When I was a child, my uncle would infuriate me by playing on words.

Gen Y – Justine Davies

If I asked, for example: “Can you pass me the salt, please?” he would usually respond: “I can pass you the salt but that doesn’t mean that I will.” Aaaargh!

Still, he had a point I suppose, and so I’ll contend that a home can help you build wealth, but that doesn’t mean that it will.

Where you buy and how fast you pay it off play a vital role in your future net worth.

The older generations to the right cover the “how-to” of increasing your wealth via your home, so I’ll expand on the provisoes I mentioned above.

Firstly, where you buy makes a big difference. It’s stating the obvious, but you need to buy where people want to live. Otherwise the resale demand at an increased price just won’t be there. Also be aware that in most instances, the value of a property is in the land (or location), not the actual construction that’s on it. Sure a well-kept and attractive building will have more buyer appeal but you don’t want, to borrow an old phrase, the “best house in the worst street”.

Secondly, how fast you pay off your mortgage makes a massive difference. Honestly massive. That $300,000, 30-year mortgage on current interest rates of about 6 per cent will cost you $647,500 by the time you pay it off. Throwing an extra $250 a month on to it, though, could cut eight years off the loan term and save you over $100,000 in interest costs alone, and that’s tax-free. That’s a great investment return.

Once you’ve done that you’ll have equity that you can put to good use.

Justine Davies is finance editor and commentator with financial research and ratings firm Canstar.

Gen X – Bruce Brammall

A BEER isn’t just a great thirst quencher. It can help you get drunk. A hot car not only saves you walking 200km to work each week, but can also help you pull women.

A home is “same, same, but different”. Sure, it’s a place to stash your stuff. But a home mortgage is also the cornerstone of wealth creation. Here are five reasons why:

1. Your housing cost is locked in. Interest rates go up and down. Budget on a long-term average of 7.5 per cent and you’ll be pretty safe if things change.

2. Mortgages are eventually paid off. Rent goes on (and up) forever.

3. You’ve bought an appreciating asset. As the loan reduces and the home’s value rises, your equity increases. The renter never develops equity in their home.

4. An offset/redraw account gives tax-free cash savings. Renters are taxed on interest they earn, and

5. You can invest your equity. You have the ability to access home equity to invest in other growth assets, such as property and shares, to build real wealth.

Some people turn a little Cujo and start frothing at the mouth over the above. They argue people are better off renting and investing the difference.

Cough … what rot! Show me these people! Don’t show me a spreadsheet. Show me the people who have successfully invested the difference in the early years between rent and a mortgage. Struggling to find them? Why? Willpower it’s too hard for most people.

A mortgage is forced savings. It takes away the need to exert willpower every month. And that will work better for about 95 per cent of us.

Bruce Brammall is the author of Debt Man Walking and principal adviser with Castellan Financial Consulting.

Boomers – Mark Bouris

FOR the younger generations, their home is usually their greatest asset. It can be both a catalyst for other investments, as well as security to enable them to build a more extensive portfolio.

But as people age, they find themselves in a position of being asset rich and cash poor a spot where many Baby Boomers are right now.

You have spent your whole lives building up equity in your home, and then when you start closing in on retirement, you realise that you have limited savings to live on. So for you, it’s not about building wealth, it’s about freeing up income to fund your retirement.

So how can you use that asset your home to get the money you need to finance your future? You downsize.

A lot of Boomers find themselves in a position where they’re living in the family house that they raised their children in, but the kids are gone now and the house has become an unnecessary expense. Downsizing frees up the stored capital in your home to generate retirement income and will help you live the lifestyle you want, whether that’s a townhouse in the city or a villa by the beach.

If you don’t want to downsize, you could think about using your home in other ways. Some people rent out the granny flat, or convert a portion of their home to take in boarders.

Not long ago, I heard about a person who converted their home into a bed and breakfast, which has become a sound business as well as a constant flow of new, interesting people to meet.

It’s not for everyone but for some it’s an option that suits them best.

Mark Bouris is executive chairman of wealth management and advice firm Yellow Brick Road.

Retirees – Kerrin Falconer

RETIREES have worked a lifetime paying off a home. And what a wonderful feeling it is. Your home is truly your castle.

However, it can be more than just a roof over your head and there are several ways of releasing some of the space for investment.

The younger generations may focus on borrowing against your equity, but there are big risks for retirees. In retirement, do you really want to take a risk with your home?

However, there is also another way of using your home to build wealth, and that is by extending or adding improvements to your home if you have the means and the inclination.Your home is the only investment outside of super that is free of capital gains tax. So by adding another room, level or upgrading existing rooms, tax-free value can be added to your home. But again there are risks. You can over-capitalise or markets can turn south just when you want to sell. So you need to do your homework and be realistic.

For retirees who are asset rich but income poor, your home can offer a couple of options. The first is downsizing and another is a reverse mortgage. There are major risks with both.

Downsizing your home works fine in theory, but in practice what can happen is that by the time agent fees, moving costs and stamp duty is taken in to account, there is really little left over.

A reverse mortgage can save you moving house. However, the interest borrowed is capitalised and can add up quickly. You need to do your homework, speak with your family and seek advice before taking this option.

With both strategies, there could also be Centrelink implications so you need to think carefully and get advice.

Kerrin Falconer is a finance writer with 15 years of financial planning experience.
Source: News.com.au