Millennials are swarming with investment advice – start saving early, take advantage of your employer’s 401 (k) correspondence and for heaven’s sake, throw those high interest credit cards away! But for many who are looking to build a retirement nest egg, financial advisors say buying a home is one of the best investments millennials can make.
“Buying a home is one of the smartest financial decisions you can make in your 20s,” says Riccardo Ravasini, managing director of Rava Realty, which manages properties in New York and Florida, “because it is protected against inflation and an asset that does not disappear like stocks can. ”
Across the country, Millennials have been reluctant to buy a home for a variety of reasons, including a volatile job market, high student debt, and the postponement of life events, such as marriage. The homeownership rate of millennials fell to a low of 36.2 percent in 2014, according to U.S. Census data, though it’s also interesting to note that the millennials represent the highest percentage of first-time home buyers.
Finance and real estate professionals say the numbers are slowly improving and hope more millennials will soon recognize the benefits of homeownership. Here are some reasons why financial experts say young adults should invest in the housing market:
You’ll spend smarter. Rent payments go straight into the landlord’s pocket – and at the start of the next month, you don’t have to show anything.
But mortgage payments are an investment in the future, says Tony Via, assistant professor of finance at Kent State University in Ohio. As a mortgage balance decreases, home equity increases, supplementing your own retirement account – not your landlord’s. Better to spend your money on your own home than on unnecessary, short-term expenses that won’t add value later, he says.
Consider the resale value. Real estate in strong markets such as New York, Miami or San Francisco is a good investment because these areas attract professionals who want to stay there for a long time. Buying in areas where the market is on the rise can increase net worth, says Ravasini.
Home prices in the Big Apple doubled between 1990 and 2000 and again between 2000 and 2012. The Standard & Poor’s 500 index saw a whopping 315% increase from 1990 to 2000, but only 14% from 2010 to 2012.
Take advantage of tax breaks. Mortgage interest is deductible from your income tax, reducing your tax burden on Uncle Sam. And homeowners generally don’t have to pay capital gains tax when they sell if the value of the property increases by less than $ 250,000 and if the house has been occupied as a primary residence for more than two years. It’s a benefit that trumps even a really good IRA or other tax-deferred retirement plan, Via says.
Homeownership Has Emotional Benefits. Landlords are more likely to be invested in the local community and develop interpersonal relationships that create a reliable support system than those who rent.
“Although this is not a major advantage for millennial homebuyershomeownership is also a source of pride, “says Mike Hardwick, president of Tennessee-based Churchill Mortgage.” By investing in the purchase of a home, millennials can play a key role in restoring faith in and preserving the American dream. for decades to come. ”
Low interest rates. Borrowing to buy a home is viewed by banks as a much safer investment than credit cards, and interest rate are always at their lowest. “It’s hard to call mortgage debt a bad financial decision these days,” says Via.
Supplement your retirement income. As millennials consider buying a home, Via says they should think about the future. They will benefit from a home as a warehouse for retirement funds, and their home will likely be paid off in retirement, allowing them to tap into their home equity to fund retirement benefits.
This will help millennials complete their 401 (k) and IRA accounts, which will become increasingly important as the United States struggles to fund Social Security, Via says.
There is a lot of advantages of owning a home, but Chris Copley, regional sales manager for TD Bank in Pennsylvania and New Jersey, urges caution. Buying a home is only for millennials who can afford it and plan to stay in one place for a while, he says.
For potential young owners, Copley’s best tip is to do your research. Talk to loan officers, ask questions, and walk the home buying process from a financial perspective, he says. “Sit down and do the math. My advice always comes down to doing the homework.”
Crisp numbers This is exactly what David Rader, 30, and his wife did before buying their first home on Cape Cod, Massachusetts in August. In an effort to make a wise decision, the couple weighed up how long they expected to stay in the house, the rent potential, and his finances.
“We absolutely had reservations,” he says. “We really wanted to make sure we were here long enough to make financial sense.”