As more millennials enter the workforce, many contemplate how to pay off student loans and buy a home. For many would-be homeowners, the answer about how to manage financial affairs is unclear. The decision for some is a question of whether to save for a home down payment or pay off a large amount of student debt on or before schedule.
According to “The Wall Street Journal,” most Millennials’ incomes cover expenses. There’s little left over add to future savings or consider retirement planning. As the real estate markets in most major cities continue to rise, many millennial buyers express concerns that they’ve been outpriced from the urban areas in which they work.
If housing supply levels remain low—or decline—and home buyer/investor demand remains steady or increases, home prices are likely to increase in the future. Savings rates are at or near historic lows. Younger investors might not have significant capital exposed to the equity markets.
Fundrise, a real estate crowdfunding startup, has some options for millennials in search of a five-year plan. The company, based in Washington, D.C., is offering fund shares earmarked to remodeling or building new single family homes in urban areas. The capital pools are called “eFunds.” The business will offer two eFunds of $50 million each.
The concept behind eFunds is to help younger workers afford homes in urban communities where they work. The first eFunds are dedicated for the D.C. and Los Angeles home markets. Fundrise reviews additional properties. About 100 projects have been identified for the real estate portfolios. The company says it wants to launch eFunds in major U.S. cities by the end of the year.
Investors can contribute to the real estate eFunds for just $1,000. The business says investors’ capital will grow from value-added development and price appreciation in local real estate markets. It’s a financial tool for people who want to own a home at some point in the future.
What’s more, the eFunds help investors to own equity in their home community. The business calls them “homebuyer investors,” (HBIs) and believes that direct investment in eFund projects is a wise financial decision. The theory is that eFund projects cut out the need for a “middle man” realtor or agent.
In addition, by directing capital towards specific projects in the urban community, the business believes that investors can help to advocate for less burdensome urban building requirements and regulations.
EFunds’ concept may add liquidity to local urban housing markets and modernize the real estate sales process. The goal is to identify affordable housing supply and help future home investors’ earmarked equity to keep pace with rising property values in the interim.
EFunds, along with financial planning decisions about student loans, can help investors make decisions about where to invest current capital:
• Many financial experts believe that if an individual’s student loans are at five percent interest or less, it’s a good idea to commit capital towards the future.
• If current capital can be invested at more than the rate charged on the investors’ student loans (five percent or less), it may be a wise financial decision to invest at higher potential rates of return.
If the would-be homeowner plans to live and work in the same market for at least several years, the decision to own a home there may be a sound financial decision. However, it’s important to recognize that the real estate market, like all financial markets, rises and falls with supply and demand.