Those of us who are well past early adulthood often look at the Millennial generation with a sense of consternation. You know the stereotypes. The young and entitled, living in their parents’ basements, working in gourmet coffee shops and gaming until the wee hours.
While it may be good for a laugh, the Millennial generation is proving that bucking trends and disrupting the corporate world are not bad things. They are capable, resilient, and valued by their employers. However, in a recent CNBC interview with David Bach, co-founder of AE Wealth Management and author of multiple New Your Times Best Selling books, suggests that one trend may ultimately be hurting Millennials: they aren’t buying homes.
“The biggest mistake millennials are making is not buying their first home…If you want to build real financial security, real wealth for your lifetime, then you need to buy a home.”
There are many reasons that Millennials are not making the leap into homeownership. Depending on the study, you may find many plausible reasons:
According to David Bach, Millennials shouldn’t let difficult markets deter them.
“Homeowners are worth 40 times more than renters. Now, that first home doesn’t need to be a dream home, it can be a very small home. You might literally have to buy a small studio apartment, but that’s how you get started.”
The fact that owning a home is the first step in creating wealth is a common school of thought. As home values increase, homeowners gain benefits on two fronts: paying down the principle on the mortgage and increasing home values. However, with Millennials delaying purchasing their first home, they may be limiting their ability to cash in on this compounding benefit in the future.
Bach also has advice on the mortgage front. If you truly want to build wealth quickly and be the first of your peers to retire at an early age, forego the 30-year mortgage.
“Don’t do a 30-year mortgage. You want to take that 30-year mortgage and instead pay it off early, do a 15-year mortgage. What happens if you do a 15-year mortgage? Well, one, you pay the mortgage off 15-years sooner, that means you’ll be able to retire in your fifties. Number two, you’ll save a fortune (on potentially hundreds of thousands of dollars in interest payments).”
If the stereotypes are to be believe (and I for one, don’t believe them), there may be one area in which Millennials could struggle to follow Bach’s advice. To manage a 15-year mortgage, it may require the one thing that Millennials value most: sacrificing the immediate gratification.
“For fifteen years, you got to brownbag your lunch. Think about that! Brownbag your lunch literally for fifteen years. You can retire ten years sooner than your friends. You’ll have real wealth, because you bought a home – you’re not a renter. And you’ll be financially secure for life.”
Give up the daily $5 gourmet cappuccino, exchange the expensive gym membership for the workout room in the condo complex, opt for a little more Wal-Mart and little less Whole Foods. Do whatever it takes. Seems like good advice, no matter what your age.
The Bottom Line
Buying a home is a scary prospect, especially if you are single or anticipate moving around before settling down. However, every rent payment you make is still going to pay a mortgage…just not yours. With the steady, continued rise in home values in the DC and Northern Virginia region, you will build equity quickly, especially if you make improvements to the home. Why not start building the foundation for future wealth now?
The Gresh Group can help you find the perfect home for your needs, in any price range, as well as help you sell your current home. If you have any questions, give me a call at 703-328-3434 or send me an email at Janet@TheGreshGroup.com. We can discuss specific details about your property and what buyers are looking for in your area. I look forward to hearing from you!