You can either pay off your mortgage or you can pay of someone else’s. You can pay someone else rent or you can have rental income. You can build your own equity or you can build someone else’s equity.
These are are just a few things to think about as we break down a few more reasons why buying a house can be a very smart move for a young person.
Many people might tell you not to buy real estate. Why? Because you have to come up with the money for a down payment, pay property taxes, and then there’s the maintenance. Yes, buying a home can be a lot of work, but isn’t anything worth having a lot of work? Buying a house might not be for everyone. However, the flip side to this argument is that buying real estate is a great investment, especially at a young age.
8/10 millionaires own real estate. The numbers don’t lie, that’s 80%!
If you are looking to have a future with secure financial freedom, real estate is the place for you, my friend. Buying a home with the intent to rent it, you will be able to reduce your liabilities and increase your monthly cash flow. If you don’t own a home, you are most likely renting. So on one hand, you could be helping someone else with their mortgage and equity or on the other hand, you could have others do that for you.
Still not convinced? Let’s look at a quick 10 reasons why buying a home when you’re young is very beneficial for your financial future.
Most of the time, people don’t see real estate as an investment vehicle. That’s probably why so many people rent instead of own. When you buy a house or an investment property as a young person, it makes a lot of sense because there is a good chance you’re going to have to live with roommates anyways. If you rent, then you will have to pay your landlord. But if you buy, you can rent out rooms to your friends and pay nothing, while still paying off your mortgage.
The median, according to Trulia.com, for rent per month in Madison from May 23rd to June 22nd was $1,652. You can buy a home for less than that if you rent out the other bedrooms. There is a very good chance that those payments will cover your principal, interest, taxes, and insurance costs.
Not only are you saving $1,500+ a month, but you’re also receiving rental income as well that is paying off your mortgage. You are living for free! How many people your age or any age, can say that?
Homes decrease and increase in value depending on the how the real estate market is doing. A home is still a great investment, especially when you are young. According to Trulia.com, a 2-4 bedroom home will appreciate at 4.5%-10.4% per year in Madison. Buying a home requires a plan. You’ll need to run the numbers, know the market and make sure you’re buying in the right neighborhood. I know this sounds like a lot of work, but that’s what Realtors are for. They have the much needed experience and wisdom in when and how to buy a home.
The longer you own a home, the more it will appreciate year after year. That is why it is good to start young, because you’ll be able to build the appreciation on your house earlier than most people.
3. Return on Investment
Let’s say or in your twenties and you are looking to make some good investments. You can do this in a few different ways. One of those ways could be to invest your money in the stock market. If you invest $5,000 in the stock market and it gives you a 10% return, that means you made $500. Now, you could also invest your money in real estate. If you use that $5,000 on a down payment, you can afford a house that’s $125,000 (4% down). If you make 10% on your investment, you just made $12,500.
As you can see, that’s a total of $12,000 more in returns than if you invested your money in the stock market. It also will reduce your liabilities, build your equity and if you’re renting out bedrooms you’ll have an income as well! You can look at investing in real estate in many ways, but you can’t deny that with a little bit of hard work and a strategy, you can have a substantial return on your investment.
4. Automatic Savings Account
Do you have trouble saving or a spending problem? A home is a forced savings account. It also gives you a way to save for retirement. You decided to buy a home for $200,000 and it appreciates 4.5% every year. After only 5 years, it will be worth $245,000. That’s a profit of $45,000.
This is a great way to build your wealth. If you did this 10 times in your twenties, after 5 years you will have made a profit of $450,000. Now let’s say you kept those properties for 30 years instead of 5. At 60 you will retiring on a little under $5 million if you buy 10 properties in your twenties.
It is important to keep in mind that there are still liabilities associated with home ownership. Nevertheless, a home is going to be your biggest asset, especially if you have trouble saving money.
5. Building Equity
Why have we been talking so much about equity? By definition, equity is the value of a property after the subtraction of the charges against it. Building your equity is very important because that’s what you will be living on when you retire with your forced savings account. Starting to build your equity at a young age will allow you an earlier retirement.
A lot of successful landlords don’t work. They are able to live off of their real estate income while also using their forced savings account to save to retirement. Investing in rental properties will give you the ability to live more financially free and as a young person, you will be able to learn and earn using all these techniques.
6. Passive Income
If you make $1,000 a month in rental income, that is income. You’re making $1000, no questions. It’s crucial to understand that if you treat your home or rental properties like a business, then it is completely an asset. You are earning income and it is one of the best investments you can make. America is full of people who want to rent, so why not rent from you?
Rental income is also a great way to generate income without having to do too much. You will have to answer phone calls from tenants, maintain the home, among other requirements of a landlord. However, owning real estate is one of the best ways you can create this kind of “passive income”. It will allow you the ability to live without having to “work” if that’s the route you decide to go.
7. Express Yourself
As a young adult, you are probably full of ideas of how to express yourself. You can do this with your property! When you buy real estate, it gives you an opportunity to customize and construct what you are looking for. As a tenant, you would have to run things by your landlord, but if you are the landlord, you can make those decisions yourself. You can choose the upgrades, you can decorate the way you like and you can make any additions you want. You want a deck to be able to entertain your friends outside? Build it! Want a modern rustic interior? Get on Pinterest and do it yourself! The possibilities are endless!
8. Financial Freedom
Buying and owning real estate when you are young will give you the opportunity to acquire new responsibilities, that you wouldn’t otherwise have if you were renting. It will permit you to save money through paying your mortgage, obtaining income, and over time building the worth of your home should it appreciate. By making an investment like this, you can also begin to see the financial freedom it brings. If the future you could say some things about making a real estate investment, I’m sure one of them would be, “start young!”
9. Understanding Finance
Many people may think, that as a young person, you have no idea what it means to make a smart financial decision. However, you and I know both know they are wrong. Why else would you be reading this? Buying real estate is a great way to learn. Right now, it’s easier for you to take some risks. When you grow older and settle down, you’ll have a family and kids and your time is committed to other things in life that you didn’t have when you were young.
As I stated before, 8 out of 10 millionaires own real estate. Being able to understand what they already know, comes with an education. One of the best ways to learn is to not be afraid to make some mistakes and maybe fail at first, especially when you are young and have the time/energy to do it. Don’t be afraid. Take your financial future into your own hands and make some good concrete decisions.
10. Availability of Time
Many young people today don’t want to invest in real estate because they don’t have the time. Unfortunately, you’re not going to have more time as you get older. In fact, you’re going to have less time as you gain new responsibilities, such as a family and kids. So, this is an opportunity for you to rise above your generation and put in a few extra hours in order to have a more financially free future.
A lot of time goes into buying real estate, but most of that time should be put in before you purchase a property. You need to research, educate yourself, understand how the market works, and where is a good place to buy and at what time. These hours that you put in before you buy, will be some of the most important. That is why it is very critical that you also invest in an experienced and trusted real estate agent.
Take this time now, so you won’t be trying to find it later when you have to take care of million other things.
Go ask someone who is twenty or thirty years older than you what they think about investing in real estate now. Ask them if they would have bought real estate at a young age and I would guess that their answer would be yes.
In certain situations, it may not make sense to buy real estate. If you have any questions about buying real estate, don’t hesitate to give me a call at (608) 575-6784 or email me at email@example.com. I would be extremely happy to give you some advice or even potentially become your integrity home agent.