Key takeaways

  • Buying and owning a home can be a key way to build generational wealth.
  • Home equity has the potential to accumulate significantly over time as you pay down your mortgage debt and your property’s value appreciates.
  • Different ways to pass down property include wills, trusts, joint ownership and transfer-on-death deeds.

Every parent’s hope and wish is to provide their children and even their grandchildren with the means to live healthier, happier and more prosperous lives. And when it comes to developing generational wealth — econo-speak for money and assets passed down to family members — property plays a key part.

“Real estate is usually one of the largest assets the average person will own, and such a large asset appreciating over time typically results in huge profits, which, if used correctly, can positively impact the next generation’s wealth,” says Maxine Teele, a Bronx, NY-based licensed real estate agent with Keller Williams Realty.

In other words, your home can be a key financial resource for your family: One of the best ways to grow generational wealth is to invest in real estate as a homeowner, developing an equity (ownership) stake that you can bequeath to your heirs. Here’s why and how home equity is so important, and how to make it the foundation of your familial fortunes.

Generational wealth and homeownership statistics

Home Equity
  • Housing is where America’s wealth is stored: The U.S. residential real estate market is worth $43.5 trillion — compared to $36.7 trillion for the market cap of the Standard and Poor’s 500, and $40 trillion for the total value of all U.S. public companies.
  • The collective amount of U.S. homeowners’ equity has grown from $16 trillion in 2018 to $31.6 trillion in 2023 (as of Q2). The average U.S. homeowner now has nearly $290,000 in equity — up from $182,000 before the pandemic.
  • Among the generations, real estate comprises the biggest single asset for Gen X ($13.6 trillion out of $46 trillion total) and Millennials ($5 trillion out of $13.3 trillion). For Baby Boomers, it’s a close second (behind stocks and mutual funds): $18.3 trillion out of $78.1 trillion.
  • Millennials and Gen X-ers are expected to inherit $84 trillion by 2045.
  • 74% of U.S. adults think that owning a home is part of the “American Dream,” according to an April 2023 Bankrate survey. However, 32% of U.S. adults say they will never be able to afford to buy their dream home, an October 2023 Bankrate poll found.
  • Real estate still tops the list of Americans’ preferred way to invest money not needed for 10 or more years: the no. 1 choice of 29%, vs. stocks (26%) and cash investments (17%), according to a Bankrate survey.

Why is home equity important?

Home equity is the portion of your property that you actually own. It represents the current market value of your home minus any outstanding mortgage debt.

When you borrow to buy a home, your initial equity stake equals your down payment — the amount of money you directly contributed towards the purchase, instead of financing. Over time, your home equity increases in two primary ways.

“Your equity grows as you make mortgage payments, thereby reducing the mortgage balance, and as your home’s market value climbs due to factors like home improvements made or neighborhood enhancements as well as overall real estate market trends,” explains Matt Dunbar, senior vice president of the southeast region for Churchill Mortgage.

“Your equity slice of homeownership is crucial, as it’s not just a theoretical figure – it translates into real financial potential, an asset that can be borrowed against or sold for profit,” Dunbar notes. You can tap home equity in various ways — in the form of a home equity loan, home equity line of credit, or cash-out refinance of your primary mortgage — often at better interest rates than personal loans. It can also net you a tidy profit when it’s time to sell your home. Home equity “is often the primary source of wealth for many homeowners,” he adds.

And for their descendents — if the property (or proceeds from the property) remain in the homeowner’s estate.

Using home equity to build generational wealth

Generational wealth refers to assets that are passed down from one generation of a family to the next. Generational wealth can take any form: stocks, bonds and other investments; family businesses; bank and investment accounts; tangible assets like art, precious metals — and real estate.

“It’s possible to build generational wealth via home equity largely because it requires only two actions,” says Robert Johnson, a professor of finance at Heider College of Business, Creighton University. “First, the homeowner must make regular mortgage payments, thereby lowering their mortgage balance, and the homeowner must resist the temptation to borrow against the accumulated home equity if possible.”

Of course, tapping into your ownership stake to make home repairs or renovations is often a responsible and recommended strategy. While outstanding home equity loans or HELOCs do deplete your equity in the short term, they can ultimately increase it if they go towards value-enhancing improvements.

Furthermore, the gradual way in which home equity is accrued makes it an ideal long-term wealth-building vehicle. “A monthly mortgage payment is often considered a forced savings account,” as National Association of Realtors (NAR) Chief Economist Lawrence Yun noted in a recent statement. Financing a home purchase becomes a means of making someone invest for the future (as well as obtaining a home, of course) — almost in spite of themselves. “If people lack the discipline to save in tax-advantaged retirement accounts, for example, they can build some wealth via [building] home equity,” Johnson says.

Helping younger generations through home equity

“Real estate is one of the pillars to wealth,” says Teele. “It’s an asset that appreciates over time, and that appreciation minus any debts on the home is attached to the home and not the owner. So when the asset – meaning your home – is passed down from one generation to the next, the home equity is now theirs.”

Bequeathing a home has several economic benefits, offering a variety of options and giving a valuable head start to younger generations, especially nowadays when it is becoming increasingly expensive to purchase a home.

“This act not only gifts an appreciating asset – your home – but it also shields heirs from the escalating expenses of homeownership in dynamic real estate markets,” says Dunbar. “With an inherited property, descendants can choose to sell the home or live in it as a primary residence and leverage the home’s equity for financial ventures or emergencies. Furthermore, the property can offer a potential source of passive income if the heirs decide to rent it out, and it may provide some tax advantages, too.”

Passing down home equity can also improve bonds between generations: affection for the old family homestead, and appreciation for the efforts predecessors made to acquire and maintain it.

Building home equity in 2024

Over the past five years in particular, American homeowners have observed a significant increase in home prices/values and the subsequent buildup of home equity, largely attributed to a combination of factors in the housing market.

$19 trillion

Percentage that the value of the U.S. residential real estate market has increased since 2013.

“The historically low interest rates of 2020 and 2021 acted as a catalyst, spurring demand for housing and pushing up home prices,” notes Dunbar. These pandemic-induced trends lasted until mid-2022. “However, as the Federal Reserve implemented measures to contain inflation, interest rates rose to above-average levels. Effectively, higher rates impact overall demand and cause an adverse effect on sales prices. This serves to lower value, which in turn, lowers equity and moderates the pace of home equity growth,” he adds.

Despite this, the persistent low supply and sustained demand dynamics of the housing market continue to exert upward pressure on home values — and thus, the worth of homeowners’ equity stakes. In fact, the percentage of financed homes that are underwater — worth less than the mortgages on them — is less than 2 percent, a near-record low, according to CoreLogic.

“Although the Fed has paused interest rate hikes in its recent meetings, the outlook suggests that home equity is likely to grow further – although perhaps not with the same intensity as observed in previous years,” Dunbar adds.

Two factors are currently working against homeowners who seek faster home equity growth.

“First, the tight real estate market has inflated real estate prices in many locales. In other words, people buying homes today are likely buying at the high-end of the real estate valuation cycle,” Johnson says. “In addition, 30-year mortgage rates have not been this high since 2000. People buying homes today are taking out mortgages at much higher rates than in recent memory, and these inflated rates result in a larger percentage of household income being consumed by mortgage payments.”

Indeed, the higher costs of mortgages and homeownership are causing many prospective buyers to wait things out in the hopes that prices and interest rates come down. However, if you are really ready to own a home, there’s a risk to postponing a purchase — and not just because the inflated costs may be the new normal.

“It can mean missing out on potential home equity growth,” says Shawn Malkou, managing broker with X2 Mortgage of Chandler, AZ. “Despite current market conditions, homeownership will almost always be a valuable way to build wealth over time. The sooner you can get into the homeownership game, the sooner you’ll be able to start building wealth.”

Dunbar agrees. “Delaying could mean confronting even steeper home prices down the line, consequently stalling the advantages of homeownership and the potential for wealth accumulation that could benefit future generations,” he says.

How to pass down property

There are different ways to transfer property and assets, including your home and its home equity, to your chosen heirs. Here are the most common options.


A will provides instructions for your named executor to distribute your assets, including real property, to the beneficiaries you designate. Relying on a will ensures that you, the owner, get to choose who inherits your home. On the downside, will bequests will have to go through probate court, which can be costly and take time. And because a will is a public document that can be reviewed by others, it provides less privacy.


Placing assets like a home in a trust is a common estate-planning technique. A legal entity that you create, the trust essentially takes the title to the home, then distributes ownership to your designated beneficiaries on your death or at a certain date you specify. Trusts let you distribute your home more easily and privately without the hassle of probate court; they also help you reduce or avoid gift taxes and, if they are irrevocable, estate taxes too. Homeowners in particular can opt for a qualified personal residence trust (QPRT) to bequeath a primary residence or a vacation home. The owner can remain living in the home until a predetermined end date, upon which title is transferred to their beneficiary. On the downside, creating a trust can be expensive — you need a lawyer to make sure everything is set up properly and worded precisely. QPRTs are especially complicated: The end date must be set carefully or estate taxes could be triggered after all.

Co-ownership/Joint tenancy

An alternative method to pass on property to your heirs is joint tenancy, a form of co-ownership. Although co-ownership is usually established when you buy a property, it can be done later on too. Basically, this procedure means putting your heirs’ names on your deed. Full ownership of the home then transfers to them when you pass away. The plus side of this approach is its immediacy: again, you bypass probate court and your heirs have instant control of the home. The downside: Making the heir a co-owner means they must agree to a sale, refinance or other transaction that affects the home. Also, there may be gift tax consequences for the original owner and the heir may pay more in capital gains taxes if/when they sell the property.

Transfer on death deed

Instead of adding a co-owner to a deed, you can create, sign, and record a transfer on death (TOD) deed, or a TOD designation to a deed. With this action, you’re designating a beneficiary to the home, as you would for an insurance policy or an investment account; upon proof of your death, it goes immediately to the beneficiary. The pros of TODs include its efficiency and avoidance of federal gift taxes. Unfortunately, many states don’t allow TOD deeds.

Home Equity
Home equity, generational wealth and redlining
It can be harder for minorities, people of color and those living in certain areas to create and pass on generational wealth. Among the reasons why goes back to redlining, a real estate practice during the mid-20th century in which public and private housing industry officials and professionals designated certain neighborhoods as high-risk, largely due to their racial demographics, and denied loans or backing for loans on properties in those neighborhoods.

Even though redlining was outlawed by the Fair Housing Act in 1968, its legacy persists — affecting homeownership rates, home values and the financial assets of the targeted groups and their descendants. Many economists and social historians attribute much of the ongoing racial wealth gap to the practice, and the way it effectively put minority families behind in the asset-appreciation sweepstakes.

Challenges of passing down property

Johnson cautions that purchasing residential real estate and building home equity doesn’t necessarily guarantee a foundation for a family fortune. “I believe there are better ways to build generational wealth: specifically, investing in a diversified stock portfolio,” he says.

Certainly, passing down property can be problematic. “Among the primary issues are the potential estate or inheritance taxes incurred based on the property’s valuation,” Dunbar says. That can be true of any asset, of course, but “additionally, unresolved liens or mortgages on the property can further complicate the handover process.” Inheriting a house with a mortgage can especially be burdensome to heirs, if they’re not in a position to assume the debt. “Moreover, older properties might require substantial maintenance or renovations, adding further challenges for the inheritors,” he notes.

Then there’s the problem of liquidity. Home equity wealth can’t easily be shared or divvied up among multiple owners, the way cash or stocks can. You “can only monetize the home equity by selling the home,” Johnson says. That can be a problem if a home has more than one heir, Dunbar points out: “Differences in opinion among heirs about the property’s future – such as whether to manage, divide or sell the property – can also arise.”

Bottom line on home equity and building generational wealth

Purchasing and owning a home can be a sound path to generational wealth. But it should be considered carefully within the context of your financial goals and circumstances. “If buying a home stretches a budget to the point of constant financial stress, it might not be the right move,” says Malkou. “However, potential homeowners need to understand that the longer they own a home, the more affordable it will become and the quicker their home equity should grow.”

Home equity’s illiquidity can make it a hassle for inheritance. Still, “the enduring value of real estate and the track record of homes appreciating over time make it a powerful tool for wealth creation,” Dunbar states. “By building equity and leveraging the financial perks of owning property, you can establish a solid foundation for long-term prosperity.”