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What Millennials Need to Know Before They Start Investing in Property

COMMON QUESTIONS ASKED BY MILLENNIAL BUYERS

About 30 years ago, purchasing property was a no-brainer. However, millennials have been taught to question everything. This includes whether or not real estate is the best investment to make.

According to Regional Director and CEO of Remax, Adrian Goslett, while certain things change over time, others remain the same. The investment value of property being one of these constants. “

For those who are able to afford it, purchasing property will never be a financially irresponsible thing to do. I would caution millennials not to abandon the idea of owning property before they have thoroughly investigated its long-term benefits,”  recommends Goslett.

To put some of their concerns of property ownership to rest, Goslett answers some of the most commonly asked questions posed by millennial buyers:

1. Isn’t it better to rent?

“To answer this, millennial buyers need to factor in annual rent escalations and calculate whether they will be able to continue to afford the property over time. They also need to consider that rent, like interest paid on a home loan, is purely an expense.”

If you took out a home loan of R1,6 million and pay around R15,000 p/m at a blended interest rate of 10%. You will have paid roughly R1,420,000 in interest at the end of ten years. By comparison, if you rented a property worth R1.6 million for R8,000 p/m, applying 9% annual escalation in rent, you will have paid roughly R1,460,000 in rent by the end of ten years.

“Not only are you spending more in rent than you would have been spending on interest on a home loan, you also have nothing to show for that money. Moreover, in ten years’ time, your R8,000 rental will now cost you R17,000 p/m. Which is R2,000 less than the instalment if you were paying off a home loan,” add Goslett.

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2. How do I afford it?

“The cost to enter the real estate market does make owning their own home difficult for younger buyers. However, with enough financial discipline and planning, younger buyers will be able to afford the cost of entry.”

Goslett adds: “I would recommend that first-time buyers speak to a financial advisor to work out an investment strategy that will help them afford to purchase property in the mid- to long-term.”

3. Will I still be able to travel?

“There are several options, such as short-term letting and Airbnb, available to homeowners who are out of the country for extended periods of time.”

“Homeowners can make use of a reliable property manager to collect payment and be available to address any maintenance issues the temporary tenant might come across while the homeowner is out of the country,” adds Goslett.

“In terms of being protected against damages, certain homeowner’s insurance policies might provide cover if you rent out your home occasionally. While others will require you to take out a separate landlord’s insurance policy.”

“While purchasing your first home does come with its own challenges, the long-term benefits more than make up for it. If you have any questions or concerns regarding homeownership, speak to a real estate advisor to help you understand the pros and cons of purchasing property,” concludes Goslett.

 

Source: reimag

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