Rumor has it millennials aren't buying homes because we just can't stop ourselves from buying avocado toast all the time. Spoiler alert: That's not true. It more likely has something to do with student loans, the economy, and the terrifying question that comes with finally feeling like a real adult: Am I really ready to own my own house? That question is often shrouded with anxiety, and with good reason—most of us really aren't sure if we're ready to invest in our own home, or if we're even qualified. Renting seems easier and more convenient, but it feels like there's a time and a place for bucking up and investing in some real estate—but when is it?
Should You Start Looking Into Buying Your Own Place?
When you're trying to decide whether or not to renew you apartment lease, this question is a good place to start. Aaron Galvin, owner and managing broker of Luxury Living Chicago Realty, recommends asking yourself two questions on your quest to decide whether or not you're ready to buy your own home:
- How familiar are you with the city/neighborhood?
- Where do you see yourself in one year, three years, and five years?
Galvin says if you have lived in city or neighborhood for a while and love it, investing in a house might be worth it for you. If you're living in a city you aren't particularly fond of for work or some other reason, it might not be the best time to invest in a home. Most people will only settle for so long, and when you get the itch to go somewhere you're more attracted to in a few years, owning a home will only make that harder.
The Pros And Cons Of Renting
No question, renting is easier. There's no mortgage to worry about, which is huge for budget-conscious consumers or young people who would rather spend money on travel and experiences than a house. There's a myth that paying rent is a waste of money, but according to talk show host and businessman Dave Ramsey, this isn't true. "Renting for a season while you pay off your debt and save up a pile of cash will set you up to win big in real estate over time," Ramsey says.
Renting doesn't just have to be a way to save up for whenever you're ready to purchase a home—there are other perks, too. The flexibility it offers is huge—the average American moves about 11 times in their lifetime—so for millennials who are still trying to figure out who they are and where they want to be, signing a lease is a lot easier than signing a deed. If you have always wanted to live somewhere but haven't spent time there outside of your biannual winter vacation, rent before you buy—you won't be sorry. Don't forget the help that comes from having a handy dandy landlord—being off the hook for big repairs and not having to waste time searching for reliable contractors can be a huge relief for people who aren't ready for the responsibility that comes from owning their own home.
While renting comes with a pretty hefty list of perks, there are some cons, too. The flexibility of yearly leases is convenient, but it means you're at the will of your landlord—for better or worse. Sure, they're responsible for repairs, but they also get to decide when those repairs happen and who makes them. Making changes to the apartment is often out of the question—no matter how badly you want to paint those walls light green, you're stuck with the shabby white that was there when you moved in, if that's what your landlord wants. Laws surrounding rental increases may vary from state to state, but generally, when you're up for renewal, your landlord is free to raise the cost of your rent. Though Ramsey affirms that renting is not a waste of money, longtime renters might struggle to accept that—it isn't money down the drain, but it isn't money going toward the future, either. And, even worse, some landlords don't allow pets on the premises, which is a bummer for everyone involved.
The Pros And Cons Of Buying A Home
Buying your own home gives you the opportunity to truly make a space yours, possibly for the first time in your life. Wallpaper can be torn down, put up, and painted over to your heart's content. New floors can be put in, walls can be drilled into, and other permanent fixtures can be changed. You can adopt a fluffy dog and let him get fur all over the carpet—this is the freedom that comes from owning a home. You're on the hook for all these changes, of course, as well as any repairs that need to be made to the house while you're living there, which can be pricey and time-consuming. Interest rates are low, though, and at 4%, Licensed Mortage Advisor Richard Staley says rates have nowhere to go but up, so it's best to buy before they rise (right along with the cost of rent). If you have a stable income and money you're willing to invest, owning a home might be right up your alley. It's a great option for people who are looking for a bigger, more permanent and personalized place to live, as well as people who are looking to start a family and need space and roots to make it happen.
While homeowners have the privilege of decorating and remodeling to their heart's content, it's a lot harder for them to relocate on a whim—or even after a lot of contemplation. Sure, they can move, but there's no guarantee their house will sell when they decide to do that. Lots of people end up temporarily owning two houses at once, which often means double the bills—and double the stress as they unpack boxes and wait anxiously for their real estate agent to call them with good news. Once the house is bought, there's a chance the previous owners might make a decent return on their investment, though experts are speculating that easy returns on housing investments may be a thing of the past.
Making The Leap
Deciding to take the leap and buy a home is tough—and knowing if you're ready is even tougher. Below are the conditions Ramsey suggests potential homeowners meet before deciding to invest in a house:
- Be debt free and have an emergency fund for 3-6 months saved up.
- Save enough for at least a 10 percent down payment—20 percent is preferable.
- If you're married, wait until at least a year has passed to avoid adding stress to a new marriage.
- If you aren't paying in cash, get a fixed rate mortgage for 15 years or less, and keep your payments low.
Ultimately, you should invest in real estate when you are ready—financially, mentally, and emotionally. Owning a house can be deeply rewarding, but only if you are 100 percent sure you're for the commitment.