What is the net worth difference between a renter and a homeowner?

By Arizona Home Group

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Have you ever wondered about the difference in net worth between renters and homeowners? The answer might surprise you. Recent statistics show that a homeowner’s net worth is almost 40 times that of a renter. On average, renters have a net worth of just over $10,000 compared to homeowners with over $396,000.

But why does this large wealth gap exist? One main reason is equity growth. When you’re ahomeowner, yourequity increases as your property appreciates in value and you make your mortgage payment each month. These payments act as a form of forced savings, which pays off when you decide to sell. Homeowners also benefit from tax write-offs each year. The interest paid on your mortgage is tax-deductible, which allows you to keep more money each year. As a renter, you’ll never see a financial return on your monthly rent payments.

The national average appreciation in home values is 4% but in the Phoenix metro, the average appreciation has been 10% over the past decade. To give you a better idea of the potential financial gains of homeownership, consider this example by using our mortgage and affordability calculator which will show you how much you exactly earn in one year based on the home price you are looking at and your specific numbers.

When you buy a $500,000 house with a 3.5% down payment, and a 6.8% interest rate and use the conservative 4% appreciation rate, in just the first year, you’d gain $20,000 in equity from appreciation. You’d also reduce your principal by $5,093, and you’d save $7,184 on taxes if filing as single. That totals $32,277 in financial benefits in one year simply from buying a home. The average rent for a similar home in the $500k range is around $2,300 and after a year of renting, you would have spent $27,600 without having anything to show for it.

Note that this net worth difference is true even when considering other investments like retirement plans, stocks, etc. No matter what your income level, owning a home can really boost your wealth. Owning a home is the biggest asset for most people. Homeownership can be a financial tool to help you have stability and preserve wealth across generations.

If you are still unsure whether to rent or buy a home, don’t forget that owning a home can increase your overall wealth in the long run, regardless of your income. We’re here to guide you as you make this important decision. Let’s go over your situation and find out what is best for you. You can reach out to us at (602) 571-3730. We are more than just Realtors, we are your financial consultants and are here to help in any way we can.