The Quick “Why Buy versus Rent” Guide for a Millennial’s First Home Purchase
May 30th, 2015
In 2007 the United States witnessed how real estate is an investment and like all investments, real estate is subject to losing value by economic forces unrelated to the owner. Now as Millennials look to buy their first homes, it isn’t surprising that the last eight years of real estate turmoil has many scratching their heads wondering if the benefits of ownership outweigh the risks.
Here is some quick questions to help you decide if homeownership is the right decision.
Do I have six months cash reserves if I lost my income? No matter how inexpensively you buy the home, life can throw you a “curve ball”. Lenders begin foreclosure procedures within 90 days of mortgage nonpayment. So it is important to have enough reserves to give you time to make a long term plan if your “cash flow” becomes a “cash trickle.”
Will owning be less expensive them renting? Your rent on a two bedroom with two bathroom condominium is $1500 and to buy the same condominium with mortgage payments, taxes and association fees is $1650. Is buying better? Most experts say yes for these reasons:
Rent payments is not tax deductible. However, mortgage interest and property taxes are tax deductible. So in our scenario above if the taxes and interest equal $150 or more a month, than owning is less expensive than renting.
Rent payments do not produce a return on investment. Homes appreciate in value. Even considering the initial 2007/2008 real estate slump, history supports investing in real estate for long term results. For example $235k home becomes worth $485k at 3% appreciation after 30 years, but it becomes worth a whopping $649k at 4% appreciation.*
Do you plan on living in the same place for five years or more? The costs of buying a home often surprise first time home buyers. Surveys, inspections, loan origination fees, and closing costs increase the initial investment. Don’t get lured by the large industry hyped by the media with sensational stories of “flipping” properties to make a profit. If you are buying your initial property and inexperienced, be conservative. Plan on making a long term investment because if you buy and sell again within the first couple years of ownership, you increase your chances of a real estate investment being a real estate loss.
Finally, being inexperienced in buying a home is a good opportunity to work with people who specialize in real estate. Find a real estate agent with experience. This is very important when you are buying your first home. If your agent has the same amount of real estate experience as you, they can’t help guide you away from the pitfalls. Google the agent, look for referrals on line, ask if the agent works with a team (mortgage broker, surveyor, property inspector) that also have experience helping first time homebuyers.
Homeownership is valuable tool in building wealth over the course of your life and starting early is a positive step but one that has to be taken with care and help from real estate professionals so your dream home is truly your dream home.
Attorney Renee Marie Smith is an 18 year real estate expert, speaker and author of “My Short Sale Guru’s” real estate book series available on Amazon. She is nationally published in NAWRB Magazine, Palm Beach Woman, Women’s Council of Realtors PB quarterly, Huffington Post, Mortgage.Orb and Forbes. @mygurupublishes