Purchasing a home is a significant financial investment that not everyone can afford. However, if you’re able to make that investment now, it can benefit your future generations financially for decades to come. One of the most significant advantages of homeownership, aside from providing shelter, is its potential to create generational wealth.
What Is Generational Wealth?
Generational wealth refers to the transfer of assets from one generation to another. It is the accumulation of wealth that is passed down from parents or grandparents to their children or grandchildren. This wealth can be in the form of money, property, investments, or any other valuable assets. Generational wealth provides tremendous financial stability and security for future generations.
How Can Owning a Home Help Create Generational Wealth?
Owning a home has many advantages, including tax benefits and a place to call your own. In fact, homeowners are actually happier than renters [link to 10 Ways Owning a Home Will Increase Happiness blog post]. But one advantage of owning a home that many people don’t consider is that it can create generational wealth. Here’s how:
Appreciation In Value
One of the most significant benefits of owning property is that real estate tends to appreciate over time. Recent studies show that, on average, homes in the United States have appreciated almost 50% over the last 10 years. This means that the longer you own your home, the more likely you are to see substantial gains in your home’s property value.
In addition, you can also make improvements to your home that can increase its market value. By making smart improvements (like bringing plumbing and electrical up-to-date or adding square footage) and keeping your property well-maintained, you can significantly raise the future sale price of your home.
If you’re able to stay in your home for a while, make good improvements, and take care of your property, you have the potential to sell your house for a large profit. This profit can then be used to invest in other assets, like stocks, bonds, or even another more expensive home.
Your equity in your home is how much of the home’s worth you actually own. As you make mortgage payments, your equity increases, and you own more of your home. This equity can be used to finance other investments or future purchases, such as starting a business, investing in your child’s education, or even purchasing a rental property. You can also choose to save this money and create more financial stability for you and your family.
By building equity in your home, you are creating a valuable asset that can be used to produce wealth for future generations.
Owning a home can also provide an opportunity to establish rental income. If you have extra space in your home, such as a basement or a spare room, you can rent it out to get additional income. Alternatively, once you’ve built enough equity, you can purchase a second property to rent out so you become a landlord.
Rental income can be a significant source of wealth, especially over the long term. By investing in rental properties, you can generate a steady stream of income and build equity in the property over time. This rental income can be used to make even more investments or it can be passed down to future generations.
Owning a property can provide a lot of advantages when it comes to tax time*. Many of the payments you make as a homeowner can be deducted from your taxes. These include the interest on your mortgage payment each month, any points you bought to lower your mortgage rate, and mortgage insurance payments.
Additionally, many improvements you make to your home can be written off as well. If any of the improvements you make are energy efficient, such as replacing your home’s windows, buying certain appliances, or purchasing a new HVAC system, these can often be accounted for in your taxes.
*Remember: you always need to speak with a certified accountant regarding tax benefits.
Once you own a home, it’s important to make a plan for your kids or grandkids to inherit your property. By creating a will or trust, you can ensure that your property is passed down to your heirs in a way that minimizes taxes and maximizes its value.
Additionally, you can use estate planning tools to make sure that your property is used in a way that aligns with your values and goals. We always recommend working with a licensed estate planning attorney to draw up these documents. A small investment in a good lawyer now will save your future generations lots of time and money when they inherit your estate down the line.
What Steps Can I Take Now to Purchase a Home in the Future?
While buying a house is an exciting milestone, it can take some time and planning to be financially ready for such a large purchase. Here are some things you can do now to start preparing for the home buying process:
Understand Your Current Financial Situation
Finances can be a scary topic and it’s one that many individuals avoid. But, it’s important to know exactly where you stand when it comes to the assets you have if you’re planning on purchasing a home. Spend some time looking at all your bank accounts, investments, retirement accounts, and income. It can be really helpful to create a budget that outlines your monthly expenses versus your monthly income.
Make a Plan to Save
Once you understand your existing finances, it’s time to make a plan to save. Look at everything you’re spending money on each month and see if there are opportunities to cut back or spend less.
Apps like Rocket Money are free and great for finding subscriptions you forgot about and tracking your spending habits month over month. You definitely don’t want to decrease your quality of life by cutting back on everything, but you might be surprised to learn how you’re spending your money and find simple ways to save small amounts each month.
Reach Out to Speak with Us
We would love to help you at any point in your home buying journey. We can discuss current real estate prices and mortgage rates with you and help you make a plan to reach your home buying goals faster. Our team has been doing this for a long time, and we love helping first-time home buyers!
It’s never too early to start thinking about buying a house.
With over five years of experience in the St. Louis market, the Nadolny Network is a team of real estate experts who are ready to help you achieve your property goals. Whether you’re buying your first home, selling a house to upsize or downsize, transitioning after a life event, or looking for your next investment opportunity, we’re here to help.