There are certain aspects of the upcoming generation’s stereotypical financial narrative which are not helpful to the generation to which they are applied. “What’s the stereotype?”, you ask. We’re talking, of course, about the Millennials who were just coming over age when the recession hit. They went to liberal arts college, but when they graduated there were no jobs so they went and worked at Starbucks instead, alongside people who never went to college. Five-figures in debt due to student loans, the poor Millennial is behind in life, with little hope for achieving even a measure of the financial opportunity afforded to his or her parents’ generation.
Sound familiar? This narrative has been stitched together by many studies and dozens of web articles. And while it’s not untrue, it doesn’t account for many Millennials who are finding a way to beat this narrative. One of the best ways they are finding is by buying a house.
Houses are only affordable to young people, with normal jobs and no special provision from family, within certain markets. We’re talking about economically depressed/recovering municipalities like Baltimore real estate, Detroit, and Buffalo. Millennials are buying fixer uppers in these cities, many times for less than $100,000, and renovating them while they pay sometimes less than $500 a month on their mortgage. Tiny mortgages like this leave them a lot of wiggle room financially, and also enable them to start building equity.
For those who are unfamiliar, equity is the building block of all real wealth. It’s wealth tied up in property, especially property which can be later resold for a predictable sum. A house is a perfect example of an equity-holding property. This is due to many factors, including houses’ tendency to increase in value by 2-4% every year. This means that the money spent to buy a house will only “increase” in value, insofar as one steady mortgage payment monthly is used to own increasing portions of a house that is actually becoming more valuable.
Some Millennials are insulating themselves from the possibility of foreclosure that ran rampant through the last generation of homebuyers, using payment protection insurance. The PPI deadline is rapidly approaching for homebuyers in the UK who acquired PPI without their knowledge or consent. But this doesn’t mean that the underlying product is bad, only that it must be sold to someone who really wants it. For young homebuyers without strong career momentum, it could be an important tool in preventing foreclosure.
In addition to equity, homebuyers can write off mortgage interest payments on their taxes, essentially making the mortgage portion of the loan free. Tax writeoffs, equity, and appreciation are powerful tools, which combine to turn a well-chosen and maintained home into a gold mine for young people looking for ways to jumpstart their financial lives. So if you are interested in buying a home, but have never seriously pursued the option, save up for a down payment, work on your credit score and history, and start looking for affordable houses in affordable markets. It could make all the difference in your financial life.