Home Ownership Builds Wealth

Mortgage and Lending with Planatek Financial, Inc. CA DRE 01110003

Much has been said and written regarding the financial benefits of home ownership...but I'm a numbers gal. I relate best to hard numbers and put together an analysis that supports the benefits of home ownership.


Let's explore 3 areas of potential benefit - equity accumulation by paying a mortgage payment versus rent; potential increase in home value over time; return on investment with investment being defined as a down payment on a home.


Since I'm located in the central and southern California areas, it is not uncommon for monthly rents to be $3,000 for a 2 - 3 bedroom apartment between 1,000 and 1,100 square feed. Let's look at Mosaic Apartments in Oxnard - apartments.com reports that a 2 bedroom unit rents for anywhere from $2,290 to $3,067 per month (note: this is the information posted as of this writing - advertised rent rates change daily).


For this illustration, we'll use the higher range for a 2 bedroom, 2 bathroom apartment - right around $3,000.


Mosaic is a really nice place to live!! But, from a wealth building perspective, $3,000 per month is the equivalent of a mortgage payment on a $500,000 house...with just 5% down.


Rent vs Buy


Let's look at the rental numbers in the chart above - after 5 years of writing $3,000 rent checks (we'll assume no increase in monthly rent just to stay conservative) a renter has spent $180,000 on housing.


Let's look at home ownership numbers in the illustration below - after 5 years of mortgage payments totaling $3,230.28 ($499,000 purchase price, 5% down, payments consist of principal, interest, property taxes, homeowner insurance and pmi) equity through paying down the home loan is $46,155.


Loan and Equity Calcs


And this set of calculations does not factor in the income tax savings a homeowner receives due to the interest and property tax deductions.


One more set of numbers to explore is the estimated increase in value over time - we'll use that same 5-year period and assume a very conservative increase in value of 1.5% per year...at the end of 5 years, a $499,000 home is potentially worth $537,000 - or more! The table below illustrates the modest year over year increase in value based on a growth rate of just 1.5%.


Appreciation Calcs


So, after 5 years of home ownership, a homeowner's increase in wealth can look something like:


Equity built in home from mortgage payments - $46,000 plus (+) Equity built in home from increase in value - $37,000 equals (=) $87,000 net increase in wealth...all from your housing expense.


And again, just a reminder that none of these estimates include any potential savings on income taxes due to the interest, property taxes and mortgage insurance tax deductions - so there are additional savings related to home ownership that renters do not benefit from.


Last, let's explore just the first year's return on your investment of $24,950 (the down payment).


In year 1, assuming a modest growth rate of 1.5%, the net increase in value of your home is $7,485. After 12 mortgage payments, the loan has been reduced by $8,531. The total of these two calculations is $16,016.


$16,016 divided by $24,950 equals 64.19% return on your investment...in just 1 year.


Social proof - my own home which I purchased just 3 years ago...the purchase price was $415,000. Recent sales of the same model in my community have ranged from $454,000 to $474,000 far exceeding the 1.5% increase in value we're using to model appreciation rates on.


Appreciates rates do vary - some years the value doesn't increase at all - some years the value zooms up by 4% or more.


This is an analysis based on my own market - other markets will differ when it comes to potential appreciation rates. However, what doesn't change is the underlying math that systematically reduces the balance owed on your home, and adds to your overall wealth...all while providing shelter for you and your family.



Since I'm a numbers gal, helping clients find just the right loan to meet their financial needs is a great fit.  I love using my focus on analyzing sets of numbers to help you find just the right loan for your unique financial profile, and would welcome the opportunity to help you with your real estate loan.



Linda Piper

Mortgage Specialist, Residential and Commercial

BRE 01110003  |  NMLS 424824

Cell/text:  (714) 403-2603





Planatek Financial, Inc.

340 N. Westlake Blvd, Suite 240

Westlake Village, CA  91362

BRE 01329960  |  NMLS 328893



Comments (6)

Endre Barath, Jr.
Berkshire Hathaway HomeServices California Properties - Beverly Hills, CA
Realtor - Los Angeles Home Sales 310.486.1002

Linda nice to see you back on the platform after a hundred year sabbatical, Endre

Apr 09, 2019 11:37 PM
Norma J. Elkins
Elite Realty Group - Morristown, TN
Realtor - Elkins Home Selling Team

Looks like some great information.  My son, who is our broker, is like you and is a major numbers person.  He would love these spread sheets. Me on the other hand, I really don't care about numbers unless they are dollar signs.  Just kidding.  Thanks for sharing!

Apr 10, 2019 05:22 AM
Linda Piper

Hi Norma:  yes - I'm a total numbers nerd...and I also love it when they're dollar signs!  Ha!  Thanks so much for your comment.

Apr 10, 2019 07:35 AM
Linda Piper
Planatek Financial, Inc. - Ventura, CA

Hi Endre: 

Thanks very much for the welcome back message.

Apr 10, 2019 07:34 AM
Kat Palmiotti
406-270-3667, kat@thehousekat.com, Broker/REALTOR® - Kalispell, MT
Helping your Montana dreams take root

I'm a numbers gal also - this was an interesting analysis of the benefits of buying versus renting in your area!

Apr 10, 2019 07:46 AM
Joan Cox
House to Home, Inc. - Denver Real Estate - 720-231-6373 - Denver, CO
Denver Real Estate - Selling One Home at a Time

Linda, you have shown those renters why they should buy a property and enjoy wealth! 

Apr 10, 2019 05:17 PM
Linda Piper

Thanks so much Joan.  That's exactly my plan!

Apr 10, 2019 05:35 PM
Roy Kelley
Retired - Gaithersburg, MD

I was looking for your current posts. 

I hope all is going well for you.

Jun 13, 2019 04:42 PM