement living while you’re still fit and active. Plus, it’s easier to qualify for a mortgage while you’re employed, although you may be charged a slightly higher interest rate than on a primary home loan.6

 

One advantage of choosing a second home is that you can offset a portion of the costs—and in some cases turn a profit—by renting it out on a platform like Airbnb or Vrbo. However, be sure to consult with a real estate professional or rental management company to get a realistic sense of the property’s true income potential.

A living room in front of a window

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WHICH ONE IS RIGHT FOR ME?

 

You may read this and think: I’d really like both a move-up home AND a second home! But if you’re dealing with a limited budget (aren’t we all?), you’ll probably need to make a choice.  These three tactics can help you decide which option is right for you.

 

  1. Determine Your Time and Financial Budget

 

You may meet the bank’s qualifications to purchase a home, but do you have the time, energy, and financial resources to maintain it? This is an important question to ask yourself, no matter what type of home you choose.

 

Most buyers realize that a second home will mean double mortgages, utilities, taxes, and insurance. But consider all the extra time and expense that goes into maintaining two properties. Two lawns to mow. Two houses to clean. Two sets of systems and appliances that can malfunction. Second homes aren’t always a vacation. Make sure you’re prepared for the labor and carrying costs that go into maintaining another residence.

 

Of course, some move-up homes require more work than a second home. For example, if your move-up option is a major fixer-upper, you’ll probably invest more energy and capital than you would on a small vacation condo by the beach. Have an honest discussion about how much time and money you want to spend on your new property. Would a move-up home or a second home be a better fit given your parameters?

 

  1. Rank Your Priorities

 

If you’re still undecided, make a wish list of the characteristics you’d like in your new home. Then rank each item from most to least important. This exercise can help you determine your “must-have” features—and which ones you may need to sacrifice or delay. Here’s a sample to help you get started:

 

#

FEATURE

 

Dedicated home office

 

Extra bedroom

 

Pool

 

Walk to the beach

 

Big backyard

 

Close to friends and family

 

Short commute to the office

 

Investment potential

 

 

  1. Explore Your Options

 

Once you’ve determined your parameters and priorities, it’s time to begin your home search.

If you’re still not sure whether a move-up home or a second home is right for you, we can help.

 

Contact us to schedule a free consultation. We’ll discuss your options and help you assess the pros and cons of each, given your unique circumstances.

 

We can also send you property listings for both move-up homes and second homes within your budget so you can better envision each scenario. Sometimes, viewing listings of homes that meet your criteria can make the decision clear.

 

 

LET’S GET MOVING

 

Whether you’re ready to make a move or need help weighing your options, we’d love to help. We can determine your current home’s value and show you local properties that fit within your budget. Or, if your heart is set on a second home in another market, we can refer you to an agent in your dream locale. Contact us today to schedule a free, no-obligation consultation!

 

 

Sources:

  1. Zillow -
    https://www.zillow.com/research/coronavirus-remote-work-suburbs-27046/
  2. The Harris Poll -
    https://theharrispoll.com/should-you-flee-your-city-almost-40-have-considered-it-during-the-pandemic/
  3. MarketWatch -
    https://www.marketwatch.com/story/mortgage-rates-keeping-falling-so-will-they-finally-drop-to-0-2020-08-13
  4. Toronto Star -
    https://www.thestar.com/business/2020/08/07/you-can-get-a-fixed-rate-as-low-as-184-per-cent-which-is-unbelievable-low-mortgage-rates-driving-up-home-prices.html
  5. Kiplinger -
    https://www.kiplinger.com/real-estate/buying-a-home/601091/timely-reasons-to-buy-a-vacation-home
  6. The Press-Enterprise -
    https://www.pe.com/2018/11/17/5-tips-on-when-should-you-buy-a-retirement-house-hint-before-you-quit-work/

 

 

 

 

Just listed a gorgeous home on the east side of town, MLS#1853498, 6965 Battle Mountain Rd. 3/4 bed, 4 bath, 2 car, built in 1994, with almost 1800sf. Let me know if you would like to take a look. $330k

Chris Cooper

The Cutting Edge, Realtors

719-460-2925

Chris@CoRealEstate.com

6
Jan

The Importance of Home Equity in Building Wealth

The Importance of Home Equity in Building Wealth

The Importance of Home Equity in Building Wealth | MyKCM
 

Homeownership has always been the first rung on the ladder leading to household wealth. As Freddie Mac recently posted:

“Homeownership has cemented its role as part of the American Dream, providing families with a place that is their own and an avenue for building wealth over time. This ‘wealth’ is built, in large part, through the creation of equity…Building equity through your monthly principal payments and appreciation is a critical part of homeownership that can help you create financial stability.”

Home equity is the difference between the current market value of your house and the amount you currently owe on your mortgage. To estimate your equity, subtract your mortgage balance from the market value of your home.

You can find what you owe on your mortgage by looking at your last monthly statement or by contacting your lender. If you need help determining the current market value of your home, contact a local real estate professional.

Is homeownership truly a better path to wealth than renting?

Some argue that renting eliminates the cost of property taxes and home repairs. Every potential renter must realize that all the expenses the landlord incurs (property taxes, repairs, insurance, etc.) are already baked into the rent payment – along with a profit margin. You don’t save money by renting.

As proof of this, First American broke down the net worth of homeowners and renters by income categories. Here are their findings:The Importance of Home Equity in Building Wealth | MyKCMOnly one income category ($127-192K) has a higher net worth for renters over homeowners. Every other category shows that being a homeowner leads to greater accumulated wealth.

According to the latest Homeowner Equity Insights Report from CoreLogic, the average homeowner gained $17,000 in equity in just the last year. Here’s a breakdown of the year-over-year equity gain by state:The Importance of Home Equity in Building Wealth | MyKCM

When can you cash in on your housing wealth?

Your home equity is part of your total wealth as a homeowner. The two most common ways homeowners can leverage their wealth are:

  • Selling
  • Refinancing

Selling: When you decide to sell your home, the equity you’ve built over time will come back to you in the sale. For example, if you paid off your $200,000 mortgage and sold your home for $350,000, you would receive $150,000 after closing.

Refinancing: You can refinance your current mortgage and take out some of the equity you have accumulated. With today’s historically low mortgage rates, you may be able to take out substantial cash and keep your monthly payment the same. Thankfully, homeowners today are doing this responsibly and not repeating the same mistakes made in 2006-2008 when some cashed out their entire equity to purchase luxury items like new cars, lavish vacations, etc.

How can these options help homeowners?

During these difficult times, many households are struggling with their housing expenses. Homeowners, because of their equity, have better alternatives. Odeta Kushi, Deputy Chief Economist at First American, recently explained that homeowners financially impacted by the pandemic will not necessarily be faced with foreclosure:

“The foreclosure process is based on two steps. First, the homeowner suffers an adverse economic shock…leading to the homeowner becoming delinquent on their mortgage. However, delinquency by itself is not enough to send a mortgage into foreclosure. With enough equity, a homeowner has the option of selling their home, or tapping into their equity through a refinance, to help weather the economic shock.”

What might the future bring?

Most experts are calling for home prices to continue appreciating going forward. The Home Price Expectation Survey, a survey of a national panel of over one hundred economists, real estate experts, and investment & market strategists, indicates appreciation will continue for at least the next five years. Using their annual projections, the graph below shows the equity build-up a purchaser would potentially earn by buying a $300,000 home this January:The Importance of Home Equity in Building Wealth | MyKCM

Bottom Line

Home equity, for most Americans, is the quickest way to build household wealth. That wealth gives homeowners more options during good times and in difficult situations.

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