Damn Those Skeptics: Owning a Home DOES Build Wealth

Being back from my very brief holiday respite and having had the chance to recharge my battery, I have to tell you I was really infuriated by all of the cable news stations while trying to relax at home. Their ways of reporting on everything from politics to finances, especially when we get a rare “slow” news day, sometimes is all about the unusual, weird, and often just plain hard-to-believe stories that defy logic. One such story aired on CNBC when it reported on: “Owning a home may help you save some money, but it won’t help you make money and build wealth”.

Contrary to a recent study that says renting is better than buying a home in order to build wealth, I firmly believe that the best way to build wealth is to diversify, and this includes home ownership. Here's more on how home ownership can help you build wealth.

According to CNBC’s reporting, young people are better off taking control of their finances and renting than buying their home and relying on fluctuating home values based on the research findings of a recent study conducted by Florida Atlantic University, Florida International University and the University of Wyoming.

To my way of thinking that’s a bunch of BS, study or not. While it is certainly very true that young people just out of college and beginning their careers are probably not in a position to buy a home, their goal can and perhaps should be to do so once they are in a better financial place.

Opinions based on this kind of research can be self-fulfilling. Starting with a premise like home ownership, “The American Dream”, won’t build your wealth is akin to saying that not eating is the best way to lose weight or buying a lottery ticket is the best way to become a multi-millionaire! Sure one in a million does it but does that make it the best way and a good option to do it?

Are We Really Fools When We Buy a Home?

To quickly summarize what the report says: buying a home is not as an effective way in building wealth as investing in the stock market is “on average” and we’d all be better off simply renting our homes and using the money we’d “save” for those investments. This message seems to be bolstered by the record breaking bull market over the last several years.

According to the study which gears itself towards recent college grads, co-author Ken Johnson of FAU’s College of Business says: “On average, renting and reinvesting wins in terms of wealth creation regardless of property appreciation”. Again I say don’t be persuaded that this strategy is going to make you wealthy and that home ownership won’t.

Buy or Rent? That is the Question

The question of renting versus buying has always been frequently compared but that has been especially true during the housing market recovery over the past 10 years. The historic housing crash at the end of the last decade came as a bitter shock to millions of Americans, many of whom never considered that home values could fall at all let alone fall as far as they actually did. In my own lifetime, from my first house purchase in 1976 until 2009 I never witnessed any period of my own house declining in value.

Despite the fact that the U.S. homeownership rate is still hovering near its record low, buyer demand has been steadily rising. The construction of new homes, however, has not been rising quickly enough to meet that demand and has resulted in fast-rising prices. In the last few years, prices have increased faster than both income and inflation. In some markets, home values have hit record highs, again fueling the debate over which is more lucrative, buying or renting.

Sticker Shock! Have You Checked Out the Actual Cost of Renting?

It is mind blowing for an awful lot of people when they discover the cost of renting a place in 2018. Rents have blown up dramatically as new households are formed and millennials, now the largest generation, struggle to afford renting. While there has been a building boom in luxury rentals that just is not been the case with affordable rental development.

Here in NJ where I live, renting a 1 BR apartment typically runs over $1,000 a month and we are talking small living spaces here of 600-700 SF. That probably seems like a bargain to NYC or San Francisco renters where a small 1 BR often can be double or triple that $1,000 price. Granted, you are probably making a better income if you live in a big city and the market gets what it does because of that for sure, but keep in mind your “higher” salary also goes to the higher cost of living in the big city, for food, clothing, entertainment and everything else you use and need.

But, even given these circumstances, the researchers still claim that the old adage that “renting is just throwing your money away” isn’t true and “your goals are better served by investing and renting rather than owning your home”.

Oh, by the way, never addressed in this study is the aspect of your needed living space if you are a growing family. When you consider family and children, rental and your living expenses of course will absolutely skyrocket!

Why I Say They are Wrong About the Findings

The conclusion that renting and investing builds your wealth and buying a home won’t is faulty and let me tell you why. That is because it assumes that any and all of the extra money a renter saves by not owning a home and not saving up for a down payment will not be simply spent on goods or services and is always invested instead.

They make a false assumption that most all of the monies saved by renting on taxes, utilities, improvements etc. will be invested at a rate of return which wins in terms of wealth creation over owning and appreciation that a house brings over time.

My Personal Wealth Has Grown by Home Ownership

While it’s true that renting can be cheaper than overall expenses of owning a home from month to month, home appreciation was and has been responsible for countless billions and trillions of dollars in wealth accumulated by homeowners since the inception of homeownership. Of course there will be a few blips in that process likes the housing bubble we experienced in 2008-09. It happens. But I can testify that a big portion of my wealth and net worth is in my home now and that “wealth” is growing. I did take a hit in 2008-09, and I did see my net worth decline then but my wealth was founded by my original investment in home ownership from way back in 1976 and I would have considerably less of it if I had simply rented over the past 40 years.

Who Says Renters Will Invest What They Save?

I’m not going out on any limb when I say that many or even most renters will not reinvest those money savings and will instead use it for consumer goods which are the least desirable options in terms of building your personal wealth. Things like cars, furniture, and vacations instantly decline in value and eventually have none. Dining out, attending sporting events, and other such things are expensive and return nothing to your net worth at all. In other words, the rent argument works only if the renter invests the rental savings instead of consuming the money.

To be totally realistic, despite the wild gains in the stock market to its now record levels, investment in stocks and bonds is at the very least as risky as the housing market if not more so. The market drops and rises as a matter of routine and can be affected if someone somewhere “sneezes” these days even though it always has increased over time in the long term just like home ownership does.

Here’s Some Simple Math

If you bought a new home in 1976 (which averaged $48,000) and you still own it today, its now worth about $385,000 and your home has appreciated over 800%. While the market has of course risen from a high 1,004 in 1976 to over 25,000 today, one still has to consider that you have lived for 40 years in your home, had tax advantages, and have earned $300,000 in equity from it. Oh, and by the way, even with the tax law changes, the tax advantages of homeownership which have been around since 1913 will still remain for those who pay interest and real estate taxes (although limited under the new law).

Renting over that same period of time means that each lease period, perhaps every year, you would be subject to rental increases, have no or little tax advantages, and in fact may not have had the space you need for a growing family among other things.

If your initial stock investments were $300 back in 1976, (about 25% of a month’s average salary back then) and you contributed regularly every month to your stock accounts, there is no guarantee that your wealth would have increased as much as home ownership and equity did. In fact, there’s no guarantee it would increase at all. Even when the market is breaking records, some stocks decline and some even cease to exist. Some people really do lose money.

Let’s Get Real Please

When you consider just under half of all Americans are not invested in the stock market, the forced “savings” of a monthly mortgage payment is a key reason why housing has served as an engine of growth for the middle class over the last 70 years.

As long as home values don’t fall and never recover, which has never happened with the glaring exception of the recent recession; homeowners are building a nest egg. They have also been getting tax advantages. That is changing under the new tax plan, which curbs the tax benefits for some. This change may alter the American Dream of home ownership and the building of wealth! It still remains to be seen so stay tuned.

Real estate is a great investment not only living in a home you own but in also being a landlord or investing in real estate-related stocks and commodities. I certainly wouldn’t put all my eggs in any one basket and that includes homeownership and/or investing in the market. A diversified wealth building strategy in them both is my choice and I’m living proof it does work.

What is your experience with homeownership and renting? Do you own or rent? Do you think you would have done better financially or can do better investing and renting rather than buying a home of your own? What is your philosophy on how to build wealth?


  1. Clearly, this is not one of those one size fits all situations. Buying or renting a home really depends on many personal factors, income, debt, family size, the area you live, etc. We have owned our home for 19 years and it has given us a secure place to raise a family, a great school district to educate our kids, a place to host friends and family. We could have all those things too if we rented, but our home has appreciated over 120% in that time. So for us, it’s been a great investment both personally and monetarily.

    1. I grew up with the idea that I would one day have my own home, which I later named “the Ponderosa”. I still think that many people have that dream and just like many other things in life, homeownership is not a guaranteed investment. But, I like the odds that homeownership is a great way to build your financial wealth. It worked for me and it has also worked for you. I appreciate your input.

  2. I bought our house at its lowest price since it was built. We’ve made a pretty penny, at least in theory based on the current market value. The problem is, of course what we’ve put into the house and will continue to put into the house over the course of our lifetimes (because, dammit, I’m dying in this house after all that work!). For us, though, buying still made more sense than renting. Similar to you, renting would be more than our mortgage. Of course, we get slammed with property taxes (thanks, Illinois), but even if we rented, the cost would get passed along to us somehow.

    All that to say, for us, yes, it has been a positive investment. I don’t know if that will always be the case (or if it is always the case based on location), but generalizations rub me the wrong way, too!

    1. Getting in at the low price is certainly optimal for everyone who buys, so congratulations! Certainly there is upkeep and improvements that homeowners make and yes, it does cost some money. But the plus side is that you are the one that is reaping the benefits. There’s an old rule of thumb in real estate that says buying the least expensive home in an expensive neighborhood is the best way to leverage your home purchase. So location does make a difference in that regard. Thanks for your comments, Penny.

  3. “Who Says Renters Will Invest What They Save?”

    That’s the big question. I’ve heard the argument so many times that the “money saved can be invested and grow to…” —- but in reality that rarely happens.

    One thing I will comment on this post, and I was considering as a topic for a post of my own soon:

    *Frequent moving can destroy primary real estate wealth building.*

    Over the first five years of a mortgage someone will pay 2x as much in interest as they will in principle. Then when you move you pay another 6% (on average) to sell the house. Moving every 5-7 years can make getting ahead hard. But, just like stock market investing, buy-and-hold can provide tremendous benefits.

  4. I think that the studies are potentially right… in the short-term. But the thing is that you’ll have a lot more money to play with once your house is paid off. This is especially true if you pay off your house early. Right now, we’re essentially paying rent, but it’s toward the end goal of only paying taxes and insurance. Granted, that’ll give us less time to invest — but we’ll also need substantially less money than someone renting. Not to mention that rent will keep going up whereas a mortgage is locked in for at least 15 years.

    Of course, there are also the rare instances (such as ours) where you pay less for your mortgage than you do for rent. Of course, home repairs even that out, I suppose…

  5. As someone who has made a large profit off of a home sale — primarily due to timing, I have mixed feelings about home ownership. But I do feel strongly that if you’re going to buy, you not only need an emergency fund, but a pretty flush home emergency fund (i.e. cash for the most expensive item in your home falling apart).

    My nephew and his wife rent a small one-bedroom in the fashionable area of downtown Brooklyn. They pay at least $3K a month. They recently bought a home in upstate NY and paid less than they would have for a studio condo in the NYC area.They use it as a weekend home but in the future they’ll give up their rental and work remotely from their house. The $3,000 a month they pay to live close to their jobs and friends is well worth it to them. They have a large income and live frugally. My hands would shake signing that rental agreement.

    1. Talk about sticker shock! I may need to see a doctor after you’ve itemized the expense on their apartment. But, if someone can afford that and is still able to buy a home, I guess there isn’t much to complain about there. I’ll bet when they free up that $3k/month, they’ll probably turn that into a rather big fortune. Thanks for sharing, Mrs. G.

  6. Erik @ The Mastermind Within

    Buying a home has been a great way for me to build wealth in a relatively short amount of time. I’ve paid down my mortgage about $25,000 in 3 years, while also getting any potential appreciation.

    Sure, I’m paying a decent amount in “rent” but when you consider the tax, appreciation, and forced savings, to get the same place, I’d be paying at least $500 more in “rent”

  7. Cato

    You make a good point about the “forced savings” aspect. Sometimes I forget that the average American struggles to put away any money each paycheck. But I can’t help but question how valuable that appreciating asset is when the only way to realize the appreciation in value is to sell it, which introduces a variety of costs that eat away at that profit. That’s not to mention the ongoing maintenance costs, property taxes, and other costs that homeowners shell out over the years. Those expenses are conveniently ignored when it comes time to calculate the profit from time of purchase to sale. I guess my point is, there are tons of factors that play into whether owning or renting is right and a lot of those variables come down to knowing yourself. This post definitely provided some food for thought when it comes to weighing the pros and cons of home ownership 🙂

    1. Thank you, Cato, for your comments. I’ve taken the time to analyze in my case how much the real costs of home ownership have been (including all those items you mentioned) versus renting would have been and my results indicate that I have done much better in my home ownership situation. But you are also correct that it’s different for different people depending on the very specifics of their situation.

  8. Mr. JumpStart

    Buying versus renting is one of those arguments that will never have a concrete answer.
    The characteristics of the people are important. As a teacher, with summer unemployment and some construction skills, home ownership was a no-brainer, and definitely increased my wealth. Part of that wealth was from cost-effective home improvements though.
    Another big factor is the home and rent prices. In my neighborhood in Virginia, houses seem expensive and rent might be a bargain.
    In Myrtle Beach near our townhouse, the rent seems high and properties seem cheap.
    It is a great point that if you save money renting, but don’t invest the savings, you’ll never build wealth.

  9. The main benefit of renting is probably that you don’t have to be swamped by unexpected repairs like major foundation problems. However, I still prefer owning. You’re right about mortgage payments doubling as forced savings. And I wouldn’t want to be uprooted from my home on someone else’s whim. I guess for me, there’s more to home ownership than just finances.

    1. I agree with you, Jamie. I think that one obvious reason that I bought a home originally was to have the space that we wanted for our family. Now it’s important that you realize that extra space probably means extra expense, but I felt that was important. The building of wealth aspect was my other major consideration, and I think it worked out well. There are numerous considerations when you decide whether to buy or rent.

  10. My “house payment” is $500 per month that we save for taxes and insurance. If we sold our house today it would be worth about twice what we paid for it twenty years ago, probably about 200,000. If I rented the house down the street, it would cost me $1500-$2000 per month. Even counting home repairs and appliance repairs, I’m sure we now save over $10,000 per year by owning the house rather than renting. If I sold the house and walked away with $200,000, and I was able to invest it at 5% per year I’d earn $10,000 which I would have to pay taxes on–and I’d have to pay rent.

    1. You’re exactly right, RAnn. The numbers that you shared are a prime example of why I think owning beats renting. I think what makes a person feel secure and comfortable with their living situation is very important, so I understand renting for some. But it is definitely not my first choice. Thanks for sharing.

  11. Going to hedge myself here assay that while some rental markets are unique, by and large I agree with you. The Recession had a major impact on the rental market, and competition is just crazy high. I don’t see that stopping anytime soon, and rents will continue to go up because of it–at least in my crystal ball haha. Meanwhile, monthly payments on a 30 year fixed mortgage will stay the same. This is the whole reason home ownership is still a major goal of mine. But so much of the math is location dependent.

    Plus, I don’t know a single person who invests the difference–even when rent is cheaper.

    1. Femme, that’s exactly what I thought when I heard about the study. The discipline it would take to invest that money just doesn’t seem reasonable. And, making the right investments as well seems difficult. You may not become a millionaire from your home investment, but you’ll probably be in a better place after 30 years of investing in a home.

    2. Chris R

      I guess you need to acquaint yourself with other single people. And if those non-saver single people renters you know don’t make enough in salary to accumulate a down payment, maybe that’s why they’re not investing either?

      Let me ask you: can you pay for your groceries with the “net worth” of your home? As long as you live in the house, you’re not realizing any “profit.”

  12. I was so tired of renting and dealing with landlords that decide that they want to sell their home now that the prices were up We saved up to buy so we would never have that problem again.

    In parts of our state prices have risen but not by a lot. Our home has went up but it’s still not at the price it once was at the peak of the market.

    We decided that It’s a home and not a place to sell for profit. So our home is priceless.

    1. Comfort in your financial position is gained by ownership in my opinion. You’re right about the landlord dictating when and if they’re going to sell which can be a real disruption in your life. Even with the ups and downs in the real estate market, in the long haul you will probably see a gain in your financial wealth if what’s happened in the past continues in the future. Thank you, Vickie, for sharing your story.

        1. You’re right, Chris. However, paying a mortgage does build the equity whereas renting does not. In an extreme emergency, you can always borrow with a home equity loan or line of credit against your cash value and sometimes that’s a real benefit. In any event, looking at the big picture: when retirement comes, owning a home becomes a huge net asset from which you can downsize and help fund your retirement years. That’s the reason I think it’s so important.

  13. Adrian Crisostomo

    Thank you for writing about this. Its hard to believe what experts say and its nice to read an article from someone who has actually build wealth through homes. In my opinion, owning a home is a long term investment and should be a goal of teens coming out of college. I’m only 23 years old, currently paying for a home, it is more expensive than renting yes. But knowing that it will be mine after a few years and I won’t have to put monthly home payment in my bills, then that would be a great investment.

  14. Thomas

    Great article. I bought a home in Austin, Texas 9 years ago. At the time we paid 136,000 with 5.25% loan. We paid no money down. Zillow now estimates the home at 239,000, I know thats not what i’d get. We’ve had it rented out the last 5 years to some great renters and they pay $300 over the mortgage. I’d say thats a bit better than if we were still renting and invested in the stock market. I know I was lucky to move to Austin at that time before the crash and before Austin’s boom real estate market. Now the question is if I should sell the house before the next dip and have major repairs or keep it for as long as I can. If I were to sell the house, i’d probably use the cash to pay off a bit on our current house which still has 271,000 left on the mortgage. Any advice? Thanks.

    1. First of all, a big congratulations on owning your own home and also having an income-producing property that’s appreciated greatly with a no money down buy. That’s really just awesome. I once heard the question asked, “how many homes can you afford to have that generate at least $1 of income profit?” And the answer to that is, “as many as you can!” What I’m saying here is, I would hold on to these two properties as long as you can, and as long as there is no financial burden being created by the income property. At some point down the road, you may want to make the move you suggested, i.e. selling the income property and applying the money to your current mortgage. But that sounds like something you might want to do more towards your retirement age when your earned income might be less. Otherwise I think I would hold the course steady. Keep up the good work and thanks for commenting, Thomas.

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