Posted by With the rising price of Australian property price – buying a home is out of reach for a lot of young people. However, there is hope – experts agree there are other ways to build personal wealth beside real-estate and may be some of those are even better.
80 percent of millennials would like to purchase real estate however recent data by Apartment List shows only 68 percent of them only have saved as little as $1,000 for a down payment. For most of these millennials, it’s a distant dream without some external support. Personal finance expert Jean Chatzky says, “Among some other difficulties youngsters face minimum down payment, poor credit scores and student loan burdens are some of the reasons young people might face difficulty buying homes”. She says property ownership is not always the best fit although there are often advantages to investing in property. “Buying a home and paying off a mortgage gives you another kind of saved money that you can tap down the road,” she says, “but there are times in life where it does not make sense at all.”
Some experts explain, “Don’t bother”
Some experts argue, buying a house can be a bad investment. Self-made millionaire Grant Cardone advises young people not to buy. He says “Never think a home is a way to create financial freedom”. He explains in his blog. “A house should be looked at as an expense, not an investment and merely a place to live.”
On other note, co-founder & CEO of millennial-focused investing company Wealthsimple Michael Kitchen tells CNBC Make It that a house can be a downright lousy place to put your money. He says that he would “pick a diversified portfolio over a house as an investment”.
On an average real-estate provides only 5-10% return compared to some other investment like securities market sometimes provided as much as 20%. For example just last month some of the Bitcoin market seen a couple of thousand percent growth. Indeed, there are other ways to build wealth in the long-term. If you can’t afford a home, consider these approaches instead.
Key is to work your money hard for you in other ways
Chatzky tells CNBC that people who aren’t quite ready to buy a real-estate should still use other strategies to be smart about their finances. She says, “The goal if you’re not saving money in the form of paying down a mortgage, is to essentially save it in other ways”. Her number one strategy for financial success without buying a house is saving for the personal wealth growth even when retirement is far off for young peoples. She insists, “Making a contribution into some sort of a retirement plan is the biggie, and maxing out that contribution where possible.”
Save for retirement
Author and financial expert Farnoosh Torabi agrees. “If you have access to a retirement plan like superannuation profile, those are great places to start”. Chatzky points out that superannuation work for a lot of people better as they’re automated, so personally don’t have to remember to contribute. Chatzky also points out “you want to invest it for long term growth”.
Always save for the long terms future with low-cost investments
Torabi suggests using any extra money to open a brokerage account and making investments in the stock market low-costs cost ETFs, which are a diverse mix of stocks of individual companies. These investments should be for the long run, made with money you won’t need to access for 20+ years.
Torabi says, “You can open one up at a site like Betterment, Wealthfront, or Ellevest. These sort of automated platforms that typically invest your money in ETFs and index funds which carry very low fees relative to a mutual fund or stocks”.
Torabi also suggests considering the automated platforms over working with a financial planner, because those can sometimes carry an extra layer of fees.
Billionaire investor Warren Buffett sticks by index funds as a strategy, calling them “the thing that makes the most sense practically all of the time,” on CNBC’s On The Money.
The stock market most often better bet than real estate. Recent research by Bankrate.com, which cites a study from the London Business School and Credit Suisse, points out that “housing returned only 1.3 percent per year after inflation from 1900 to 2011, while stocks tended to perform more than four times better.”
Avoid making mistakes
For Torabi, “one of the biggest mistakes young people can make their money is the taking advice that doesn’t line up with their values, especially when it comes to buying a home. Make sure, in the end, you’re doing what you want and what’s best for you”.
“If you want to buy a home and someone is telling you all of the benefits of it and you’re listening and you’re taking notes, that is a good thing,” she tells CNBC Make It. “But if you are somebody who doesn’t have the money or the psychological wherewithal to take on this mass investment, and you’re thinking you have to do it because your big brother is telling you it is the best thing he’s ever done and so you should do it, that is not wise.”
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