On Building Wealth

May 1, 2026

On Building Wealth: Questioning What We Think We Know. Providing Food for Thought.

There are certain beliefs in life that have been repeated so often they feel like truth. One of them is that owning a home is a path to building wealth. Renting is throwing away money.

Your House is an Asset; It is also a Liability.

A home is a wonderful thing. It provides stability, community, a place to raise a family. I didn’t buy my first home until I was 32, and I understand the deep satisfaction it brings. But we need to be clear about the costs of your house. You are consuming your house. Every day you live in it, you are using it up; the roof degrades, the systems age. It is simultaneously an asset and a liability that requires additional capital to maintain. The excess equity sitting in your home is not being invested in a productive, efficient way.

This is the distinction worth highlighting: owning your home is a convenience and lifestyle choice. There is nothing wrong with the convenience of having a beautiful house. But this should not be confused with wealth building. Beyond your basic shelter needs, you are essentially consuming your house. You may choose to live in a house worth $2m, but your actual needs are only in a house worth $1m. The extra $1m you pay to own something larger or nicer, is the amount you are consuming. This additional equity is tied up in your home; it is not being invested and producing cash flows.

Liquidity: The Value of Being Able to Move

Liquidity is one of the most underappreciated advantages in building wealth. Every dollar locked in your home equity is a dollar not working elsewhere. You can earn a meaningful risk-free return on government bonds or purchase companies that are producing cash flows for you. Every year your equity sits idle in a house, producing no cash flow for you, you’re forgoing that return. And forgone returns compound against you just as earned returns compound for you. Of course, you may see capital appreciation in certain housing markets over certain time frames, but will that appreciation fully compensate you for the risks and opportunity costs of investing elsewhere?

Balancing liquid and illiquid assets matter most during times of market crisis. When fear forces others to sell at an inopportune time and at depressed prices, that is when opportunities present themselves to buyers who have resources to make a purchase. But you can only act on those moments if you have enough liquidity. Home equity is trapped capital. Liquid investors can rebalance and act; illiquid investors are stuck watching. Having the appropriate balance of liquid assets and illiquid ones is important, because eventually crisis and opportunity always come along.

A Recent Example

A recent Moody’s Analytics model compared two individuals over 30 years—one buying a $500,000 home, the other renting and investing the difference. The renter-investor ended the period $1.19 million wealthier (Source: Moody’s Analytics, as cited in The Wall Street Journal, February 15, 2026). The evidence favours the long-term diversified investor.

But here’s the caveat: the model assumes a level of investment discipline that most people find difficult to sustain. A mortgage forces discipline automatically, it forces one to build equity in their house, and for some this is a big advantage in home ownership.

Risk and Concentration: A Single Bet in a Single City

A house in one location is the opposite of diversification. You are betting on a single neighborhood, one local economy, one set of zoning decisions, insurability against flood and fire, one school district. If conditions change in ways, you didn’t anticipate you absorb the impact to your net worth. With a diversified portfolio of liquid assets, a problem investment in one area can be offset by investment success in another.

Consider two families with identical finances—same down payment, same mortgage terms—one buying in Miami and the other in Detroit. We cannot know in advance (although we may think we can) which cities housing will appreciate the most; luck plays an enormous role in the financial outcome.

Home Prices since 2013 have not performed well overall, and the additional drag on performance from costs need to be considered.

The Cost of Carry: The Numbers We Forget

Most homeowners remember two numbers: what they paid and what they eventually sold for. But between those two numbers lies decades of property taxes, insurance premiums, property taxes averaged $4,271 per year across 87 million owner-occupied homes in 2024, up approximately 4% from 2023, with wide state-level variation (Source: NAHB Economics, 2024 American Community Survey). Insurance adds roughly $2,400–$2,500 per year on average nationally and has risen substantially in recent years (Sources: Bankrate, Insurance Information Institute). Routine maintenance typically runs 1-2% of home value annually—around $6,663 per year according to Thumbtack's 2023 Home Care Price Index (Sources: Fannie Mae, Thumbtack). Based on these industry benchmarks, total ongoing homeownership costs—excluding the mortgage—typically range from 3.5% to 5% of total home value annually.

Meanwhile, Robert Shiller’s data shows US residential real estate has appreciated at just 0.57% per year after inflation over 135 years (Source: Shiller, “Irrational Exuberance,” Yale). When you factor in the cost of carry against that appreciation, the math becomes sobering. In fact, 89% of all inflation-adjusted housing gains have occurred since 1997 (Source: Shiller Housing Data). The wealth-building narrative we assume is based largely on the experience of the last three decades, not the long arc of history.

Borrowing Money (leverage) Adds to the Illusion

When someone tells you their $100,000 down payment turned into a million dollars in home equity, they’re describing something real. But they used five-to-one leverage; they borrowed most of the money and built equity in their house over time by making the payments. Weshould compare the house price index to the stock market by directly comparing the two price indexes below without leverage. As you can see, the stock market has been the better choice for building wealth.

What Does This Mean?

I am not saying don’t buy a home; we all need a place to live. When we raise a family, the stability of owning your own home is worth a lot. But we should separate out the benefits to our life, from the benefits of building wealth. We should work to have a balance of both. A house is an important asset for many families, but we should not neglect the importance of building wealth through more efficient channels. We often hear that young people are “throwing money away on rent”, but that is not true if they are also building wealth through a diversified portfolio of companies.

Data from the JPMorgan Chase Institute shows that among 26-year-olds, the share who had transferred funds to investment accounts since turning 22 jumped from 8% in 2015 to 40% as of May 2025 (Source: JPMorgan Chase Institute, as cited in The Wall Street Journal, February 15, 2026). The younger generation is adapting. They are investing, building wealth, and preserving optionality for their future.

We see this first hand through many young professionals at August Wealth. They have been able to build significant wealth by keeping spending in check, keeping their rental home costs low, and using their excess savings to invest in diversified portfolios that suit their goals.

When our next generation of family are ready to make their first home purchase, they are in a better position than most because of their disciplined savings and investment. They have more resources to make that first down payment.

Most of them continue to practice the discipline of saving and investment through both their retirement and after-tax investment accounts. They do this because they recognize the benefits of building a diversified liquid portfolios in addition to owning a home.

With lots of love,

Joe

Investment advice offered through August Wealth Advisors.

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