Kalinski: It’s time for Millennials to consider home ownership
The U.S. homeownership rate fell to a 50-year low in the second quarter of 2016, much of which was attributable to Millennials staying out of the market. While some have contended that Millennials are not interested in homeownership, recent studies have shown that 80 percent of people still consider it to be part of the American Dream, and 90 percent stated that they want to own a home in the future.
If you are a Millennial and have overcome numerous barriers likely facing you, including crippling student debt, lack of ability to accumulate a down payment, low inventory and high prices, and lack of mortgage availability, why would you want to buy a home versus investing in the stock market, for example? While diversified investments is, of course, a good idea, here are the top five reasons why investing in Boulder Valley real estate is something you should strongly consider.
1. Real estate is the only investment in which you can live. It is a tangible asset that can fulfill one of your basic human needs (shelter). There are costs to wherever you live; by owning a home, a portion of your “rent” goes to increasing your equity.
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2. There are enormous tax advantages to owning your own home. The mortgage-interest deduction allows you to write off the interest portion of your mortgage each year on your taxes, which can save you tens of thousands of dollars. Moreover, there is no tax on you (“the landlord”) renting your home to you (“the renter”). Plus, if you are single and sell your home, you can exclude up to $250,000 of your home’s appreciation from capital-gains tax. If you are married, it doubles to $500,000.
3. Speaking of appreciation, the Boulder Valley has been the best place to invest in housing in the entire country. Since 1991, the Boulder Valley has appreciated a whopping 354.78 percent, which is about 47 percentage points more than the next best market, which happens to be Denver. Looking ahead, www.smartasset.com ranked Boulder as the No. 1 place for continuing growth and stability. Thus, if you are considering investing in real estate, you are already in the best place in America to do it.
4. Next is the impact of transaction fees compared to investing in stocks, such as mutual funds. When you sell a home, if you are like most Americans, you will use a Realtor to help facilitate the process. You pay a fee that, while completely negotiable, is often below 10 percent. In exchange, your Realtor, as your agent, provides you with marketing, negotiating, and other services — and owes you a number of fiduciary duties, meaning she is legally required to promote your interests with the utmost fidelity, seek the best price and terms possible for you, and counsel you as to the material benefits or risks involved. Compare this to a typical stock broker/dealer, who can charge you many opaque fees, often totaling more than 3 percent of your investment per year, which, over time, can end up costing you 50 percent to 70 percent of your nest egg. Moreover, approximately 90 percent of such stock brokers are not even required to look out for your best interests, only being held to a “suitability” standard. (For more on this, I would encourage you to read “Money: Master the Game” by Tony Robbins).
5. Finally, there are what are called the “positive externalities” of homeownership. When you buy a home, you are buying into the neighborhood, schools and community. That is, when people own a home, they invest much more into their communities — they patronize local businesses, participate in local organizations and give their time and money to the community in ways that renters do not.
As you can see, there are many reasons to strongly consider an investment in homeownership. And if all these didn’t put you over the top, here’s one more reason: leverage. Especially for first-time home buyers, there are programs that allow you to put in a relatively small down payment, but you still get to keep all of the appreciation. For example, if you invested $50,000 in a $200,000 condo and the market for your place goes up 31 percent in a year (like it did in 2016), then your leveraged cash-on-cash return is not 31 percent, it’s 124 percent!
With inventory starting to rise, now is a great time to get in the game.
Jay Kalinski is broker/owner of Re/Max of Boulder.
The U.S. homeownership rate fell to a 50-year low in the second quarter of 2016, much of which was attributable to Millennials staying out of the market. While some have contended that Millennials are not interested in homeownership, recent studies have shown that 80 percent of people still consider it to be part of the American Dream, and 90 percent stated that they want to own a home in the future.
If you are a Millennial and have overcome numerous barriers likely facing you, including crippling student debt, lack of ability to accumulate a down payment,…
