Why Buying a Home Is a Smart Investment for Millennials
According to a survey by Pollara for Bank of Montreal, approximately two-thirds of millennials in the Toronto area expect to own their own home. It appears that Toronto’s hot housing market hasn’t torched the home ownership dreams of first-time buyers- and it shouldn’t.
Millennials are swarmed with investing advice – start saving early, take advantage of a TFSA, and dump those high-interest credit cards! But for many who are looking to build a retirement nest egg, financial advisors say purchasing a home is one of the best investments millennials can make.
Buying a home is one of the smartest financial decisions you can make as early as your 20s, as it is an investment that is inflation-protected and a physical asset that doesn't disappear like stocks can do.
Nationwide, millennials have been reluctant to buy homes for various reasons, including a volatile job market, high student debt and the delaying of life events, such as marriage. Financial and real estate professionals say the numbers are now slowly improving, and they are hopeful that more millennials will soon recognize the benefits to homeownership. Here are some reasons why financial experts say young adults should be investing in the housing market:
Rent payments go straight into the pocket of the landlord – and at the beginning of the next month, you've got nothing to show for it.
But mortgage payments are an investment in the future, says Tony Via, an assistant finance professor at Kent State University in Ohio. As the remaining balance on a mortgage is reduced, home equity increases, padding your own retirement account – and not your landlord's. It can be benefitial to take advantage of low interest rates and spend your money on your own home than on unnecessary, short-term expenses that won't provide value later.
Property in solid, growing markets that have not been oversaturated are a good investment because you can expect demand to continue to grow for a long period of time, and a return on investment that will reflect such in later years. Buying in areas where the market is trending up can increase net worth. In the Durham region, demand continues to exceed supply, resulting in the average selling price increasing 15.8% from this point last year (Durham Real Estate, June 2016).
Mortgage interest is deductible from your income tax, lowering your tax burden. Homeowners usually don't have to pay a capital gains tax when they sell if the property value increases by less than $250,000 and if the home has been occupied as a primary residence for more than two years.
Homeowners are more likely to be invested in the local community and develop interpersonal relationships that create a reliable support system than those who rent. Homeownership often invokes a sense of pride, making millennials a key aspect in maintaing a safe sense of community in the areas they plan to invest their future in.
Supplement To Retirement Income
As millennials contemplate buying homes, the key long term benefits must be considered. They'll benefit from having a home as a storehouse for retirement funds, and their homes will likely be paid off by retirement, allowing them to tap into home equity to fund retirement benefits.
Do the "HOME" work!
For prospective, young homeowners, research before making the leap to buy is important. Talk to mortgage representatives, ask questions and walk through the home-buying process with a Realtor from a financial perspective.
Consider how long you expect to stay in the home, rent potential, income expectations, and expected monthly expenses. It has to make financial sense. Not sure where to start? Contact the experts at the Mary Roy Team!