by: Jacob “Coby” Cohen
As more and more Millennials graduate from college and graduate school and embark on their life’s path, a common question arises should I rent, or should I purchase a house. There are many misconceptions about home ownership and qualifying for a mortgage. Perhaps the biggest and widely missed understood concept is having to save 20% for a down payment. This, however, is not the case as there are many loan products available in the market place that only requires a 3%, 5% or 10% down payment. In many metropolitan areas, the monthly mortgage payment can be less expensive than a monthly rent payment. This element doesn’t even take into account the tax benefits of mortgage interests and property tax deductibility “even with the new Tax Cuts and Jobs Act of 2017”. Furtherer more debt to income ratio for loan qualifying has relaxed, with this ratio going as high as 50% of one’s income and still being able to qualify for a mortgage. However, one must carefully analyze their particular situation in deciding between renting vs. owning. There are many important factors to consider including but not limited to job security, the location of the property to both job and family and school districts in the neighborhood for a future family. However, most importantly one has to understand the associated additional costs of homeownership. There is always going to be some kind of repair and general maintenance to be performed which adds additional costs to home ownership vs. picking up a phone and explaining to the landlord that something is broken and needs to be replaced or fixed. These are the type of questions that need serious discussion and consideration when weighing the benefits of homeownership. An additional positive of homeownership is that of capital appreciation over time even with a small annual percentage gain the appreciation of the home is a significant benefit of home ownership.
Even with all of the above reasons for home ownership, renting still may be better suited for many Millennials this could be a result of many factors. Perhaps number one on the list is that many millennials have student loan obligations and they are nervous about having to repay these loans while at the same time having to make mortgage payments. According to CNBC, the Millennials ages 25 to 34 have an average of $42,000 in student loan debt each. Another factor why renting appeals to more people of the Millennial age group is that of location with home prices at near record levels across the country especially in urban areas where most Millennials desire to live, the costs of homeownership merely are too expensive. This forces Millennials to look at secondary or tertiary locations or cities which are outside the circle of their work, family, and friends.
This, in turn, underscores the strength of the multifamily apartment marketplace. Investors and developers have had a keen understanding of what the millennial renter is seeking in their living situation. Amenities such as; swimming pools, gyms, shared common space and other on-site services have been a driving force in capturing the millennial market into renting in prime areas vs. the path of home ownership in outlying areas. The appeal of not having the additional financial stress of purchasing a property coupled with the ability for millennials to share apartments and split costs is a significant factor in the decision-making process. Having one or two roommates in an apartment is much easier than having to purchase a property with another party. The commitment level on renting vs. owning has a much lower threshold. The co-ownership route is a road lined with numerals deep sinkholes.
Ultimately, the factors that determine one’s perceptions about job stability and the health of the real estate market are the two most significant factors in contemplating the rent vs. own question. Each person has their own personal philosophy and level of financial stress they are willing to undertake to make a decision. It would be wise for millennials and any prospective buyer to have discussions with an advisor or trusted knowledgeable friend in discussing their housing decision
Time marches on…Hope everyone is well!!
The “current” major focal point of world economics is the US – China trade dispute. While most of us view this as the focus of the issue, we should not underestimate how the trade dispute manifests itself and characterizes global trade concepts as a whole. Creating an “out there” analogy– Global companies function in the same manner as a simple roof leak in a piece of real estate. The water leak will migrate to the path of least resistance and usually pick up momentum. In our overall economic model, companies regardless of size and specialty of the business structure will allocate resources to the most effective, but least expensive supply chain and production possible. How this plays out is subject to a multitude of variables of course.
This tariff dispute and resulting economic uncertainty has led to pressure on bond rates creating very attractive mortgage rates. The current read is that no one knows how long this current opportunity will prevail. Obviously, there can be a directional change with one tweet, so anything goes…
Please contact us to review your current mortgage and provide some thoughts on any new acquisitions that maybe contemplated—residential and commercial of course. Now is the time to act. We do not know when rates might make the U-turn back up!!! We have lifelong backgrounds in all areas of real estate, in addition to a very broad based spectrum of clients and contacts at all contacts.
As always, please feel free to connect with us to review your financing situation and just to say hello!! We welcome your contact!
Gloria Shulman and Curtis Cohen
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One of the oldest investing axioms is “Don’t fight the Fed!!” The Federal Reserve announced yesterday they do not expect any additional rate increases for 2019. This dovish disposition opens the door for lower interest rates which equates to lower mortgage rates!! It is of our opinion that rates will continue to gradually recede towards lower levels!!
Please contact us to review your current mortgage and see if we can either lower the rate or restructure the mortgage into a longer or shorter term amortization period. It is extremely important that we have all of the paperwork fully prepared so that we can take advantage of quick changes in the market place. We do not know when rates might make the U-turn back up, so we strongly suggest that one considers being proactive now.
One of our institutional Lenders has an appetite for Single Family Investment property with loan amounts in the $1M – $2.5M range (any place in California). Rates are extremely aggressive as low as high 3s for 5 or 7 year—rates in low to mid 4s for 10 and 30 years.
— 740 Credit
— Qualifying Tax Returns
As always, please feel free to connect with us to review your financing situation and just to say hello!!
Gloria Shulman and Curtis Cohen