One of the time-honored ways to build wealth and financial stability is by buying real estate. Properties typically appreciate over time and may provide cash flow as well.
Owning your own home not only gives you a great place to live, but it will likely turn out to be a good investment that can help build generational wealth for your family.
Table of Contents
- Key Points
- • Generational wealth includes assets such as cash, stocks, bonds, businesses, and real estate that are passed down from one generation to the next.
- • Homeownership can build generational wealth directly through price appreciation, with the equity being passed on to the next generation in their inheritance.
- • Indirect benefits of homeownership include the financial security that can be passed on to children, the opportunity to borrow against the equity, and the ability to shield adult children from the financial burden of retirement and health care needs.
- • Housing discrimination can have a serious impact on generational wealth.
- • Homeownership can be a smart investment, but it’s important to factor in the total costs of owning and maintaining real estate.
What Is Considered Generational Wealth?
Generational wealth refers to assets passed on from one generation to another within the same family. Assets is a broad term that includes:
• Cash
• Stocks, bonds, and other securities
• A family business
• Real estate, including the family home
Because of the high rates of appreciation in the past several decades, real estate can be one of the most valuable assets passed down from one generation to another.
💡 Quick Tip: SoFi’s award-winning mortgage loan experience means a simple application — we even offer an on-time close guarantee. We’ve made $7.5 billion in home loans, so we know a thing or two about what makes homebuyers happy.‡
How Does Homeownership Build Wealth?
Homeownership can help build wealth directly through price appreciation. When the value of a home rises, owners are able to sell for that higher price, sometimes moving into a new, larger home. For homeowners who aren’t selling, price appreciation adds to their home equity and overall financial assets.
Of course, if home values decline, as they did in the 2007-2009 Great Recession, the opposite can happen, and owners may find they owe more than the home is worth. But real estate has proved to be one of the most reliable assets in the long term.
The bottom line: A person’s home is often their largest financial asset, the benefits of which are frequently passed on to the next generation.
If you’re just getting started, know that a first-time homebuyer can be anyone who has not owned a principal residence in the past three years, some single parents, and others. The prospective purchasers can often get assistance (such as a low or no down payment) as they progress toward buying their first property. Programs such as these can be stepping stones to building generational wealth.
First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.
Questions? Call (888)-541-0398.
Direct and Indirect Building of Wealth
Next, consider different ways of building wealth over the generations.
Inheritance
Inheriting appreciated capital assets, such as real estate, stocks, bonds, exchange-traded funds, or a small business, can have a big tax benefit, thanks to the “step-up in basis.” The value of the inherited asset is “stepped up” to the fair market value on the date the original owner dies.
If the heir sells the property, the step-up in basis will greatly reduce capital gains taxes due or make them moot if there’s no gain. Any capital gain from the sale of inherited property is considered long-term. Current long-term capital gains taxes are 0%, 15%, or 20%, depending on your income and filing status.
For married couples, the death of one spouse results in a partial step-up in most states, but here’s a simplified example. Let’s say you inherit your grandmother’s home, purchased in 1940 for $10,000. The home is valued at $450,000 on the date of her death, which is the stepped-up basis. If you sell the home for $450,000, you’ll pay no capital gains tax. If you sell for a higher sum, capital gains tax will apply only to the amount over $450,000.
Imagine using the stepped-up basis provision over more than one generation of a family. An heir could sell a phenomenally appreciated asset and pay a minimal amount in capital gains tax or none at all on their inheritance, as long as the asset was included in the decedent’s estate.
Indirect Benefits
Heirs of homeowners may inherit the actual real estate, but generational wealth can also be more indirect. Consider these points:
• Homeowners are often more financially secure than renters, passing that security on to children.
• Homeowners can borrow against home equity to improve their property (and often boost its value) or take care of other financial needs.
• Many homeowners are located in districts with high-performing schools, enhancing overall opportunities for their children.
• Down the line, the equity in a home can help finance retirement and health care needs, shielding adult children from that financial burden.
All of these factors can positively affect the next generation and add to their wealth.
How Discrimination Can Affect Generational Wealth
When housing discrimination occurs, it can keep people of color, women, families with children, immigrants, and people with disabilities from living in the places they want. Importantly, it can also have a serious impact on generational wealth.
Considering the following statistics from the U.S. Census Bureau for the fourth quarter of 2025:
The homeownership rate for non-Hispanic white households overwhelmingly led the pack at 75.1%. Asian, Native Hawaiian, and Pacific Islander families came in a distant second at 63.1%. Hispanic families of any race had only a 48.7% homeownership rate, and Black households logged in at 44.2%.
A number of factors have contributed to the race gap in homeownership, particularly the legacy of race-based discrimination in the housing market.
When homeownership lags among a certain group because of housing discrimination, so does the possibility for generational wealth.
💡 Quick Tip: Your parents or grandparents probably had mortgages for 30 years. But these days, you can get them for 20, 15, or 10 years — and pay less interest over the life of the loan.
Understanding Home Appreciation and Home Equity
To understand how homeownership can build wealth, it’s important to know about the concepts of home appreciation rates and home equity. Here are some key points:
• Appreciation and appreciation rates refer to the increase in the value of a home over time.
• Home equity is the property value minus the outstanding balance of mortgages, liens, or other debt on the property.
• A down payment is your first contribution to home equity.
• Monthly mortgage payments reduce the amount you owe. With each payment, you slowly pay part of the principal on your loan, which builds equity.
• Home equity can increase through price appreciation and home improvements.
Most people purchase real estate with the expectation that their homes will increase in value over time. But many things come into play when it comes to home appreciation and the amount of home equity you can build. Some you can control, and some you can’t.
Recommended: How Much Is a Down Payment on a House?
The Economy
Housing prices can be affected by several economic indicators. When a recession hits, unemployment rises, or inflation jumps, the real estate market often declines.
Interest rates are also vitally important. Low mortgage interest rates can fuel demand, which can increase home prices in many areas. Conversely, a rise in mortgage rates can have a cooling effect on buyer demand.
The correlation between the housing markets and the rest of the economy can be surprising at times. For instance, during the initial stages of the Covid-19 pandemic, when economic indicators were showing signs of trouble, the nation saw a giant rise in home prices. This was particularly true in rural and suburban areas, as urban dwellers sought more space and fewer crowds.
Recommended: How to Understand Inflation’s Effect on Mortgages
Laws and Regulations
Federal legislation can have a big effect on the U.S. housing market. Government tax credits, deductions, and subsidies aimed at certain homeowners can fuel this market.
Local policies and regulations can also affect housing appreciation. Local investments in infrastructure or new schools and parks can increase your home’s value. Local zoning laws can also have an effect, positive or negative.
Home Improvements
This encompasses everything from an extensive addition to a fresh coat of paint. All kinds of improvements can add to the resale value of your home and, importantly, enhance your life while you’re living there.
Whether you decide to remodel a kitchen, bathroom, or living room, update your appliances and décor, or make energy-efficient improvements, these can be valuable.
To fund them, some homeowners use home improvement loans.
Is Homeownership a Smart Investment?
The answer to that question isn’t always straightforward. Your home is where you live, of course, so hopefully you derive happiness from that. In that sense, the costs associated with your home and your mortgage payment can be considered living expenses, not necessarily investments.
On the other hand, appreciation and home equity can be seen as returns on your investment in your home.
The sweet spot is often a combination of the two: a great place to live and a profitable investment.
Still, homeowners’ net worths far outpace renters’. Every three years, the Federal Reserve issues the Survey of Consumer Finances, which compares the net worth of homeowners and renters. The latest report shows that homeowners had a median net worth of $396,200 compared to $10,400 for renters.
Keeping your expectations realistic can effectively put your home value into the context of your overall financial wellness and estate planning. To do that, you may need to keep in mind the total costs of owning and maintaining real estate. Too often, people subtract their purchase price from the expected sale price and figure the difference is the return on investment. But there are many more costs involved in homeownership.
To calculate your true return, you’ll want to add up the following:
• Down payment
• Closing costs
• Mortgage points
• Any mortgage insurance
• Home maintenance expenses
• Home improvements
• Total mortgage payments
• Taxes
• Any homeowners association fees
• Estimated selling costs (such as the real estate agent’s fees and staging charges).
That total is the number you want to compare against home appreciation to determine your actual return.
The Takeaway
Homeownership builds generational wealth in direct and indirect ways. The real estate itself can likely grow in value, and the homeowner may enjoy such benefits as raising a family in a good school district. Buying real estate can build a foundation for a family today and for generations ahead.
Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.
FAQ
What is generational wealth?
Generational wealth refers to assets or financial resources passed down from one generation to the next in a family. These assets can include cash, real estate, stocks, bonds, businesses, and other investments.
Is homeownership a good way of building generational wealth?
Yes, homeownership is generally considered to be a good way of building wealth and financial stability. Real estate can be one of the most valuable assets that you can transfer to the next generation in your family.
How does homeownership build generational wealth?
Homeownership builds generational wealth through appreciation, which enables you to build home equity. The next generation can inherit your home and benefit from its equity.
Photo credit: iStock/Capuski
*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.
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‡SoFi On-Time Close Guarantee: If all conditions of the Guarantee are met, and your loan does not close on or before the closing date on your purchase contract accepted by SoFi, and the delay is due to SoFi, SoFi will give you a credit toward closing costs or additional expenses caused by the delay in closing of up to $10,000.^ The following terms and conditions apply. This Guarantee is available only for loan applications submitted after 04/01/2024. Please discuss terms of this Guarantee with your loan officer. The mortgage must be a purchase transaction that is approved and funded by SoFi. This Guarantee does not apply to loans to purchase bank-owned properties or short-sale transactions. To qualify for the Guarantee, you must: (1) Sign up for access to SoFi’s online portal and upload all requested documents, (2) Submit documents requested by SoFi within 5 business days of the initial request and all additional doc requests within 2 business days (3) Submit an executed purchase contract on an eligible property with the closing date at least 25 calendar days from the receipt of executed Intent to Proceed and receipt of credit card deposit for an appraisal (30 days for VA loans; 40 days for Jumbo loans), (4) Lock your loan rate and satisfy all loan requirements and conditions at least 5 business days prior to your closing date as confirmed with your loan officer, and (5) Pay for and schedule an appraisal within 48 hours of the appraiser first contacting you by phone or email. This Guarantee will not be paid if any delays to closing are attributable to: a) the borrower(s), a third party, the seller or any other factors outside of SoFi control; b) if the information provided by the borrower(s) on the loan application could not be verified or was inaccurate or insufficient; c) attempting to fulfill federal/state regulatory requirements and/or agency guidelines; d) or the closing date is missed due to acts of God outside the control of SoFi. SoFi may change or terminate this offer at any time without notice to you. *To redeem the Guarantee if conditions met, see documentation provided by loan officer. Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
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