Scaring the Rent Out

Recently the AJC cited a 24-year financial expert as the voice of his generation in the “buy” versus “rent” conversation. The article highlighted a thought process that was both fearful to commit and on the lookout for that “forever home”. Unfortunately, the author failed to ask how both were possible.

Still, how does long term renting affect someone in life’s larger picture? Well, I can assure you, no one ever said; “I want to retire to a small, simple room overlooking a Burger King”. But, they do. One wonders, did renting play a part?

I would like to ask our 24-year old expert, or anyone nearing 30 years of age, in what style and manner do they see themselves living as they approach retirement? Not specifically where, but rather what the surroundings look like? A small cottage home? Townhouse? Hi-Rise Condo, Country Estate? 

Every retirement guide you will ever read clearly advocates for a mortgage-free senior life. The experts will say; have your home paid off or “within easy reach”. This is universally accepted as great advice. So renters, how are you going to save enough money to, one day, pay off a mortgage? And remember, by the time you retire, homes will cost 4X what they do today.

For generations, couples bought homes, moved up the real estate ladder in their family years and back down the ladder in retirement. Rolling over equity in each stage made this possible. Rolling over equity on the starter condo to buy the starter home. Rolling that equity over to buy the family home. And, if you live long enough, you can roll the family home equity over to pay for a down-sized retirement home. Worked like clockwork until it didn’t.

The last decade has given rise to a new billion dollar-a-year industry whose sole charter is to make sure consumers DON’T roll over their real estate equity. Venture-funded vultures have been created specifically to mislead the public and change the home equity narrative. Used to be; don’t touch it! Treat it like a 401K! But, companies can’t make money. So, the home equity narrative had to become more, “check-bookie”. Dip in, the water is warm. 

Short of a lottery win, this will prove disastrous for those who spent, or dipped in, their home equity prior to retiring. Actually, with little or no home equity, retiring in the room overlooking the Burger King may actually be an upgrade to where many will probably end up. I know, it’s depressing. Want scary?

Millennials: You will need over $1M dollars in home equity to live mortgage-free. 
Remember, time doesn’t stand still. Today’s $400K condo is tomorrows $1.6M condo. Anything over $250K in value today will be over a $1M dollars in 30 years. Short of a significant change in U.S monetary policy, these numbers are a statistical certainty.

Retirement planning needs to be two-track; housing and living. For housing, traditionally, that last roll-over, was a cash out leaving the buyer with a home and a fancy-looking document. But, those days are on the wane. Oddly put, people don’t roll-over like they used to. If, as a consumer, you have NOT been building real estate equity over the decades, you will need to come up with your housing funds from traditional savings. Yep, add another million to the pile! 

I do not envy the young, who must pay for what the future will bring. Then again, every generation says that. But, a million dollars in home equity over the next 30 years isn’t as hard as you’d think. One just has to buy in and keep the ball rolling. And remember, it’s a real slow roll.

Early in careers, people don’t make enough to significantly contribute to long term savings. That comes later. But, if you can pay a mortgage, you can start the home equity clock. And, the sooner one starts…

Not to sound lecture-like, but I see Atlanta loaded with cool new hi-rise rental buildings. Lots of units, providing tenants with lots of flexibility. Too much “flexibility” today will yield a, “this is what you can afford”, tomorrow. Can you smell the Whopper? Sadly, we live in a have/have-not world that most likely will only get weirder. Home ownership will be the dividing line.

So, if you are a renter—BOO! Hope I scared you. Happy Halloween!

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