A lot of people my age and younger feel like buying real estate will never be a reality for them or it’s something that you do after you get married. A lot of us don’t even know the first steps into preparing for homeownership. And how can I blame them? Managing your finances isn’t something that’s taught in school (it should be). Plus with increasing prices for homes and most Millennials living paycheck to paycheck it just seems like that dream of owning a home is exactly that – a dream.
The truth is being a homeowner takes a lot of sacrifice, I mean, saving money for a downpayment is no joke. You need at least 3.5% plus a number of other things like good credit, stable income, etc. But trust, the benefits and rewards far outweigh the sacrifice for that downpayment. So what are the benefits you ask? Why do you want to buy real estate you ask?
- You can do what you want with your home. You can paint the walls, change the floors, you can update your kitchen, you can have a pet without an increase in rent…
- It’s one of the best investments you can make. Yes, there are a ton of ways to invest your money – stocks, bonds, IRA’s, etc. But real estate is one of the most secure investments you can make. Most of the time, if you buy a home it will increase in value over time. Charlie and I bought our home in 2011 and it has increased in value by hundreds of thousands of dollars.
- Most landlords increase rent over time. If you are renting, you pay money to a landlord. Typically you negotiate a lease with said landlord for 6 months or 1 year. After that time, the landlord will likely increase your rent if you want to continue. If you buy a home, a fixed rate mortgage locks in your monthly payment over the entire term of the loan – usually 15 to 30 years. That’s a long time with no increased rent, plus once the loan is paid then you have no more monthly payment!
- You can build equity. What’s equity? It’s explained in a simple equation. How much money your house is worth in today’s market – the amount of money you owe the bank = equity. Though this number changes as the market changes just remember that real estate is a pretty consistent investment. So usually (not all the time but usually) your equity will build over time.
- Tax deductions. This is a huge benefit. You are able to take a pretty significant tax deduction as the interest on your mortgage is deductible.
- Increase your net worth. What is net worth? Another simple equation. Assets – debt = net worth. Assets can be cash, cars you own, real estate, investments, etc. Debts are normally credit cards and other loans against your name.
So, have I sold you yet? Now that you know the benefits I just want to say it’s possible. This dream is attainable. But don’t get me wrong, it’ll take some time. If you decided today that you want to buy a home there are a few things you should start doing.
- Start saving. The median price for a single family home (detached house) in California was about $566,000 in August of this year. Los Angeles was higher. So you’ll need about $20,000 in savings to buy the median price home, but you’ll need more if you want to live in LA county. I know this feels like a lot, but this is where patience comes in. Start saving, economizing your spending, and put as much away as you can. You’d be surprise how much a little bit of restraint will do to your savings.
- Take care of your credit. How’s your credit score? If it’s high, keep it up! Now is not the time to abuse your credit. If it’s low, start repairing your credit. You can do this by paying down your debts consistently and on time. The less debt you have the better chances you have of qualifying for a mortgage. Again, patience is key here. Give yourself time to make this happen, it’s important.
Let’s start with that for now. In the mean time, stay tuned! If you have questions don’t hesitate to leave it in the comments below. I’ve got more real estate content coming soon!