Real Estate Investment should be a reality for many millennials. Most millennials was happy living in a ‘rented space’ in the pre-pandemic era. But things took a turn, post COVID. Now millennials are on a lookout to buy a home to fulfill their needs.
Real estate investment and Millennial has been a topic of discussion for quite a while now. In regards to real estate investing, doing so at a young age is often termed as a liability. Though, specialists suggest investing benefits from an early start. The later you invest, the less will be the compound returns.
If you are a millennial and searching for a variety of ways to invest in the real estate sector that can be chosen depending on your savings, financial history, and job, read the following points to see how you can prepare yourself for real estate investment.
Things that Millennials need to learn if you want to Invest in Real Estate
How the COVID has changed millennial home buying trends
The virus has forced young professionals to take a reality check, impacting their mindsets. The pandemic forced them indoors for inordinately long periods of home, making them rethink their home stay options. They now want to buy spacious homes that cater to the varied needs of their families, including that of the home office. It also altered their priorities in a way with many preferring to invest in luxurious homes rather than opting for foreign vacations to exotic locales.
Property buying Millennials
They are the new-tech crowd or professionals with big salaries, and bigger aspirations the start-up founders, the stock market wealthy. Typically double-income young families, with a pet thrown in somewhere. They have the money and want a lifestyle to match that. They prefer all the comforts of modern living right where they are living and so, many opt for gated communities.
Benefits to enjoy as a Millennial Owner
Millennials and investing are not two words that always go together. However, when it comes to real estate investing, they should be.
Whether you choose to rent out the property or want to fix it up and sell it, as the sole owner you will receive all of the profit. Keep in mind that the money earned from passive monthly rent, also offers numerous tax benefits, as well as additional investment opportunities.
One of these tax benefits is the ability to write off expenses that are associated with your rental property. You can also leverage pass-through deductions and in some cases use a 1031 Exchange coupled with a Section 121 to avoid the majority (if not all of) the real estate taxes associated with the eventual sale of buy and hold turnkey property. Named after Section 1031 in the IRS tax code, a 1031 exchange is a legal transaction that allows real estate investors to swap an investment property for a like-kind property, thereby avoiding capital gains or depreciation recapture on the sale of the property.
As an individual investor, you get to determine the “where, when, what, why, and how much” for each of your investment properties. This means that you have complete control over your portfolio, so that, with the help of a trusted investment consultant, you can purchase properties that meet your specific needs and help you achieve your financial goals.
Why should Millennials Invest in Real Estate?
Having your own house is more than just a matter of pride as there are many financial benefits attached to it.
1. Passive Income
Passive income is the money you earn without even working for it and who wouldn’t want that? One form of passive income is rental income. Buying and renting a property will bring a high return on your investment over time. Therefore, purchasing property is a clever way to generate passive income while saving time and effort.
2. Rental Income
Another vital benefit of investing in real estate at an early age is that it will help you earn extra finances through rental income. This secondary income can be effectively utilised to pay the monthly installments of your home loan. Renting your property is also a great way to build up your savings for making your other dreams come true, such as travelling the world or pursuing higher studies.
3. Tax Benefits and huge Savings
Investing in real estate at an early age gives you the opportunity to enjoy a wide range of tax benefits. Availing a home loan to fund your dream home can help you get tax rebates in your yearly income tax returns. The interest that you pay against your EMI can be easily deducted from your total tax amount. As per the Section 80C of the Income Tax Act, an individual can avail tax benefits for the principal amount of the home loan. This scheme enables home buyers to claim up to Rs.1.5 lakhs as tax deductions. Millennial home buyers can enjoy the twin benefits of enjoying tax benefits along with ensuring abundance of savings for the future.
4. Appreciation Rates
The biggest reason to invest in real estate is that its value increases over time. By investing in property at a young age, you will ensure a longer time to witness the appreciation rates. A residential property typically witnesses a yearly appreciation between 10-20% depending on factors such as location, inflation, and market demands at play.
How to do it?
1. Build your Credit
The easiest thing you can do to get started on your journey to property investment is to increase your credit score. Credit takes time to build, so even if you have Rs.0 saved or are 10 years out from buying a home, you need to start building credit today. Credit cards are an easy way to start working on your credit score in addition to receiving some rewards benefits, but you must treat your credit card like it is a debit card. Only spend what you are able to pay off in full each month and never miss a payment because this will be one of the largest determining factors of your credit score.
2. Do Research on the area you want to buy the Property
Looking for the perfect property to buy can be one of the most fun yet frustrating parts of property investment. Luckily, a lot of upfront work can be done on your own, and you don’t need to rely only on what your real estate agents puts in front of you if you prefer to be more involved. Of course, you want to find a home you find beautiful and love at the moment, but you need to think 5, 10, 20 years from now and how this investment will hold up in the long-term.
3. Look for a good Resale Value
Resale sale Value is an important thing to consider before you plan to invest or buy a property. Property buyers never consider resale value when they buy. They make the mistake of focusing solely on a prime locality or the budget of the property. If you choose the wrong property or location, it is possible that your future sales price will always be less than the other homes around it.