Will I ever be able to buy a home??

<div class="user-question">Hi Frich! I'm in university right now and there's a topic that keeps coming up in my friend group. We haven't graduated yet, but we're already stressed out whether we'll ever be able to afford to buy a home. None of us would want to be in a position where we have to move back in with our parents after graduating but seeing the average prices it just doesn't seem realistic that we would ever be able to buy a home. I'm freaking out!! Will I ever be a homeowner?</div>

Hey Freaking Out, I have definitely been there and I know how stressful it can be to think about buying a house these days.

The first property I purchased was a condo in downtown Cleveland that only cost $350,000 and was a top floor corner unit on the water— fun fact, I didn’t sleep at all the night before I signed my mortgage. More than a decade later, as a mature adult, I bought my first home in California. I signed the offer letter, and immediately ran to the bathroom and threw up. So, some things never change.

The reason I am sharing this is to acknowledge that owning a home is often a scary and somewhat distant dream for Americans. Your home is inevitably the most expensive thing you’ll own, and, in many cities, fairly inaccessible. Additionally, saving for a down payment is hard! How do people save hundreds of thousands of dollars for their first home? Here’s how I did it⬇️

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🏡 Getting to Your Down Payment

When looking to save for your first down payment, there are many options.

We’ve discussed previously how to save up for your emergency fund. That’s likely the last place you want to touch when putting forth funds for a home as you might have emergencies you need those funds for, even as you’re buying your home!

So I recommend separately building an investment portfolio that you can liquidate (or convert to cash) - partially or fully - when the time comes to buy your first home.

What I mean is, you can build a “down payment savings” through your investments, and don’t only have to save for this in cash. Your down payment can be partially cash, partially stocks, bonds, ETFs - really any type of investment vehicle you are comfortable with purchasing.

You can build a portfolio on any investing app or trading platform, which will let you both select and research individual investments based on your risk tolerance.

As daunting of an idea as it is to build an investment portfolio in college, it’s actually fairly straightforward and like most things financially-related the secret is to start early and start small.

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🏡 Your Home-Buying Investment Portfolio

Typical investment portfolios of the wealthy and ultra-wealthy will include some percentage of both public and private market investments, which is how I typically allocate my funds.

This means, some percentage of your investment portfolio (typically 50-95%) can be in public market investments like stocks, ETFs, and other public equities. The rest can be in private market investments like venture capital, private equity, or real estate. (For people who own a home, they are already investing in real estate via owning their primary residence.)

Given that you’re unable to buy a home, as most people in college are, you might consider looking elsewhere to get real estate in your portfolio.

Investing in real estate is both a diversification from traditional markets and a great way to keep some portion of your portfolio hedged against other markets.

Some people suggest buying properties via Airbnb or renting condominiums. These have individual challenges as well (that we can get into some day) but unless you want another full-time job, I personally do not recommend this path.

Another option is to look at REITs (real estate investment trusts) that are publicly listed on the market. This can be a good way to quickly grow your own real estate investment portfolio while remaining liquid, so long as you are comfortable with the volatility that often comes with the public markets.

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🏡 Real Estate as Investment

I am biased, but the method I’ve used to save in real estate over the years has been via the Fundrise platform (full disclosure, I work at Fundrise, though I was a fan of the product before I joined the company).

The reason I like Fundrise is that it gives me access to invest in institutional-quality private real estate and at an extremely low entry point - my first investment was $15.

I was able to watch what happened to my investment, read the investor updates, and then eventually once I felt more comfortable I set up auto-deposits.

I have gradually grown my portfolio to more than $10,000. It’s not enough for my next down payment, but we’re getting closer every day. The perks of the private markets are what drew me in and have kept me investing:

1️⃣ The illiquidity of private markets gives me peace of mind that I won’t wake up with major volatility in the price overnight. Private markets are not traded on markets that have prices fluctuating from second to second, so you don’t have to watch your investment app 24/7.

2️⃣ Knowing someone else is handling all the complicated parts of real estate like underwriting and lending makes it very easy for me to have exposure to an industry I was previously afraid to participate in.

For those who don’t own a home yet, I like that it gives you exposure to the asset class so that you can take advantage of rising property values and not feel like you’re missing out by not owning an entire property. It also offers flexibility to continue to rent longer in a place where you can’t yet afford to buy.

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🏡 To Rent or To buy? That Is The Question...

Speaking off.. Often, there’s a question of whether to rent or buy. What I’ll say here is this:

1️⃣ If you don’t have a down payment for a home, renting is likely your best and only option.

2️⃣ If you have the down payment for a home, decide if you can afford the mortgage. The best way to figure this out is to chat with a mortgage specialist and, looking at what your current expenses are, decide if you can truly afford the mortgage.

🥳 If your mortgage payment is similar to or less than your rent payment currently, you can absolutely afford your mortgage and should go for it!

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🏡 Saving for a Home PSAs

Here are a few key things to keep in mind while you’re thinking about how to save up to buy your first home:

1️⃣ It takes time to save up! Don’t beat yourself up over it. Even if you’re only saving $25-$50 a month initially, remember that the money does compound over time, so the earlier you start the better.

2️⃣ Set a goal for yourself for every month and every year. If you miss a month, try to catch up in other months. Check in with yourself regularly to see if you’re still on track or if you need to add a bit more funding.

3️⃣ I used to think I needed a house when I first graduated from college. I am so glad my dad and I talked deeply about my finances and he reminded me of a few things. It went something like,  “No one who is 22 years old is buying a house unless their parents are helping them. Do what you can within your means, and be proud of what you can afford.” Guess what? That meant I was buying a beautiful condo that was built in 1982 and had all the original kitchen appliances. I couldn’t be more proud to have had that home that I bought with my hard-earned money, though.

3️⃣ There’s. Absolutely. Nothing. Wrong. With. Renting. I’ve rented on and off my entire life. I continue to have the internal debate of whether owning is a gift or a nightmare. Perhaps someday I’ll come to a real conclusion. Until then, remember renting isn’t evil while you work towards owning your home! Renting is a more affordable option in many parts of the world, including where I live in LA.

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Btw - here's how others are doing👀

What's your most important savings goal right now?

😮21% I haven’t started saving yet

🛠️29% I’m building my emergency fund

🎓13% Paying for current / future education

🏡21% My apartment / future home

🚗17% A car

Saira Rahman

VP, New Investor Initiatives - Fundrise