Key takeaways
- First generation Americans tend to invest almost solely in real estate.
- Younger generations are sometimes choosing to rent their homes rather than jump into ownership right away.
- Choosing whether to rent or to own really comes down to a lifestyle choice.
One of the things I’ve noticed in over 30 years in this business is that first generation Americans, as a rule, buy real estate. The first thing they do is save up money. Then they actually pay cash for the property because they don’t believe in debt.
They buy the place they live in, then they buy more real estate instead of investing in the stock and bond markets. You may be wondering why that is. It’s because they’re often coming from countries where they’re not allowed to own anything, certainly not their own real estate.
Living the American Dream
It’s exciting for these first generation Americans to live what is still the American Dream—the dream of owning their own home. The question that comes up is (and we’re seeing a lot of this lately), “Why is the younger generation renting more often than owning a home?” The people we talk to typically believe these younger folks need to focus on buying a home.
The reason many millennials choose to rent rather than own isn’t necessarily a financial one. Quite frankly, it’s not always less expensive (depending on where you live) to rent. In fact, a recent study reports that the average rent is about $1,390 per month.
But when you look into what it costs to own a home, you have many other expenses in addition to that monthly mortgage payment. You pay annual real estate taxes, greater utilities, and maintenance. Maintenance usually amounts to one or two percent of the value of the house each year.
When you really look at the numbers, owning a home is an expensive proposition. It becomes more of a philosophical ideal when it comes to the American Dream of home ownership.
If you go back just a little bit in history to the 1930s, during the Great Depression, you’ll see that people lost their homes—they lost entire farms—they lost everything. And this continued over a long period of time for many decades and multiple generations.
Up until about 10 years ago, everybody thought that buying real estate was a sure thing—that it would always go up in value. That’s not true, as we have all now experienced during the Great Recession and beyond. You can really lose a lot of money investing in real estate.
Key lesson for younger people
The key lesson is that you can make or lose money buying property. Or, you can say, “I can rent. I’ll know exactly what my expenses are. I’ll live in my cashflow.” The whole idea that one must own a home can get out of control.
But then, the beautiful image of the white picket fence in front of a home with a dog in the front yard, a wonderful patio in the back with green grass and fields can really be a draw to people. And that’s okay. Sometimes it works out well because as you pay down a mortgage, amortize, and pay all of the principal off, you might have some money in the end. Although, remember, it’s all tied up in real estate.
This is really a lifestyle and perception choice. Like I mentioned, as we get further away from being first generation Americans, we tend to lean more toward entrepreneurial endeavors. We buy into the stock and bond markets more often, rather than real estate. It’s up to you to figure out what makes the most sense to you and how you want to spend your hard-earned dollars.
What lifestyle choice do you want to make? Once you answer this, it will make sense when you compare that lifestyle choice to the decision of renting vs. owning. Until next time, enjoy.
Gary
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