Cause and effect of paid homes

LivingAlmostLarge · #1 (**permalink**) 06-13-2007, 01:13 PM

Okay, this bothers me because I don't think it's a cause and effect, when discussing this point with someone.

They pointed out that most millionaires have paid for home. They do not use risky investment, instead they are frugal and save their way to millionaire status.

I say you can't draw that conclusion. That being a millionaire and having a paid for home is not the reason. The reason is they are frugal, hence they have a paid for home, but also money in the bank.

I also pointed out that using the statistics from the millionaire next door, the average millionaire in their study was 57 year old male. How can you conclude that these millionaires did not leverage their house in their 20s? 30s?

Is it true that most millionaires have paid for homes? Or is the person looking at the wrong subset of people? I don't think it has a cause and effect like they are saying, that if I pay off my home fast, I will become a millionaire

DebbieL · #2 (**permalink**) 06-13-2007, 01:25 PM

Well, it would certainly free up a lot of cash if you didn't have a mortgage. I think it depends on the person though. Some people live rent/mortgage free and still blow all their money. There is probably something to the point about most millionaires (self made ones anyhow) being fairly frugal (or smart with their money). You don't get rich by blowing it all. I don't imagine I'm ever going to be a millionaire myself, but I do think I would have a better shot at it without my rent payments (buying a house here is out of the question right now - way too expensive). Of course, being born rich is the easiest method, lol.

PrincessPerky · #3 (**permalink**) 06-13-2007, 06:13 PM

Is that a chicken or egg question?

I mean the type of person who would pay off their home and not borrow against it (either early or just on time) is the type of person who is 'smart with money' Trying to remain debt free and make money work for them.

But then someone who is smart with money and doesn't own their house can still be a millionaire, lots of people think a home is good debt...I don't, but no one ever accused me of being smart with money.

MonkeyMama · #4 (**permalink**) 06-16-2007, 09:14 AM

Most of the wealthy people I know leveraged their house in their 20s/30s/(40s) but still paid their home early. I think the whole chicken or the egg thing is spot on. But then again around here most people I know have a 1000%+ return on their house. It is hard to see the downside of leverage when you are already paying 50-75% of your mortgage just to get in a house and you have 60% equity in a few short years. Definitely a unique area.

My own father was very opposed to prepaying a dime to the mortgage, but once they owed $40k or so they just paid it off. They most definitely leveraged when they were young and broke and 25 years into the thing they just paid it off. They are worth well over $1 mil. This is kind of my plan. I see no point in tying up my cash when I need it the most just so I can pay it off when I should have the cash to easily pay it off regardless. I still plan to have it paid off by 20 years but I don't see the point in prepaying a dime right now. So basically I do plan to do both myself.

If I wasn't so young though I would just prepay the mortgage. The long investment horizon makes all the difference.

Ima saver · #5 (**permalink**) 06-16-2007, 03:21 PM

Well, I bought my first house when I was 21. Except for savings accounts, I knew nothing about investing, so i saved and paid it off when I was about 32. That allowed me to sell my house and build a bigger house. I did that 4 times and now have a house worth about $500,000-600,000 and it is paid for. I was able to take my house payment money and invest in mutual funds instead.