Homeowner Regrets: Should Millennials Buy Homes? – Episode 270

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[00:04] Welcome to the Prosperity Podcast. Fresh alternative personal finance talk for independent thinkers who prosper outside of Wall Street. Here’s your host, bestselling author, Kim D.H. Butler. Welcome to the Prosperity Podcast. We’re covering a subject that has been one of the most popular talked about things in 2018. And that is almost 70% of millennials regret buying their homes. And we’re going to explain to you why. So Kim, are you ready to hear some of these things and give us some of your insight? I am. I’m completely curious. Perfect. And it’s kind of strange. I think for the most part, a lot of older, wiser people with their finances look down upon the millennials. And for myself, I’m in my late 30s. And I

[01:02] don’t fully relate to millennials. But what is so strange is some of these principles, these things they’re talking about are principles of prosperity. It’s awesome. It’s great. So that first one is they’re regretting overspending on down payment. Now, let’s talk about that from the perspective of Kim and prosperity economics. Why is that something that people should be totally aware of? It’s such a great question. And down payment on a home is often made, I think, in order to get a lower mortgage payment. They think if they put this big down, they’ll get a lower mortgage payment, which of course they will. But it’s not the most efficient thing to do, number one. So literally, we can prove it numerically that

[01:51] that’s not the most efficient thing to do to put more than 20% down. And of course, some of them, for some home buyers, etc., they were probably able to get as little as 10% down, but for whatever reason, they chose to do more. And the second biggest issue is that now that money is tied up. And it’s tied up in a home where they’re apparently also having a lack of love issues with. And there’s nothing more frustrating and irritating than having dollars tied up in something that you don’t love. So not only do you have it mathematically inefficient, you have it emotionally be a piece of baggage. And it’s literally and physically that way. This home is now taking up an asset that you could have gone and done other things with that you

[02:42] love, but you can’t. That’s so true. So here’s a quote that’s actually something that’s profound in its simplicity. It says, borrowing from your retirement makes sense in special circumstances, but it’s definitely not a recommendation. So that’s good, interestingly enough that the article is picking up on that because so many times just because the law says you can, financial advisors will just roll with that and say, Okay, you should. And we’re well aware that when you borrow from and so for all of our listeners, they know how much we talk about borrowing against cash value. When you’re borrowing from a 401k and yourself to be employed at that employer to do it, you are truly borrowing from which means you’re removing

[03:36] those dollars. And so not only do you have the risk of having a loss of job, which then would necessitate you to pay that back immediately, but you’ve removed the dollars from the asset. And there’s huge opportunity costs with that. And our third principle of prosperity is to measure opportunity costs. And it’s a big, big missing piece in personal finance, people don’t know how to apply the concept of opportunity cost, which we all learned about in high school and college econ and accounting, to our own personal financial lives. So borrowing from is removing that asset causing an opportunity cost literally for the rest of your life. And being very detrimental to the efficiency of your finances. Oh, okay. So how about this? Let’s take a prosperity

[04:29] tip. So of this episode, prosperity tip number one is that you should be, it’s going to be basically understanding the from versus against. So you shouldn’t borrow from your future, but maybe you could be borrowing against the life insurance policy half if you set it up. Does that work? Yes, that’s really well said. Okay. And let’s go deeper with that first prosperity tip. And it’s this, if you are a millennial, or you have a child that’s thinking of buying a house in the next five, 10 years, right now is the best time to start setting up your finances and your savings so that you’re ready in those five to 10 years. Yeah. And I want to take that a little further and say that everybody’s pretty

[05:16] aware that most real estate prices in most parts of the country are high right now. So no wonder there’s frustration and owning a home because you’re aware that not only are your dollars tied up, but if you bought a property in the last year or two, you, I think, will see that you bought at what’s potentially the very top of the market. And so that’s going to cause some additional challenges if the market does correct. Now, if you’re planning on holding onto your home, it’s not a challenge at all. Like who cares what the value of your home is if you’re going to live there for a long time. But if you had hoped to maybe be able to change jobs, travel for a while, switch things up in a way that having a home in a particular location wouldn’t let you do,

[06:02] then it’s going to be a challenge if the value decreases. However, on the other side of that coin is if you are interested in buying a home and you have gotten through your travel and your changing of jobs and the freedom that not having a home enables and now you’re ready to settle down with a home, please, please wait because in the next one or two or three years, we don’t know, there probably will be a correction in many cities that would enable you to buy more at the bottom of the market, which of course is going to be better for your finances and better for you emotionally because then you’ll start to see the value of the home slowly, slowly start to rise rather than take a big step down.

[06:40] Absolutely. That’s great advice. And another thing as a side note for our listeners, you can understand the true value of what you’re paying for the home by using the Truth Concepts calculators. We’ll put that in the show notes at truthconcepts.com. Now, as you alluded to and mentioned, another part of this article is saying that the things that millennials regret is settling for something that’s not quite right. Isn’t that great how you mentioned maybe people should just hold off? Yes, absolutely. And it’s so much of a like follow the Jones’s societal thing that we often will do things not really well thought out by ourselves for our situation. Yes. So let’s jump to the final regret that millennials have. And this one is,

[07:26] honestly, it wasn’t one that I thought of when I was going through the article. But as I looked back, I go, oh, that’s totally one of them. And here it is. The final thing they were talking about is underestimating the ongoing costs of homeownership. Yeah. How funny you say that today as we have contractors in our home, fixing a door that was damaged and wouldn’t properly slide and a big heavy sliding door and one that we used quite a bit. And we are in a home that we will probably live in for a long, long time. And we love our home. And we love going around and fixing things in the house and fixing things in the yard and etc, etc. But not everybody loves to do that. And so I think it’s really important early on, and this is a tough thing,

[08:17] but the better you know yourself, the better you’re going to be able to figure out whether homeownership makes sense to you. And in a completely opposite example, my son Robbie, who’s been on the podcast before, is a complete apartment dweller. He will be so happy in an apartment for a long, long time, does not like yard work, doesn’t like to do fix up things, etc. And so he is so much better being one of those millennials that doesn’t buy a home. That’s true. And you know, there’s two sides of this conversation. We’ve had other people on the podcast that invest in apartment complexes and houses. And they’ve explained to us that there’s a new generation that is just like Robbie, where they don’t want to deal with the maintenance and they don’t

[09:05] want to take care of those things. And in this article, here’s what it says. And it says, quote, when you’re a homeowner, you can’t call your landlord to fix things. So you want to make sure you have a little extra cash in the bank, end of quote. And that’s our number one rule, right? Save first. And yet you’ve got all these millennials being talked into buying homes, which is long term, you could call that an investment maybe. Secondly, they’re encouraged to do their max funding into qualified plans. So that’s a retirement investment long term. And they have no liquid savings to be able to deal with the please call a handyman instead of try to fix this yourself. So true. So I think as we have another prosperity tip in here, we’re going to go back

[09:58] to the piece of savings. Focus on your savings. And with that savings, it provides you opportunities. And as you having put kids through college, and now you have them entering the workforce, and then also being an advisor to all of these people, you’re always staying consistent with saying saving, saving, savings, and saving saves families. Maybe you can explain that quick concept to our listeners. Absolutely. Savings is really boring, but it does save families, it saves individuals, it provides peace of mind. There’s so much good in having an emergency slash opportunity fund. And I insist that both words get used because you want to have money for emergencies, but that is not an exciting motivating thing to save

[10:47] for. And thankfully, most millennials, most families will get to their emergency number quickly. You know, if you’re a millennial and your cost to live is a thousand a month, well, $6,000 in a savings account is a great start. And then your next phase can be using the whole life insurance as a more efficient place to store that emergency opportunity fund. If you’re a family, it’s going to take you a little longer because you’re going to have a higher number potentially. And I’ve quoted before, you know, Oprah Winfrey’s emergency fund is $7 million. So your own number is really what matters. But the having of it and the protection of it and the confidence that is there because of it is worth everything.

[11:32] It’s worth deferring investments for a little while. It’s worth deferring buying a home for a little while. And it’s absolutely worth the boring steps that are necessary to build that up so that you get all of the benefits. Wonderful. Well, this has been a fun conversation to see what’s happening with millennials and for us to get a prosperity perspective and to get the full picture. For our listeners, what’s the best way for them to ask you questions just like this article? I love having the questions to come to hello at partners number four, prosperity.com. And sometimes I answer specifically on email. And oftentimes we elaborate on those answers here on the podcast. So hello at partners number four, prosperity.com. Thanks again for spending time with us today on the podcast.

[12:25] If you like what you hear, make sure you share it with your friends and family. If you have a child that can relate to this, if they’re getting ready to buy a house, let them know about this episode. Or if you happen to be in that stage of life where you’re getting ready for homeownership, maybe you’ll consider a few things. So thank you for being with us again on the podcast today. Thank you for listening to the Prosperity Podcast. To take control of your money and have it work for you, visit us at partnersforprosperity.com. If you liked this episode, make sure you subscribe and leave a review.