Self-made millionaire and co-founder of AE Wealth Management David Bach tells millennials that if they aren’t prioritizing homeownership, they’re making a costly mistake – and, the single biggest mistake this generation tends to be making. Buying a home, he says, even with the tax law changes, is the quickest path to wealth in America.
While owning a home has long been a dream for many Americans, as the housing market continues to roll up and down like a roller coaster, does it really make more financial sense for millennials to get a mortgage rather than rent a house? In Bach’s bestseller, The Automatic Millionaire, he writes:
“As a renter, you can easily spend half a million dollars or more on rent over the years ($1,500 a month for 30 years comes to $540,000), and in the end wind up just where you started — owning nothing.
But it’s not all that black and white.
The Pros of Renting
When you rent a home, your monthly costs are typically fixed, though your fixed, monthly rent may or may not include utilities like gas, electric, Internet or cable. What you won’t have to worry about is unexpected repairs and replacements as your landlord will be responsible for paying and fixing any problems like that, from a burst pipe to a leaky roof. So, even if your rent price is expensive in a big city like Minneapolis, you still have a flat price with no extra repairs to cover.
If you find yourself in a situation where you have to move, perhaps for a job, it’s far easier to get out of a lease than to sell a home. If you aren’t sure how long you’ll be able to live in the area, or if you don’t know if you’ll be able to afford maintenance and/or repairs, renting may be the way to go.
The Pros of Buying
As Bach maintains, buying a home can be an excellent investment. If the home prices in your area have been rising, purchasing now means that you may be able to stay in a neighborhood you love but could be priced out of in a few years. Even if you don’t end up staying long term, when property values rise sharply, it can mean rather significant profits.
One of the keys to success is to choose the right lender that can help you understand what you can afford and how purchasing rather than renting can better improve your financial situation in the coming years.
Buying as an Investment
Millennials who purchase a starter home may be able to take advantage of the opportunity to convert it into a rental property. That can be an excellent source of additional income when buying a home for the long haul in the future. Hard money loans may be ideal for this situation. While they aren’t right for every investor or investment, they can be an outstanding starting point that allow you to buy property with very little money of your own. Then, once you’re at least somewhat established as an investor, it will be easier to secure a line of credit from a bank with a much lower interest rate rather than taking out a hard money loan.