The Great American Speech
Buying your first home is expensive and tough. It is scary. It is also usually more expensive than renting. Why do it then?
In our country it is almost impossible to save your way to wealth. Most people do not earn enough so that they can sock away $100,000 a year into their savings account and be ready to retire young. Most people cannot even save $5,000 a year!
The way that people in this country create wealth is by investing and by leveraging their money. The single best place to invest and to gain the most leverege (return on a small investment) with one’s money is by owning the home that they live in.
Although in the first few years it seems like it is so expensive, what happens is that as the years pass, the payment stays relatively the same. Your income goes up with inflation and the payment gets easier and easier to pay every year. The average annual increase in a person’s income is 3% to 5%. Compare that to the average annual increase in the cost of a home at 6.9%! Ask anyone who bought a home ten years ago or twenty years ago if they don’t have a small house payment compared to what they would be renting for today…or especially compared to what they would be paying if they bought the same house today. Think about it…could you live on what you were earning ten years ago? Imagine having the low housing expenses of ten years ago. Owning your home is a way to stabilize your housing costs so that when you are a senior citizen you are not still paying market rate rent. Poverty for our seniors is a very real thing. Living on a fixed social security income while paying market rent is almost impossible. It guarantees that you will have to work the rest of your life well past when you might have wanted to retire. It often means that you will have to work forever!
Year after year the value of the property goes up. The average increase in value over the past 30 years here is 6.9% per year. Some years it is more, some years it is less. The average increase in value of rental property to you is ZERO! When you are renting you are just paying someone else’s mortgage. The landlord thought owning your rental home was a good idea for some reason…so you could pay for it!
This average 6.9% appreciation is a fact given by the Center for Economic Research at George Mason University. They are not in the real estate business. The important part about it is that the 6.9% is the increase in value on the entire value of your home. You only put down a small downpayment to buy your home but you get the return on the entire thing!
One example would be if you bought a $300,000 home. After one year, the increase in value at the average rate would be $20,700 Can you save $20,700 a year while you pay your rent? This appreciation is FREE money to you!! You don’t even have to earn it and save it! Most people get an annual raise that equals somewhere in the range of three to five percent. That is three to five percent of your income, not of your home’s value. See how you cannot save from your paycheck as fast as a house will grow your savings?
On top of all of this, you can deduct the interest payments on your mortgage and reduce your income taxes significantly. Between the money saved on your income taxes and the appreciation earned even in a low appreciation year, you are almost living there for free. That’s why so many people own where they live despite the fact that it seems more expensive in the beginning.
Save your self from a future of struggle and take the leap that will secure your financial stability. Homeownership can do this for you. Every year that passes puts you farther behind. It only takes guts, some money and some OK credit. You can do it!
Adapted from a speech by Holly Worthington
