One of the most valuable lessons I learned in economics classes was to buy a house as early as you can. In college they said–buy real estate as soon as you can after you graduate–it was one piece of advice I actually followed. I bought a cute little condo and I lived in it for a long time. But besides having your own space, not having to move (I HATE moving more than most things in the world), being able to paint the walls any color you want, there are a whole host of fiscal reasons that buying real estate is a good decision.
- You aren’t spending money on rent. Most people when they get out of school start paying for an apartment. This means that what is probably close to 2/3 of a mortgage you paying to someone else. The money goes away and while you don’t have to worry about improvements, that money just disappears every month. If you are putting some of that money towards a mortgage then at least you are building equity in your home. In addition a lot of the mortgage payment is tax deductible…
- You get big tax deductions! Since all the interest you pay (which for most of us is the majority of your mortgage) is tax deductible. That means you have to pay less money to Uncle Sam. This is especially good for you become more successful get promoted, and make more money.
- Your house/condo/town home appreciates in value. Even as the housing market has gone down a bit around the country, most homes will still realize positive appreciation over a 4-5 year period. That means that your home will go up in value. For most young people, this allows you to earn more interest that you would be able to otherwise. Take for example you buy a $200,000 home. If the housing market goes up 3% (which is conservative mind you) each year, that means that you are earning $6000 extra dollars on your house. So in addition to all the other benefits of owning a home, you get to benefit on interest from someone else’s money (your lender).
- Your credit score goes way up. Assuming you make your payments on time (which you should always do for all of your bills) buying a home will help you build credit. This means that you will get a higher credit score, qualifying you for larger loans and better interest rates. This way when you get married, or want to buy a new home, a lender can see your history of paying your monthly mortgage and will be more willing to give you the money you need for your new digs (but your credit score can help on other things like new cars, credit cards, etc).
For most people paying rent is not the best situation. Even if you only plan to live in a place 1-2 years, if you buy smart (make sure you negotiate, buy in a good location, and think about the ability to rent the property) you can use it as a rental (which means your income goes up, but you still realize appreciation, get more tax deductions–since any maintenance is now deductible) and get a lot of the same gains you would as an owner.
Just make sure you get a loan without PMI (which means doing a 1st and 2nd mortgage usually if you don’t have a full 20% to put down). And make sure that you do lots of research. There are lots of great real estate site out there now (that weren’t there 5 years ago). My two favorites (for Washington real estate anyway) are: Zillow and Property Shark. So while the housing market is still a buyer’s market you should get out there and start looking. Real estate still can be a great investment vehicle for most people (especially those who are renting).