Traditionally, Americans are use to the age old practice that once they reached 18 years old they are ready to step out into the real world and forge their own paths. Part of that path generally begins with finding some place to rent. The difficult decision for most young adults is when to make the next big step and become a homeowner. With everything in the news about the struggling real estate market and unemployment rates at record highs there seems to be no clear choice for young adults.
One of the first things that a potential home buyer should look at is the projected length they expect to stay at their current job. Many young adults tend to change companies more frequently as they search for their career than those in their thirties on up. If you agree that you are anchored in your company and there is not the possibility that you are going to move within the next 5 years then you are ready for the next step.
Get to know your real estate market. The current housing market expects that there is going to be very little growth in property values over the next 5 years. Keeping this in mind removes the concept of purchasing a home as a financial investment unless you plan to remain in the home for 5 years or more. There is no doubt that becoming a homeowner will add to your personal wealth, but not as much as you would think. My point is that since there is little expected growth in property values and most loans are structured in a way that the first several years of the loan are interest only payments there is no expected growth in your invested dollar. This will keep you from making some one of the biggest mistakes that many made before the market crashed. There are some benefits such as tax deductions and pride in ownership, but the reality is that a home purchase in today’s market should be measured as a personal gain and not a financial one.
With interest rates at their lowest levels in years there are opportunities to obtain a mortgage payment that will compare to the increasing rental rates. Due to the increased criteria that most banks and lending institutions are requiring many individuals are finding that they do not qualify for a home and are being steered into rental units. This flood of renters is driving rental rates up. So there is a close proximity between what the average rental rates are and what a small mortgage can cost. Most buyers will find that it is easier to obtain a mortgage loan on a mid-range condo due to the lower prices. There are many added benefits to purchasing a condominium. Other than a required association fee that many will have in any new home community, there are little to no costs for outside maintenance. Condos also make great properties to rent once you decide to move on to a single-family home. Being a landlord can be a tricky job but the financial reward of owning rental property will increase your overall personal wealth.
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I also think that condos make great rental properties once you decide to move on to a single-family home.
I agree with xiangqule, to an extent. Condos are almost like glorified apartments, but they are easier to afford and they give young adults a taste of ownership. However, there is usually a strict HOA, and you have limitations to what you can do with your home.
yes, I think so, Condos are like glorified apartments, but as there is a strict HOA, you have limitations to do with your home
Good advice but also easier said then done. I’m a young adult and I’m lucky to have my job still. I’ve got my hours cut and no raise for 2 years now. It’s scary to commit to a big debt you might not be able to pay.
I would be a good investment for my parents but they are interested in helping.
The above comment from Kris touches on another aspect of the current recession. People who are afraid of losing their job or having hours cut, are not buying homes. People are also postponing marriage until their financial situation improves and are moving back in with their parents or “doubling up”. These are new households that will not buying homes and reducing the housing glut.
This makes me wonder whether or not it’s best for young adults to maximize their time in their parents’ nests now…
I mean, who knows if the real estate marketing will further deteriorate in the next 5 years.
Instead, why not maximize their savings and minimize their expenses until it becomes clear that real estate is again on the move…
@Kris – if I were you, I’d be doing this. This may be the best way to get your parents to help (if you can stand it!
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@Wayne – during a buyers market, there’s always a reason why people aren’t buying. Likewise, during a sellers’ market, there’s always a reason why more people aren’t selling… I guess the right thing to do is always counter-cyclical in that way…
-JM
It couldn’t be a better time. I unfortunately bought at the up turn of the market several years ago and could not sell for the value of the home. I see many new home buyers getting great deals today.