Millennials, or people aged 21 to 37 years old, are primed to make the best investments in their young lives even in today’s economy.
With a little research and technical advice, they can convert their modest incomes from their new jobs or budding professions into cash-positive real estate investments.
Others might say, “Why worry about it now? We’re young. There’s time to think about investments in the future.”
News network CNBC has reported in December 2019 that about one-quarter of millennials in the UK have entered the real estate industry as investors. In the US, at least one-third from the same age group already own property.
It is interesting that the average age of the homebuyer in the UK is now 30 years old; and allots at least 17.4 percent of income for mortgage payments.
While purchasing a home in today’s economy does take out a lot from one’s gross income, it is not an impossible task. Some would suggest that a person in their 20’s should concentrate on paying off student loans (if any) while saving some for a house downpayment, likely in the 30-plus age bracket. Reality is, many working professionals remain in private rented quarters for quite some time. It takes commitment and financial momentum to start climbing the property ladder.
House Safety Is Security of Investment
The common-sense approach is to see that real estate is a suitable investment vehicle for millennials because their age is a significant advantage. Being young, they have more time to work on the mortgage. Eventually, they can use a fully-paid property as collateral and leverage bank loans to build up a portfolio.
For example, a young professional can save enough money and hire an agent to scout for second-hand homes in the market. An EICR assessor can inspect these pre-owned properties for safety, which is part of new legislation. According to Electrical Safety Standards in the Private Rented Sector Regulations, landlords are responsible for having all electrical installations checked by a qualified professional such as a registered electrician. That needs to be done every five years. Knowing such regulations is essential for would-be house buyers since faulty wiring could lead to preventable fire, and consequently, the loss of investment.
Other construction professionals, such as engineers, architects, and plumbers, can be hired to check the home for its structural integrity and functionality. Other legally mandated checks would include energy performance tests and gas safety tests, both of which must be certified by duly licensed assessors. While these tests will add to the initial investment cost, safety will save the investor thousands of pounds more by preventing accidents.
Rent-Vesting
After all the safety checks are done, the young investor may choose the ‘rent-vesting’ method to build momentum slowly. In rent-vesting, the home buyer will fix the house and put it up for rent. The rental income will then be channeled back to pay for the mortgage. In short, it’s a long-term investment.
The millennial can stay in the current home they are living in, remain downsized and conscious about spending, while all the while paying off a home investment. The yield will come in 10 to 20 years — probably just in time when the millennial decides to start a family in their late 30s or early 40s.
An early investment in housing will lead to having a fully paid house that the new family can settle in, or that home can remain a source of passive income. Either way, it is a win. However, it is a goal that will only be reached through patience, diligence, and money-smarts.
Finding Foreclosures
These young investors can also scout the market for foreclosed properties. Foreclosures bring property rates down, making them accessible even to millennials who are new in this field. They can even do this with friends by forming limited partnerships that would enable them to pool funds and gain a wider foothold into the market.
If industry analysts are correct, housing prices are expected to decrease in the latter part of 2020. Records for July show a surge in house purchases and shows that the market is doing well, despite the economic impact of COVID 19.
Outside of London, many properties are being sold at reasonable rates. Some units were reported to have been quoted with rates comparable to market price levels in 2006. That is a good lead for millennial home hunters to look at.
Indeed, Millennials have the opportunity to start building their wealth through wise real property investments. It will be a financial journey of many challenges, but something that will be truly life-changing. An investment in real estate is an investment for the future.
