Lets discuss why 74% of millennial aren’t buying homes or real estate investing – enjoy! Add me on Instagram: GPStephan
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Studies have found that younger people are likely to move to dense cities in pursuit of a higher salary, but with that comes the cost of unaffordable housing and skyrocketing demand.
With this, we’re finding that millennials want the flexibility to re-locate on short notice for a better career opportunity. Home ownership, in that situation, doesn’t make sense…why tie yourself down to a property when next year you might be on the opposite side of the country?
We’re also, as an entire society, slowly shifting away from owning – and into a sharing or renting economy. Why own a car you use a few times a week, when you can just uber instead? Why go to a hotel when you can AirBnb? The ability to rent just gives you more convenience, for a smaller, short term cost.
But, is renting like this really the smart financial move? Or are millennials just paying extra for the convenience of being able to move whenever they want without being tied down?
Obviously, if the real estate market declines, then chances are – renting becomes cheaper. And if the real estate market continues to appreciate, then BUYING becomes cheaper…but overall, it’s important to understand a few things when you buy a home:
1. First, there is an opportunity cost to your down payment anytime you buy a house. If you’re putting $50,000 down on a property, you’re giving up the opportunity to invest that money elsewhere at a higher return.
2. Second, your cost isn’t just your mortgage payment…it’s also your property taxes, it’s insurance, and it’s normal property repairs which add up over time.
3. Third, buying and selling a property is expensive…between commissions and closing costs, it’s about 6% of the selling price right off the top. So you’ll need to sell your property 6% higher JUST to break even without coming out of pocket.
Overall, however, the rule of thumb is that if you’re going to be living in the property more than 8-10 years, then buying tends to be the cheaper alternative. Any less than that, and you’re speculating that values will increase at such a rate to cover your costs…and if they don’t, you lose money.
I don’t think it’s surprising, at all, that millennials are less likely to buy…on average, they’re less likely to be in the financial position to buy than previous generations, and the expectation of buying real estate is much lower than in previous generations. The mindset has shifted towards a temporary, flexible, convenient lifestyle, and owning real estate to live in – on average – is something people do as they settle down long term.
So in the end, if millennials aren’t buying…that’s good news for me, because as a landlord, that means they’re renting. And also, it means less competition for me when I’m buying real estate…so all around, if you’re investing, it’s a win from a financial perspective.
Anyway, that’s my thoughts on what’s going on and the recent trend away from buying – it’s a shame so many people can’t afford to own real estate, but from a lack of demand, it’s a decent time to be a landlord.
For business or one-on-one real estate investing/real estate agent consulting inquiries, you can reach me at [email protected]