Your Mortgage is a Poverty Trap
Firstly, I should probably bring you up to speed on how I define these financial terms:
“Wealth, is measured in Time, while Riches are measured in Dollars.”
In other words, if I were to win a million dollars in the lottery I could maintain my “rich” status anywhere from four days, to forty years. If I were to be able to live off $100,000 per annum for 60 years without having to work, I would consider myself wealthy, even though the latter is not glamorous by most standards.
Given the choice for the average person, I would rather wish wealth upon them. History has shown that riches don’t always last long.
I have come across a good number of people who have used the tax advantage afforded to primary residence owners as a good reason to “invest” in a primary residence. Besides the basic, an investment that costs you money instead of making you money is in real terms a liability; if you have to live in a house for a couple of years then move to realize an untaxed profit (1031 Exchange and Capital Gains Exclusion) to make money, you are not creating wealth so much as riches.
This is not passive income so much as transactional (earned) income, and as is always the case, you will always have to perform another transaction to keep making money.
I would rather work towards building a base that generates passive income, where a transaction I complete once makes me income perpetually while my time is freed up to perform another transaction to grow my income base.
You’re Doing it All Wrong
I will always refer to corporations when discussing wealth creation because I believe they are pregnant with wealth creation principles that we far too often overlook.
My biggest problem with the primary residence school of thought is that it uses access to credit, a priceless tool to be used for wealth creation as means to get you into a long-term liability, all the while stifling your potential to scale, create and realize wealth.
Corporations don’t use credit in this way. They use credit as leverage. You should use your credit in the same way. Corporations are not concerned with owning the premises from which they operate so much us expanding their foothold in the sectors in which they operate. Why then are we bent on heading in the complete opposite direction?
You need to use your credit to grow your income base. Businesses use a combination of putting money aside and using leverage to grow themselves.
Individuals use credit to purchase liabilities and save to grow themselves.
By comparison, the latter makes no sense, yet the majority of the world thinks this way and each person hopes to build great wealth in this way.
How to Build Wealth
To build wealth you need to learn the difference between debt and leverage.
Debt allows you to enjoy the benefits of money you don’t have and pay for it in arrears. Leverage allows you to enjoy control of an asset you can’t afford while letting the asset pay for itself to eventually become yours.
The banks offer you credit. The onus lies with you to use this access to credit for debt or leverage.
You can tell yourself whatever story you like, but at the end of the day, your primary residence (the mortgaged house you live in) costs you money. It does not make you money. Even when you have paid down the mortgage and own it outright, you still have to paint it, remove the weeds growing through the driveway, mow the lawn, repair burst pipes, replace the water heater and redo the roof. All of this costs you time and money, money earned by the sweat of your brow. This is the classical definition of a liability.
Owning a secondary residence (the mortgaged house your tenants live in) if done correctly makes you money. Yes, again, depending on your contract, you may still have to paint it, remove the weeds growing through the driveway, mow the lawn, repair burst pipes, replace the water heater and redo the roof but your tenants pay for all these costs and you still have money left over to keep for yourself.
This is an asset. This is the power of leverage.
A Mortgage is Opportunity Lost
It is true, your mortgage does hog your access to credit that could otherwise be used to build your balance sheet and not just to increase the debt burden of your future self. While all of this may be true, AND IMPORTANT, a mortgage robs you most at subconscious level.
I can’t tell you how many times I have watched people have to forgo potentially massive opportunities because of, for the most part, their mortgage. It could be a myriad of things:
- A business venture
- An untenable employment situation
- An opportunity to learn skills that could make you wealthy
Many times you have to forgo opportunities that may come your way because you can’t take risks because you have a mortgage to pay. Gradually, you stop “thinking out of the box.” Eventually you become one of the sheep you so passionately did not want to be a part of when you were a youth thinking about your future.
In Conclusion
Firstly, when thinking about creating your wealth, you need not only to think of costs, such as interest and how you need to pay down your mortgage quickly so that you can pay less in interest. You also need to think about opportunity cost. What could happen if you were to use your savings and credit in a different way? Any look at an amortization schedule will prove to you that the bank will always win at the end of the day, whether you pay down your mortgage quickly, or pay it down over the full term. Yes, you pay them less in interest payments by paying it off quickly, but you also, by doing so, expose them to less risk. Either way, they are okay. They still win at your expense.
Secondly, you also need to understand the credit can either be used to enslave your future self, what is called “Debt”, or to enrich your future self, what is called “Leverage”.
Thirdly, you also need to understand the rich seek to control stuff, while the middle class seek to own stuff. Mark Zuckerburg does not own Facebook; this is why you can buy shares in Facebook today, but he certainly controls it. Jeff Bezos does not own Amazon, but he definitely controls it. Bill Gates does not own Microsoft, but he controls it. Why do you so badly want to own your property outright?
Stop trying to build wealth through your paycheck.
Use your paycheck to get you access to credit which you should use as leverage to build wealth. Don’t hog your credit buying liabilities. Free up your credit so that you can use leverage to scale into a portfolio through which you can become wealthy. Get rid of any debt that is not making you any money.
If you are bent on owning a primary residence, let a portfolio you have built through leverage pay for your mortgaged home.
Interesting take in the piece. It dives into wealth vs. riches and the leverage idea that many people overlook. In Suplery we see this same mindset applied to beauty pros who want control over inventory and orders rather than being blindsided by stockouts. My statement can be biased, but I’ll admit Suplery helps professionals keep a clean, predictable flow—like real-time stocktakes and a single dashboard for suppliers—that’s a game changer for barbershops and beauty studios balancing cash flow and growth. If you’re aiming for a scalable routine, Suplery offers wholesale pricing and a seamless shop-in-one platform to simplify buying decisions. Consider a starter kit and service protocols to get started faster.
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