According to economic analysts, owning a home is a pretty effective way to increase your wealth, particularly for low-income households and younger millennials just beginning to build wealth. Or, at least, it can be, depending on what kind of home you’re investing in and a few other factors (namely the type of loan you’re getting to purchase the house). But, can homeownership actually build wealth?

Think about your circle. Who owns a home, if anybody? Are those people financially better off than you? It depends, I guess, on what “better off” means to you. It should mean that they’re building and compounding their wealth, not just buying fancy cars and gold chains.

Don’t get me wrong, I’m a fan of gold chains, but if you’re buying those instead of investing in yourself and your financial future then it’s time to sort out your priorities. Don’t you want to game the system? Be the minority, the veteran, the woman who beats the odds to come out wealthy and on top despite the system trying to prevent you from getting there?

Homeownership in the United States was once reserved for a specific set of people, but it doesn’t have to be that way anymore. It’s now one of the biggest wealth and status indicators for people from all different classes.

Now, what’s the secret to increasing your personal wealth by buying a home? Invest while you’re young, look for the right home, pay it off wisely, and keep it in good condition. Here’s what to know about building wealth through homeownership.

The Impact of a Home on Your Net Worth

According to surveys and statistics released by the National Association of Realtors, homeowners have 41 times more wealth than renters do. As a minority, that kind of statistic is absolutely insane. You have the opportunity to increase your wealth by nearly 50%.

While that might make you want to jump up and go purchase a home straight away, you do have to take into account the fact that these statistics don’t provide us data about the distribution of wealth before purchasing a home (i.e., sure, some people come from money and can purchase a home easily to then build more wealth; what about the rest of us?).

So, let’s dig a bit deeper. An analysis of the wealth gap between renters and homeowners by income level helps highlight these wealth-building potentials of homeownership a bit more.

When taking a deeper look at the statistics, you’ll notice that even in the lowest income group of homeowners, the net worth of those who own homes is $102,000 compared to the net worth of renters at $1,500.

Furthermore, for the lowest income category, 92% of the owner's total net worth is tied to the value of their property. Need more evidence and stats? We’ll keep ‘em coming!

Between 2016 and 2019, real estate wealth was the one type of wealth that contributed the most to the net increase in equity in all income groups, which is 32% of the overall rise. This was even true in lower-income households!

Wealth Compounds for Lower-Income Households

We get it. For most people, homeownership is a long, distant dream. It feels that way, at least, especially if you grew up in Compton, Washington Park, or The Bronx. Most people seem to think that it’s something they need to save thousands of dollars for without understanding that just by investing a little bit, they’re able to compound their wealth in a big way.

So, if you’re thinking “This is unattainable for me,” then let’s take a look at homeownership and how it affects lower-income communities. The real estate wealth statistics mentioned above show that for households at the bottom of the income distribution, their wealth increased by $21,000 more than all other assets combined.

By 2019, housing came to represent approximately 75% of the total assets of people who were classified as being part of a “lower-income level.” This means that we can believe that for individuals from lower-income households, the wealth from homeownership is much greater than it is for their peers in higher income brackets.

Renting vs. Owning a Home in a Volatile Market

There’s no denying that the past year has been tough on pretty much everybody. While markets have gone up and down, interest rates are down (which is good for you!), but the housing market is always a bit volatile.

Don’t let this scare you away.

Despite the high risk of volatility in the housing market, many studies show that a home can lead to a faster accumulation of wealth compared to rent. The logic here is somewhat simple:

Renters don’t receive any of the wealth that is produced by the appreciation of the price of the house or apartment that they’re living in. And, they don’t gain any capital from monthly mortgage payments. When you own a home and pay it off each month, you’re constantly building wealth.

Sure, it’s still true that there are certain risks when it comes to owning a home. The returns aren’t always the same. But, the statistics show that for the majority of people who are homeowners, their investment is still one of the biggest positive drivers of wealth creation.

Are you the type of person who needs a real-life example? Let’s take a look at what happened between 1999 to 2013. It’ll help demonstrate just how homeownership can increase your wealth.

• Average homeowners had a profit of approximately $91,900.
• Those who switched from renters to homeowners enjoyed a profit of roughly $85,400.
• Those who started as landlords but later became tenants had a wealth loss of approximately $47,500.

Also, recent research from the Urban Institute shows that purchasing a home while you’re younger can lead to more significant savings. In fact, those who were able to buy their home between the ages of 25 and 34 accumulated the most wealth by the time they reached their 60s (so, millennials, this one’s for you!).

The Advantages of Owning a Home

We can throw a lot of statistics at you regarding the financial advantages of owning a home. But what do they all really mean and how do they make sense? Basically, when you own a home and pay your mortgage, you’re slowly accumulating equity.

In this context, equity is the difference between the current market value of your home and the balance you owe on your mortgage loan. If you’re going to pay monthly to rent a home or apartment, why not pay the same amount each month to purchase it?

It’s also important to note that historically, real estate values ​​often tend to rise. Ask yourself one question: do you benefit when the value of the apartment you’re renting increases? Nah, not at all. Your landlord does, though! Also, the amount paid per month in a mortgage is much less than the monthly rent for a comparable property.

Add on the fact that mortgage interest and property-related taxes you pay can also become tax-deductible and it simply makes sense from a wealth-building perspective to invest in becoming a homeowner.

Similarly, remember that your home will increase in value over time, which means that you will continue to increase your capital and ensure a bright financial future for your loved ones.

Learn to Compound Your Wealth

Before you can even begin to think about buying a home, you need to understand your personal capital structure and your credit score. Purchasing a home doesn’t make sense if your credit score is too low to help you snag those snazzy, low interest rates.

If you’re considering buying a home, we suggest that you download the Wealth Stack app for free first. Get it on the App Store or on Google Play. We've got quite a few courses dedicated to credit scores, homeownership, and wealth-building in general that will help you learn how to set yourself up for financial success before making such a large investment.