Young Professionals: Should You Rent or Buy? (2024)

FAQs

Is it better to rent or buy in your 20s? ›

Renting and buying both have their pros and cons for young professionals. Renting allows you to avoid certain costs, such as making repairs and upgrades, property taxes and homeowner's insurance, but depending on where you live, owning a home may be the more affordable option.

The number of millionaire renters has tripled in the past five years. More and more millionaires are stepping on the everyman's corner and renting apartments rather than putting down roots and money to become homeowners.

Buying a house gives you ownership, privacy and home equity, but the expensive repairs, taxes, interest and insurance can really get you. Renting a home or apartment is lower maintenance and gives you more flexibility to move. But you may have to deal with rent increases, loud neighbors or a grumpy landlord.

A major disadvantage of renting to own is that renters lose their down payment and other non-refundable charges if they decide not to purchase the home. Some sellers may even take advantage of renters by making it difficult or unappealing to purchase the home — with the goal of keeping the down payment.

There's no right or wrong age to buy a house — just the right or wrong time. Be sure to consider your financial situation, your employment, the local housing market, and your future goals and plans. Consult a real estate agent or loan officer for professional advice if you're unsure.

Most people, even in their mid-to-late 20s are still struggling to establish themselves. That can be hard to do if your job isn't paying you enough, you're struggling to make rent, have no savings, and are being crushed by debt.

There have been more millionaire renters in recent years than ever before. A RentCafe analysis found that the number of renter households with incomes of more than $1 million reached a record high of 3,381 in 2020 — three times as many as there were in 2015.

"While a majority of the respondents intend to purchase a house, we should not discount the remaining cohort looking for rental accommodation – 40% of Gen Z would prefer to rent rather than purchase.

Of the Gen Zers surveyed, income was the biggest challenge of buying a home, with 23.3% reporting it as holding them back from homeownership. Among other reasons, 14.6% of Gen Z reported home prices as their biggest challenge and 11.9% reported their current savings amount as a roadblock to buying a home.

Key points. Renting a property is often referred to as throwing away money. That's because, unlike with a mortgage loan, renting doesn't help you build equity. Renting isn't necessarily the wrong move for everyone though.

Do you save more money renting or buying? ›

The overall cost of homeownership tends to be higher than renting even if your mortgage payment is lower than the rent. Here are some expenses you'll be spending money on as a homeowner that you generally do not have to pay as a renter: Property taxes. Trash pickup (some landlords require renters to pay this)

Key Takeaways. The best age to buy is when you can comfortably afford the payments, tackle any unexpected repairs, and live in the home long enough to cover the costs of buying and selling a home. Legally, you must be at least 18 in most states to buy a home.

Homeownership rates by generation

Younger millennials (23 to 31 years old) comprise only 18% of the share of homebuyers. 60% of older millennials (roughly 40-42 years old) own a home.

When you're in your middle years or older, chances are you'll have a higher, steadier income and a better idea of where you'd like to settle down than when you were first starting out. You'll also leave yourself time to build excellent credit, which may qualify you for the best available mortgage rates and terms.

Alice Rowen Hall, director of Rowen Homes, suggests that “individuals should aim to save at least 20% of their annual income by age 25.” For example, if someone is earning $60,000 per year, they should aim to have $12,000 saved by the age of 25.

Peak years are generally thought to be late 40s to late 50s*. The Latest figures show women's peak between ages 35 and 54, men between 45 and 64. After that, most people's incomes typically level off.

What age group is the most financially stable? ›

Looking more broadly at young adults ages 18 to 29, the share who are financially independent has been largely stable in recent decades. Overall, young men are more likely than young women to be financially independent, but this gender gap has diminished significantly.

Living in an Expensive Area

So they may rent a place in New York City, London, and San Francisco to live in because it's much cheaper than buying. Since they have cash-flowing real estate and other investments to live off of, they know the difference between a property that is an expense and an income property.

By the numbers: The number of millennial homeowners increased by 7.1 million between 2017 and 2022 to 18.2 million, a 64% increase. There are still 17.2 million millennial renters, which is still considered the dominant renter generation, RentCafe found.

The value of those properties isn't necessarily through the roof: 40% of landlords own less than $200,000 worth of property, and an additional 30% fall in the $200,000-$400,000 range. Only 30% of landlords own properties worth $400,000 or more, with 7% at the top owning properties worth $1 million or more.

Aligned with the job satisfaction insights, Gen Zs also proved to be the generation most likely to quit their job if they are unhappy with their workplace, the report found.

Millennials, aged 27 to 42, make up the biggest group citing affordability as one of the key issues that's preventing them from buying a home. Older millennials, between 34 and 42, were the biggest group that cited the inability to afford the down payment or closing costs as a major reason why they don't own a home.

The most desired annual salary for younger workers ranges from $71,000 to $80,000 on average. To feel like they've “made it,” Gen Z respondents said on average they'd need $124,494, while millennials would need $120,902.

A Redfin report found that 30% of Gen Zers owned homes at age 25 in 2022. The rate surpasses those of millennials and Gen Xers when they were the same age. Gen Zers were greeted by a stronger labor market as they established their careers.

Key Takeaways. Millennials are not buying homes as readily as the previous generation. Delaying marriage and having children is keeping many Millennials at home with their parents. Tighter lending criteria can also make homeownership unaffordable or virtually impossible for those without much credit history.

Roughly 30% of 25-year-olds in 2022—the oldest of the Gen Z (born between 1997 to 2013)—owned their home in 2022, a slightly higher percentage than the 28% of Millennials (born between 1981 to 1996) who owned homes at that age and the 27% of Gen Xers (born between 1965 and 1980)—but lower than the rate for Baby Boomers ...

Is it OK to live in an apartment forever? ›

If you found an apartment you love, you are probably wondering if you can stay in it forever. In theory, yes you can – as long as your lease continues to be renewed. If you want to stay in an apartment forever. You are not alone.

One of the major benefits of renting versus owning is that renters don't have to pay property taxes. Real estate taxes can be a hefty burden for homeowners and vary by county. In some areas, the costs associated with property taxes can amount to thousands of dollars each year.

Just because there's a recession doesn't necessarily mean rent prices go down. In fact, during the 2008 recession, it was the exact opposite. In the current rental market, we have seen the rate of increase in rental prices come down, but this only translates to lower rent prices if you're in select markets.

Share: You should generally save between $6,000 and $12,000 before moving out. You'll need this money to find a place to live inside, purchase furniture, cover moving expenses, and pay other bills. You'll also want to have enough money saved up for an emergency fund before moving out.

The Importance of Homeownership

Real estate is considered by many to be a sound investment that offers unique wealth-building opportunities. Buying a home expands options for the future, whether you plan to sell and make a profit or leverage the equity in your home to pay for other major expenses.

A home is a long-term investment. If you buy a home as a primary residence, it can increase in value over time and provide a financial windfall when you sell. You gain equity in the home over time, which can provide a source of emergency funding if your financial situation takes a turn for the worse.

The price-to-rent ratio: Take a monthly rent figure and multiply it by 12, so it's an annual number. Divide the purchase price of a similar property by that annual rent number. A ratio greater than 20 generally weighs in favor of renting, while a figure less than 20 generally favors buying.

Nearly 75% of Americans say that owning a home is a more significant measure of achievement than having a successful career or even raising a family, according to a survey from Bankrate.com of about 2,500 adults.

What are three reasons to rent? ›

Typically, mortgage lenders want you to put 20 percent down on a home purchase because it lowers their lending risk. It's also a rule that most programs charge mortgage insurance if you put less than 20 percent down (though some loans avoid this).

When you buy a house, you'll need to have funds ready to cover closing costs. On top of that, plan to have enough cash reserves on hand to cover three to six months of expenses. You'll also generally need to make a down payment, though there are some loan programs that don't require you to put anything down.

Mortgage Payments Can Help You Grow Wealth

That can translate to the ability to take out a home equity loan or home equity line of credit. When you pay rent, you may not be getting any long-term benefits in exchange for it (except perhaps more savings in your pocket if rent is much lower than a mortgage payment).

Your 20s can be a great time to take on investment risk because you have a long time to make up for losses. Focusing on riskier assets, such as stocks, for long-term goals will likely make a lot of sense when you're in a position to start early.

The biggest reasons to buy a home in your 20s

Buying a home in your 20s can help set you up for more financial security in the future. You can start paying down your mortgage loan and building equity (how much of the home you own outright) when you are young, which helps you build wealth.

There's no minimum age to buy a house. If you're ready and have a down payment, buying a house in your early 20s is a smart move. If you want to buy a home young, start planning now and get in touch to let us know what you need. We also have a completely free education course available for all first-time homebuyers.

When you're in your middle years or older, chances are you'll have a higher, steadier income and a better idea of where you'd like to settle down than when you were first starting out. You'll also leave yourself time to build excellent credit, which may qualify you for the best available mortgage rates and terms.

No matter how old you are, the best time to start investing was a while ago. But it's never too late to do something. Just make sure the decisions you make are the right ones for your age—your investment approach should age with you.

How much should a 20 year old invest to become a millionaire? ›

We calculated that assuming an investor gets a 3% annual return on his or her assets, he or she would need to invest $1,720 every month for thirty years in order to attain $1 million, starting with a $1,000 initial investment. $100,004,764 would have been earned by the end of the thirty years.

Almost 30% of 25-year-olds own their own homes, a higher percentage than their parents at the same age.

How Much Mortgage Do I Qualify for If I Make $20,000 a Year? As discussed above, a home loan lender does not want your monthly mortgage to surpass 28% of your monthly income, which means if you make $20,000 a year or $1,676 a month, your monthly mortgage payment should not exceed $469.

Although buying a house for the first time is a big decision, there really is no perfect age to do it. While it's more about individual readiness when it comes to home ownership, the average age of a first-time home buyer in 2021 was 33. Here are some indicators that people are ready to buy in their thirties!

When you hit your 40s, you may be on more solid financial footing than you were in your 20s. But that doesn't mean you should buy the priciest home on the block—even if you can afford it. Instead, consider the expenses and financial obligations that will come up through your 40s and into your 50s.

Age doesn't matter. Counterintuitive as it may sound, your loan application for a mortgage to be repaid over 30 years looks the same to lenders whether you are 90 years old or 40.

It's recommended you have a credit score of 620 or higher when you apply for a conventional loan. If your score is below 620, lenders either won't be able to approve your loan or may be required to offer you a higher interest rate, which can result in higher monthly payments.

While there are a lot of factors involved, the average age when people move out of their parent's home is somewhere between 24 and 27.

While the average age borrowers expect to pay off their mortgage is 59, the number of survey participants who have no idea when they will pay it off at all stood at 16%. In 2019, 9% of those asked didn't know and in 2020, 11% gave this answer.

The average millennial bought their first home at 34, slightly older than the average age of past generations, when boomers took the keys at 33 and Gen X at 32.