The best way for black people to build wealth is with home ownership. If you’re renting, you’re not building any equity; you’re merely increasing the wealth of your landlord.
Home ownership is how you build generational wealth. It stabilizes families and gives us control over our own neighborhoods.
Homes are an asset. They generally appreciate over time, meaning they increase in value. This is especially true in many of the neighborhoods in which we reside that have seen a sharp increase in gentrification due largely to the neighborhood’s proximity to downtown. Ask anyone in any major city from DC and Chicago to LA and New York.
“It isn’t cool to be in the club spending all of this money, or having cars and jewelry — but you don’t own any real estate? You don’t own a fourplex? If the answer is no, you’re not a real hustler.”-Nipsey Hussle
How good of an investment is a Home?
Let’s say, for example, you purchase a home or condo for $200,000 with a $5,000 down payment. You already have $5,000 in equity.
You will most likely need a mortgage to finance the purchase of your property. This mortgage payment is made of the principal (the amount of money you borrowed) + the interest (the money you pay the lender for the privilege of borrowing their money).
You can read up on the details here but essentially, as you make monthly mortgage payments over time, you build up more and more equity into your home. You end up owning a greater percentage of your home over time until you own 100% of it one day.
And when that day arrives, there’s a very good change that the property you purchased for $200,000 at one point, is now worth tens of thousands dollars more.
Take a look at this chart that looks at appreciation rates of major metro areas. Go ahead, I’ll wait.
Example of Making Money with Home Ownership
Home prices in Atlanta, for example, increased 9% between 2018 and 2019. Sticking with that same example, if you bought a house in the ATL for 200K last year, and lived in your lovely home for at least 2 years, you would (assuming a constant rate of appreciation), in 2020 your house would be worth ~$237,000.
You just made $37,000 in two years, simply by paying your mortgage and living in your home. You now have $37,000 in equity + however much money you’ve been paying on your mortgage.
If, for example your mortgage is $1,000/mo, you now have $24,000 + $37,000 = $61,000 in equity.
You can borrow against that equity to fund your next business idea, you can invest it, or you can continue to pay your mortgage and build more equity. If you were renting the past two years, you haven’t made a dime. Hopefully, I made my point.
The State of Black Home Ownership Rates
Here’s the problem. According to a report from the National Association of Real Estate Brokers’s an association dedicated to increasing black home ownership, home ownership rates are 73% for white people while hovering at only 49% for black people, which is pretty much the same rate of black home ownership in the 1960s; after the Fair Housing Act of 1968.
50 years of federal, organizational and educational efforts around addressing home ownership rates for black people and we have barely moved the needle. As a matter of fact, black home ownership rates have declined since 2004.
The African American home owner population was hit hard by the 2008 Financial Crisis, due partly to predatory loans.
There are many more reasons for the decline in black home ownership that are outside the scope of this article but suffice to say, we need to do better.
Is home ownership right for you? RealBlackAgents works with black real estate agents across the country to help guide you through the home buying and selling process.
Whether you’re looking to sell or buy a home asap or just curious, give us a shout and we’ll respond with a free consultation to review your options.