This is because owning a home continues to be the primary most people in America gain wealth for the first time. There are ways which are technically faster in most cases, like owning a diverse array of well chosen stocks or funds, but in reality, home ownership tends to be the path taken by most people who are growing wealth for the first time.
We could follow the reasons why this is the case for many pages, but that’s not the purpose of this article. Instead, we’ll work to convince you that once you own a home, you should consider selling it.
This may sound anathema to some. We hate moving. And even though small movers
can make the process much less painful, we still tend to avoid sudden changes of this magnitude if we can possibly help it. Nonetheless, there is a practical reason why semi-frequent home sales can be a great idea, and it has to do with the rate at which your wealth grows.
If you were to sell your home and then use the money to, say, go back to college, you would be on the hook for a huge tax bill. A big chunk of the equity you had earned in your home would vanish into thin air, and you’d be left with a much smaller lump sum than you probably would feel that you were due.
There’s an exception to this rule. If you take the money you get from selling your home and put it straight into a new home, you don’t have to pay those taxes. This is meant to help homeowners retain the wealth they’ve earned through faithfully paying off their mortgage, because it would just be mean not to. This is a well known reality, but most people don’t think of what you can actually do with this tax loophole.
Let’s say you paid a $50,000 downpayment
on a $200,000 house two years ago. If today you have $70,000 in equity, this money would let you move into a bigger, better house than you would have been able to afford with just $50,000.
Rinse and repeat every couple of years, and you will find that you can be in a dream home that you never would have been able to imagine years before. What’s more, you can accomplish this with no other effort than simply paying your mortgage, selling your home, and looking for another one. This is more headache than some people may be willing to commit, but if you are in the process of building wealth in the most reliable way possible, this is a trick that you shouldn’t overlook.