Nowadays, millennials, or Gen Y, make the largest group of homebuyers on the market. Even though many from this generation are postponing marriage and childrearing, they are still interested in buying houses. They want to be able to invest in real estate to either get more space or ensure that they are investing in a property that will eventually be theirs.
How Millennials Differ From Baby Boomer Homebuyers
Today’s homebuyers differ from older generations due to the way they handle home purchases. Unlike Baby Boomers, millennials prefer smaller houses. Some of them opted to join the tiny home movement while others are buying fixer-upper homes.
Modern homebuyers would do internet research before they settle on a location, a mortgage lender, or even a real estate agent. They use technology to their advantage while still asking for recommendations from their loved ones. More often than not, they steer clear from the urban areas in exchange for more affordable suburban homes.
But despite these facts, many modern homebuyers still have their fair share of fears. They fear for their future and how they can survive retirement when the time comes. Many millennials fear becoming homeowners and becoming house-rich and cash-poor in the future.
They may not be buying mansion-like houses as the Boomers did back in the days. They may also have more work options considering the kind of technology available in the present. But then, the fragile job market, the affordability of houses, and the low inventory influence the prices of properties for sale is what usually stops them from buying.
Millennials want to be able to avoid being house-rich in the future but not having enough money to cover for their retirement. Although there are options available like talking to a lender to reverse their mortgage or tapping in their R201k in the future, they are still careful when buying their houses. They don’t want to end up being cash-strapped seniors.
Avoiding the House-Rich, Cash-Poor Fate
The good news is, there are ways millennial homebuyers can stop the cycle early on. The key is proper planning and making the right decisions at the right time. And what better time to start avoiding being house-rich than the moment you start investing in your first home?
- Consider All Costs Before Buying
Many homebuyers fail to recognize all the other costs associated with the sale and after becoming a homeowner. Some think all they need is a sizeable down payment and a mortgage that won’t exceed 30% of their monthly income. Failure to consider other costs like the closing costs, moving expenses, interior decoration, utilities, home repair and maintenance, homeowners association fees, and property taxes can quickly increase your expenses.
- Never Settle for a Single Income Source
What many people do is have a single job and never have a backup plan in case they lose their only source of income. This is a dangerous game to play considering one can never tell until when they can retain the job or is capable of working. As much as possible, have at least two income sources and save aggressively for retirement.
- Maintain a Budget Below Your Means
Some people tend to increase their expenses once they start earning more money. This results in more costs than necessary. Maintaining a realistic budget and living below your means can help you save more money for your future.
- Get Rid of Unnecessary Expenses
We are often guilty of paying for many unnecessary things that only add to our monthly costs. Think of that expensive gym membership you never get to utilize, the constant dining out, or reckless shopping habits. Simplifying your spending and increasing your income will instead help you better prepare for your future finances.
- Start Early Investing
One can’t stress enough the importance of investing the moment you start making money. The hard truth is that, the best way to avoid being cash-strapped to make sure you get your money working for you. So, explore investment options and find one that best suits your needs and your risk tolerance.
- Always Save Money for Everything
Another thing worth reminding yourself is to consistently save money for many things. For one, you need to have at least three types of personal emergency funds separate from your future home maintenance rainy day funds. According to financial experts, one should have a long-term savings account, a short-term savings account, and retirement savings.
Homebuyers and homeowners alike should always think ahead so they can avoid future financial hassles. Everyone, even the richest of the rich, can end up being house-poor thanks to a series of poor financial decisions. The earlier you start planning for your retirement, the easier it will be to make decisions now that can positively impact your future as a homeowner.