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The Renter Challenge

There are times to rent, but only in short term time frames. Over time the average person is making income that is keeping pace with rent - which means if they make more money it's being eaten up by higher rents. That also means it is harder to save, and then you miss out on some key compounding dynamics.

Compounding dynamics? If you own a house and your income goes up, your mortgage allows you to 'keep' that difference between what you would have paid for increased rent - and what you saved by having a fixed mortgage. That money can be invested. These dollars earn dollars over time and the interest on those dollars earn dollars.

In addition - the house values tend to increase 3-5% - but just like the stock market there are years (like 2021) where values went up 20% or more nationally. In those years a $400,000 house was worth $80,000 more after a single year. When that house is sold that additional wealth can be invested as well to earn interest and that interest earns interest.

If you owned a house between the end of 2019 and the beginning of 2022 your wealth increased by 43% (assuming you are in the bottom 50% of all American households). That's one reason we manage liabilities - it is the birthplace of wealth for the majority.

Did you know that based on census data, the NAR, and Statista, the average person will live in 3 houses over their life time. Their Starter House, Their Family House, and their Retirement House. Each time one house is sold, you have an opportunity to transfer 'tax free' between $250,000 and $500,000 of appreciation into your future wealth savings account and these decisions really compound over time.

Coaching Tip: We encouraged our clients to 'sweep' their wealth from the house any time they sold (or refinanced) to create higher return, more liquid wealth they could use in their future. If there was a higher payment it provided accountability and was a forced savings plan. The time value of money showed that these lump sum payments created tremendous wealth over their life time... and what a great conversation to have with a financial advisor!

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