According to financial author and self-made millionaire, David Bach, millennials are doing themselves a big disservice by failing to prioritize home ownership. Although there are many opponents of homeownership who claim home ownership is the ”American nightmare”, Bach thinks buying a home is a crucial step to becoming wealthy.
In a recent interview with CNBC, Bach expresses his concerns stating that millennials who don’t strive to become homeowners reduce their chances of becoming wealthy significantly given the fact that the average homeowner in the U.S. is 38 times richer than your typical renter.
In his interview, Bach went on record to state that the best investments he ever made were buying the three homes he has purchased so far simply because the homes skyrocketed in price. Bach argues that home ownership is crucial because you must live somewhere so you should consider investing in a home you can own permanently. Furthermore, investing in a home earns you huge returns with no effort when your home gains value over time.
In his book, ”The Automatic Millionaire”, Bach states that renters can easily spend over $500,000 over three decades but end up owning nothing. On the other hand, you can spend the same amount, maybe less, and end up as a homeowner when you take a mortgage. Bach urges aspiring homeowners to start by understanding real estate math. In his book, Bach challenges anyone who would want to own a home to do the math and see what it would cost to get started.
He stresses on beginning the home ownership process with the smallest or least expensive options so that you can set clear goals which look and feel achievable from the onset. To start off effectively, Bach suggests beginning with a figure that is not more than 30% of your total net income. Any home ownership process that takes up more than 30% of your take-home income is expensive and unsustainable.
Bach also recommends that aspiring homeowners should have at least 10% as down payment although having more is better. It’s worth noting that the overall cost of home ownership is lower when you put up more money as down payment since interest will be charged on a smaller figure. Lastly, Bach advises aspiring homeowners to start small. As stated in ”The Automatic Millionaire”, your first home shouldn’t be your dream home because you are getting into the housing market for the first time. Instead, focus on learning the hurdles and completing your first purchase then you can repeat the process.