The key to becoming a millionaire is to own your own home, rather than to rent one, according to best-selling author David Bach.
Bach's new book is called "The Automatic Millionaire Homeowner," and he joined The Early Show Tuesday for the start of a three part series on why real estate is the best investment you can make and how owning a home can help turn you into a millionaire.
Bach's key message is that you simply cannot get rich by renting.
"It's so hard to share that with people who are renting, but it's the truth," he told co-anchor Rene Syler "The average renter in America today is poor. They're worth less than $5,000. The average homeowner is worth over $172,000. So, what we're seeing in this country is a real separation between the rich and poor. In order to have wealth in America, you have to own a home."
Financial advantages of homeownership
"People say real estate is location, location, location. It's not. It's taxes, taxes, taxes," says Bach. "When you buy a home, you get a mortgage deduction. The government is subsidizing your home purchase. That's why so many more Americans are buying homes."
"When you buy a home, you're able to go out and purchase a home and have a gain of over $250,000 tax free, if you're single. Married, you get up to half a million dollars in tax-free profit. That's the only investment that the government gives you where you can buy something, sell it and have tax-free gains."
"When you buy a home, the bank will loan you all the money. You go into a bank to borrow money to start a business, no way. They're probably not going to give it to you," says Bach. "You go to borrow money to buy a home, they say, 'Here you go. Here's a check.' "
"That's the biggest myth," says Bach. "Forty-three percent of Americans who bought their first home last year did it with no money down. This is not an infomercial. The banking industry has changed … There are 10 million renters out there that the banks say could qualify for a home mortgage today and they could qualify, in many cases, with no money down."
"Again, wrong," says Bach. "The bank will loan you money with credit card debt, the bank will loan you with less than perfect credit. In fact, the banks have programs now that will help you, if you're what's called a sub-prime borrower, they'll even work with you to get your credit up."
"There are certain markets where it may be cheaper to rent. Long-term, it's never going to be cheaper to rent your home," he says. "If you rent right now in this country at $1,500 a month, over the next 30 years, you will actually spend over $540,000 on rent. That's assuming your landlord was nice and didn't raise the rent. If they raise it by 5 percent, you'll spend over $1.2 million on rent over the next 30 years. And guess what? You've got zero to show for it. If you buy a $200,000 home, the mortgage payment would be the same. However, at the end of 30 years, you would, in fact, own your home free and clear, the home would be worth $1.2 million. If you backed out the mortgage payments, you're ahead by $740,000."
With recent reports about a slump in the housing market, lots of Americans are on the fence about whether to buy or rent right now. But Bach says that "real estate is not national. It is local. The only real estate that matters is the market that you're in, the street that you live on, the building that you own."
In part two of the series, Bach returns to The Early Show tomorrow to talk about ways to protect your home purchase, in the event of a real estate slowdown.
Check out David Bach's Web site for information about the author and to see whether he will be speaking in a city near you.
To read an excerpt from "The Automatic Millionaire Homeowner," click here.