Not owning a house, with its mortgage payments and maintenance costs, can free you up to save and invest for the future. Homeowners end up with lots of equity, while the financially astute renter has a big investment portfolio. There is a tax advantage to home equity in that you can sell a principal residence tax-free, but the renter’s investment portfolio can be deployed with a lot more flexibility than equity in a home you’re living in. “It’s explaining that renting isn’t a financial coffin,” said Shannon Lee Simmons, a certified financial planner (CFP) with the New School of Finance. “I think that the stigma still exists where, if you don’t own a home, you feel like you’re financially shut out from security, a good retirement and all that stuff.” Nicholas Hui, a CFP with Vave Financial Planning, said he runs projections for his young adult clients that show how their finances might look if they bought at today’s prices. “There may be trade-offs that they didn’t know about,” Mr. Hui said. “We can then say, okay, what do your finances look like if you’re renting a place? Maybe you’re able to accomplish life goals like starting a business or travel.”
Part of being a financial planner is providing a practical take on a client’s hopes and dreams and not being a cheerleader for home ownership. With housing affordability slipping as prices rise, this often means having a discussion on renting. The word is rent. R-e-n-t. Say it with me and then let’s dig into how planners are tackling the challenge of mapping a way for millennials and members of Gen Z into a housing market where prices keep soaring.
Story continues below advertisement A certain four-letter word comes up a lot when financial planners address young adult clients who fear they will never own a house.
A few other ideas from Ms. Simmons for frustrated would-be buyers: Story continues below advertisement To keep the dialogue about renting going while addressing the emotional side of housing, Ms. Simmons raises the idea of spending a little more on rent to find some place special. “It’s about getting a rental space that makes you proud and excited,” she said.
There are two sides to the sense of urgency young adults feel about home ownership – one is the financial anxiety about missing out as affordability declines and the other is the pandemic-driven desire to live in a place that offers the comforts of home. Mr. Hui said he’s actually had some success getting young adult clients to understand the sacrifices required if they buy a home at current prices. “Some say it’s really their life goal to own a house, but others pause and then start adjusting their expectations.”
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