Why playing chess with Rental property leads to much wiser investements
Many people of Gen-Y are finally
finding their sea legs after the recession; jobs have become less stagnant and
as such incomes haven’t risen. A percentage of these young adults are trying to
catch up to the playing field expected of them by their Baby Boomer parents by
securing jobs, housing and starting families. However, these days the dream of
owning a house with a white picket fence is nearly inconceivable to the college
grad struggling to find footing. The trends are skewing towards a future population
that will perceivably rent their homes for a much longer period of time before
deciding to take the home owners plunge. (If at all)
One advantage to renting a home
is that there are no payments that have zero return on interest, for example:
closing fees, mortgage interest, property taxes, home owner’s insurance and
maintenance. All of these can stack up and make owning a home a financially
laborious task. Fidelity investments indicated that stock investments over the
last 45 years netted 4.6% higher returns on investments than real estate.
Ideally Gen-Y renters stand to make more money over the long run by leasing
homes and investing their saved income in stocks.
Another
common myth is that home ownership is prudent because mortgage interest is tax
–deductable. According to the advocacy group the National Multi Housing
Council, this only true for half of home owners. Unfortunately for the other
half of home owners, even with mortgage interest and property taxes their total
deductions do not exceed the standard federal tax deduction which is $10,900
for couples and $5,450 for singles.
With
the job market in flux, the flexibility afforded with renting over owning is
immense. Typically property must appreciate by 10% to recoup sales costs and on
average that takes 5 years. However, jobs and markets are ebbing and flowing,
potential buyers may need to relocate and in doing so find themselves in a
precarious situation. Also, new condos and multi-family homes in many cities
heavy with construction have found a vacancy rate of 2.5%. Many Investors in
these areas have slashed apartment rates in order to generate interest. Some of
these places are offering up to 3 months rent free and also provide amenities
otherwise un-affordable to new home buyers.
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