Millennial homeowners, Aèkeam Right and Jeff Badu, both saw becoming homeowners as an important way to take control of their own lives and build wealth early.
According to an article from AARP, only 18 percent of men and women from ages 18 to 34 say owning their own home is one of the most important things to achieve in their life.
Right, 29, purchased his first property at the age of 23 and today has five properties.
He decided to venture into real estate at a young age because he wanted to build equity and thought it was smarter to own than to rent.
“For me, it was purely math related,” Right said. “I realized that for what I was paying for in rent, that I could own a house. This was right after the crash of the market and stuff, and so properties were pretty cheap. For the price that I was paying to rent out, I figured out that I could own a house for a little bit more.”
Badu, 25, agrees with Right. He believes buying property as early as possible can help build wealth and be used as a way to stop wasting money.
“A lot of people just wait too long in the home buying process, and they end up just pretty much throwing money away every single year,” Badu said. “You might as well just put it into a property if you plan to buy one.”
“I wanted to start building wealth early and you know when you rent, you’re not building any sort of wealth whatsoever,” Badu added. “For me, I like to put my money into use and to work. I wanted to build something at a very, very young age, that way you know as I grow, the wealth keeps building and so that’s why it’s best to get started as early as possible.”
A number of millennials in the black community may be unaware of how to get into real estate investing as a way to generate wealth for themselves and future generations. One possible reason is they are not equipped with the proper resources to gain the appropriate knowledge.
“I think everyone should own a home as soon as possible,” Lori Gay, president and chief executive officer of Neighborhood Housing Services of Los Angeles, said. “I’m that person, because building wealth takes time. Certainly, for young millennials of color, the challenge you run into is that many cultural groups do not have wealth being passed down to the new generation. So you better get started as young as you can with a wise investment strategy.”
The first things millennials should think about before they invest are identifying what they want and what their end goal is, Gay said. She recommends that you should determine whether you wish to own a home, make money by flipping properties or rent out housing units. Once you decide, it will change the way you deal with real estate and properties in general.
Personal finances are also an integral part of the real estate investing process.
“Money, credit savings and income are the three things that are reviewed to figure out if you’re a good potential homeownership candidate,” Gay says. “What does your credit look like? How much money are you making? How much do you have saved? And if, in fact, you don't have the typical loan that’s 5 percent down, then the question is what are the loan types that are out in the market that might fit you.”
“You want to be able to enter the game wisely; you want to be able to know what your end result is that you’re seeking,” Gay added. “Then you want to plan the work, and work to plan and take your time. So it’s balance, and I think a great homeowner is someone who’s planned strategically and executed that plan.”
Michael Persaud, a wealth and financial advisor at Morgan Stanley investment banking, agrees with Gay. He says if a millennial has been able to save at least $10,000 to $20,000, then they are in good shape to buy a home. Persaud mentions considerations on other personal financial circumstances are necessary, as well.
“You have to think about the other things that you should be saving for,” Persaud said. “You have to be able to put money away, not just for a home purchase, but also at an early age you should start thinking about money you’re putting away for saving towards retirement.”
If you haven’t saved, then Persaud suggests you do more planning. He also believes that millennials must consider factors such as the stability of their career and how long they plan on living in a particular location. Persaud says if you’re going to buy a place, you should live there for at least five years.
Gay also expresses her take on the efforts of rebuilding communities and creating mechanisms for community empowerment and ownership. She believes that if properties are passed down to you but are overridden with debt and in poor condition, sometimes it's best to sell to an investor. But if other situations arise and you are presented with the option of keeping the property in a specific neighborhood, it is up to you to decide whether you want to move back into a neighborhood that may be considered more at risk than another.
The Neighborhood Housing Services of Los Angeles has been working actively in Compton, which is primarily African-American and Latino, and Gay said one of the best statistics they have observed is that people in their 60s and 70s have lived in the Compton neighborhoods for 50 to 60 years. They may have been born and raised there and have stayed the whole time.
“That sense of legacy, the sense of community commitment and the sense of place is very powerful,” Gay said. “I would never write off what may be considered a tough neighborhood. You have to do what we call an asset map in the neighborhood and figure out what the assets of that community are. If they’re outweighing the negative elements, you’re in great shape.”
“If they come close to being 50-50 with the negatives you probably can get in there and consider yourself a pioneer, and get a good price on some real estate and help change the community where you are,” Gay added. “Be empowered to figure out if you can work to revitalize space or just walk away from it, and I think that perspective will help drive community investment.”
Right is actively working on buying property in his hometown as a way to rebuild communities. He wants to help his city out in a meaningful way by purchasing property in gentrified areas. Right plans to have control of who he sells the property to and is aiming to to make sure that affordable housing is available to residents.
Although real estate is one way to gain generational wealth and a way to preserve neighborhoods, both experts want black millennials to consider the barriers they may face during the process.
“Well, obstacles, I think, are what you see when you take your eyes off the goal,” Gay said. “The consistent thing is the struggles with credit and the struggles with saving, and in a high-cost market like Los Angeles, sometimes people just don’t have enough income.”
“I do think it impacts a lot young black millennials in particular because they might be in modest means getting out of college,” Gay added. “Their incomes are not as high, and then they may have the value system that they’d like to own. Now they have college debt, and it just goes on. I think that we have to take a minute and figure out what's necessary and what we want to do, in terms of helping black millennials get to the space they’d like to be in, to build their wealth over time.”
Black millennials have to consider the overall wealth gap between black people and other races when considering property ownership, as well, according to Persaud.
“Our community, generally speaking, has not been that good at planning out our core base level finances, which then builds over years and creates generational wealth,” Persaud said. “There’s a lot of catching up we have to do as black people. “It doesn’t take a high level of complex, sophisticated financial thinking, but we need to get to a higher base level, which I don’t think that we are as a group.”
Both experts strongly advise millennials to seek out resources to help their investing journey be as smooth as possible. Gay always encourages people to get financial advice from reputable sources. She also advises millennials to seek homeownership counseling and to take classes from local nonprofits that teach the process of buying a home to figure out how to develop the best business strategy and to stick to it.
Persaud suggests prospective first-time home buyers talk to a mortgage banker or broker to learn what special offers or benefits are out there for a first-time home purchaser.
Badu took advantage of various resources while on his journey. He suggests that people should check out YouTube videos and books. Badu learned a lot from online articles and speaking to other homeowners like his sister.
“I'd say it's really important to own not just personally and commercially, but as an investment,” Badu said. “It comes with a lot of tax benefits, and you can get some nice cash flow…it's truly a rewarding investment I would say. It's something that everybody should consider.”
Overall, one of the biggest tips both Gay and Persaud emphasize for black millennials is to know their money and their fundamental cash flow.
“Having a budget to live by is what helps maintain wealth more than any other tool,” Gay said. “I heard someone say at one time that budgets are for poor people. The response she got back was, ‘No, we have a budget, so we don’t become poor.’ And we don’t judge being poor, it's just with whatever you have, manage it well, and know how you’re spending it and why you’re spending it,” Gay said.
As for advice on how to execute a solid budget, Gay suggests to set it up in a way that allows for savings for other major milestones.
“Put everything into the needs versus wants column,” she added. “Focus on what you need, not just what you want and live beneath your means so that you can have some savings in the future.”
