What does it take to activate a millennial homebuyer? Are the reports true that the younger generations prefer renting over homeownership, the American dream? As the market indicates and many real estate professionals can attest to, that's not the case. Millennials do want to own a home, but many don't know how to navigate this field. After all, it is the largest purchase most people ever make, and requires many considerations.
So, how does the traditional process of buying a home jive with this technologically savvy generation that is used to relying on data derived from computers? More importantly, how do you know when you're ready to buy, and how do you know what to buy? There's no right or wrong way to answer any of these questions, and how you move toward homeownership is based on a variety of factors, both deeply personal and connected to the real estate industry overall.
Here are five important things to consider and questions this generation can ask themselves to figure it out:
- Money matters.
- How long you plan to live there.
- The online marketplace.
- Expert advice.
Do you need a mortgage, and how much are you able to put toward a down payment? Discuss your financial wherewithal with a mortgage banker, mortgage broker or financial advisor who can give you feedback on your individual financial situation. Review monthly home expenses, including property taxes with mortgage payments, compared to the option of renting. The monthly outlay may not be much different from renting, but consider whether you will see appreciation in property you own over time. In comparison, rent typically increases over time, unless you live in a rent-controlled building.
How Long You Plan to Live There
Most homebuyers should purchase with a minimum five-year window in mind. It's unlikely that you will make a profit selling after just a year or two, and flipping a house requires experience and skill.
Should you purchase a starter home or wait until you can afford something bigger? Many millennial buyers struggle with this decision for one obvious reason: money. When is the right time to take the leap? This is the kind of soul searching buyers have to do for themselves. Sometimes when you wait, you might miss the market completely. Adversely, if you wait longer to have a larger budget, it will afford you to get more of what you want on a longer horizon.
The Online Marketplace
The internet is not the gospel when it comes to real estate. It's a great source for floor plans and photos, but remember that it's a marketing tool geared toward luring you in. Automated home valuation tools like Zillow's Zestimate are not always spot on, and should be double-checked by a human with real estate expertise. A great real estate agent is often the best source for comparable sale information, as he or she knows the ins and outs of the local market. Most importantly, this is your home you are shopping for – there are some intangibles that matter in owning a home that will factor into your final decision, and are often found in person rather than online.
Do not discount the value of a real estate professional you can trust. They are experts in their field and will make navigating the transaction much easier. Many new buyers do not realize that they are paying for this service whether they use it or not. The total commission is already negotiated between the seller and the listing agent, and is built into the sale price. The seller pays both agents at the closing. There may be a small incentive to the seller if you buy without and agent, but it is to your disadvantage when you forgo representation and the expertise the right agent can provide.
The joy derived from homeownership has a price that is worth more than a simple mathematical, scientific analysis. Though this decision must make financial sense, there is without a doubt a happiness factor that comes from owning a home that one cannot put a price on. From their growing representation in the homebuyer market, millennials want a piece of this American dream as well.
Be ready for things to go wrong.
No one loves shelling out money for unexpected expenses, but sometimes that seems like a rite of passage in homeownership. “Most of the time, the unhappy surprises are simply due to people being unaware of the things that can crop up,” says Brad Hunter, chief economist for HomeAdvisor. First-time homebuyers in particular may not know what to expect after closing on a home, and there’s nothing worse than developing buyer’s remorse about one of the largest investments you’ll ever make. Here are eight headaches to prepare for if you’re looking to purchase a house.A suddenly less-than-desirable location
A suddenly less-than-desirable location
Buying a house across the street from a high school didn’t seem like such a bad idea when you saw how nicely renovated it was. But when you don’t have kids and Friday night football games are keeping you up later than you would like, you realize you should have made a pros-and-cons list regarding the location. Don’t let a charming interior override a location you dislike or a lot that will give you flooding problems. “If you don’t like your lot, don’t buy the house, because you cannot change that,” says Kim Wirtz, a Realtor for Century 21 Affiliated in Lockport, Illinois.A high monthly mortgage payment
A high monthly mortgage payment
One of the most crippling headaches to deal with is a monthly mortgage payment you find you can’t quite afford. Lysette Portales, a real estate agent with Century 21 Jim White & Associates in Treasure Island, Florida, says she stresses to clients that they should shop around for a mortgage with multiple lenders and inquire with each about different program options. “A lot of them might be able to do 100 percent [financing],” she says, noting that many homebuyers typically only know about a couple mortgage programs and settle for one without considering what would be most affordable option both now and down the line.Items that are on their last legs
Items that are on their last legs
Whether it's the roof, water heater or furnace, aging home systems will need replacement. And that may end up being sooner than you’d like, especially if you didn’t pay close attention to the age and condition of the roof, plumbing, electric and heating and cooling systems when your inspector pointed them out. HomeAdvisor’s 2015 New Homeowner Survey found that 75 percent of homeowners face an unexpected emergency within a year of purchase. To expect the unexpected, Hunter points to the survey’s recommendation that homeowners plan to spend 1 percent of the home’s purchase price on unplanned repairs. Maintaining at least that much in your emergency fund will help keep you from dipping into other savings from year to year.Old systems
It’s important to pay attention to a home's aging big-ticket items before you even make an offer. “A lot of homebuyers are distracted by how cute a home can be,” Portales says, adding that she makes it her job to point out the age of the roof, air conditioning unit, water heater and more to buyers. Then when it comes time to calculate an offer, you should factor in the cost of those pieces that will need immediate replacement when determining how much you think the home is worth.An air conditioner that's not the same
An air conditioner that's not the same
Wirtz says one of the things in a home that seems to always break or have issues within the first year of its purchase is the air conditioner. But it’s not always because it breaks down – she says it simply might not be as effective as the new homeowner wants it to be. “It may not be cooling like they’re used to,” Wirtz says. You can either learn to deal with a little less cooling, bring in an HVAC pro to inspect and fix any problems or research any DIY fixes that might get it cooling better – like air conditioner cleaning spray.Unseen leaks
Home inspectors aren’t able to see through walls, so the discovery of a pipe leak isn’t uncommon after you’ve moved into the home. But this is one repair you want to make as quickly as possible. “When there’s water that is not stopped, it can create mold – and mold remediation is extremely expensive and extremely difficult,” Hunter says. Mold growth in your home can cause serious health problems, so it’s imperative to address any moisture issues as quickly as possible to avoid it becoming any more dangerous, let alone more expensive.Surprise renovation expenses
Surprise renovation expenses
Fixer-uppers are all the rage these days, as many homebuyers are willing to take on renovation projects in exchange for a slightly lower price tag. But when budgeting for your renovations, leave plenty of room for the discovery of existing problems once your contractor looks behind the walls. The HomeAdvisor survey found 51 percent of homeowners spent more time on home projects than they expected. “Even if you have a fully vetted, well-reviewed contractor … they still might uncover issues that maybe a previous contractor left incomplete,” Hunter says. He recommends leaving around 10 percent extra space in your budget for surprise problems of any kind.Problems that pile up
Problems that pile up
All too often it feels like the problems in a home have a snowballing effect, but you don’t have to go broke tackling them all at once. “Day one, [homeowners] won’t have to tackle all those projects,” Hunter says. “They can use the list of items found by the home inspector as a checklist and prioritize the items on that list and create a budget.” You should immediately address those problems that create a health or safety issue, such as a broken step or leak in your roof that could lead to mold. But replacing an older dishwasher can wait until next year, when you have more room in your home repair budget.Read More
After earning a degree in Economics from The University of Pennsylvania, Arriz worked in wholesale sales for several top fashion designers in New York City, including Calvin Klein and Ralph Lauren. While her business sense, tireless work ethic and integrity fuel her success, most importantly, she believes wholeheartedly that one’s living space should be not only an investment, but also a home and sanctuary.
Arriz has resided on the Upper East Side for 30 years and currently lives with her husband, three children and her miniature schnauzer, Lucy.
Devon Thorsby | June 5, 2019
Homeowners should not fret, as long as they're prepared for the possibility of a downturn.