It is easy to have a negative opinion of owning a home when you read about the travails faced by millions of Americans as they try to repay their mortgages. A study by Harvard University suggests that approximately 40 million Americans live in housing they are unable to afford.

The existing state of affairs; where home ownership figures have dropped, and rental prices have increased, suggesting the problem is not going away anytime soon. The study relates to the ‘ideal scenario’ where you spend 30% of your income or less on housing. However, regardless of the apparent problems with housing, one self-made millionaire believes millennials are making a big mistake if they don’t buy a home.

Escalator to Wealth

The above is the term David Bach uses to describe the process of buying a home. Not only does he advocate it, but he has also issued a stark warning to millennials. According to Bach, your chances of becoming independently wealthy in the United States are close to zero if you don’t own a home. He claims that homeowners are 38 times wealthier than renters!

Bach pointed towards his success as proof of his theory. He has purchased three homes in his lifetime, and all of them have “skyrocketed in price.” Bach proudly says his net worth has increased by millions of dollars for no other reason than the fact he has lived. In his opinion, since you have to live somewhere, you might as well invest in something permanent.

The author of The Automatic Millionaire continued to make his point with cold, hard data. For example, paying $1,500 a month in rent for 30 years means you spend $540,000 with nothing to show for it. You will comfortably purchase and repay the mortgage on a home with the same amount over the same timeframe.

Bach recommends that you save at least 10% of the purchase price as a down payment and don’t spend more than 30% of your income on the mortgage. Perhaps the most important thing to remember is that your first home is simply a way to get into the market. Most people can’t afford their dream home at first, so patience is the key.

A Sense of Accomplishment

Marcus Lemonis is another wealthy entrepreneur, and the host of ‘The Profit’ on CNBC also came down on the side of home ownership. While self-made millionaire Grant Cordone believes that houses are part of a trap to prevent people from having enough, Lemonis has a very different viewpoint.

He believes the sense of accomplishment associated with home ownership is extremely valuable in its own right. Lemonis spoke with pride about the time he bought his first home for $236,000 with a 10% down payment. He said that he was proud to have shown the discipline and financial planning skills to save the $23,600 deposit. A combination of the self-esteem you feel, the financial lessons learned in buying the home, and the security of owning property, is a powerful motivator for future success.

Lemonis pointed out that you have to learn how to budget properly if you want to save for your deposit. Instead of splurging on luxury items you don’t need, you discover the importance of purchasing what you require. The lesson of moderation is useful for purchases of all sizes in later life.

The Trouble with Renting

In the opening paragraph, we mentioned the problems with the cost of housing in the United States. Research suggests that renters are in a much worse financial position than homeowners. A 2017 State of the Nation Housing Report found that almost 50% of renters pay over 30% of their income on rent.

The 30% figure is the standard measure of affordability, and has been in use since the passing of the 1937 U.S. National Housing Act. Data from the report suggests that the average annual income for renters is $37,900. As a result, they can afford a monthly rent of $950 to meet the 30% rule.

In contrast, the typical homeowner’s annual income is $70,800 and only 10% pay more than half of their income on mortgage repayments. Compare this to the 11 million renters who have little money left to pay for necessities once they pay their housing costs. One ray of light is the fact that most Americans understand the importance of owning property; approximately 63% of households own their home.

To add to the woes of renters, a significant number of new units are only available at the top end of the price market. Between 2005 and 2015, the number of units that cost $2,000+ a month increased by 1.5 million. The number of units that cost $800 a month or less fell by 261,000.

Conclusion

The data we revealed above suggests that David Bach is correct when he says it is incredibly difficult to attain wealth as a renter. The trouble is, home ownership is not always affordable, especially in expensive metro areas. For example, only 25% of San Francisco and Los Angeles residents can afford a median priced home; this figure falls to 19% in Honolulu. One way to solve the problem is through the creation of affordable family homes. There are home builders such as LGI Homes, Shea Homes and Taylor Morrison that fit the bill but we need more.