If you are still living with your parents, you have a rare opportunity to reward your future self before the time passes. Once you move out on your own, the opportunity is probably gone forever. So, let’s get started.
As soon as you get your first job, buy a condo or a house that you can afford comfortably. Condos are a bit simpler to maintain and cost less to purchase but that’s totally up to you. Your parents can help you decide and then help you with the steps.
Once you buy it, rent it out immediately. You may think “Why would anyone do this and not move into the home they just bought?” Well, don’t buy your dream home just yet, but buy one in a smart location.
Chances are, you’re not paying for food or rent so you can continue saving money for the house that you do want. Meanwhile, someone is paying the monthly payment for the property you are renting out and building equity for you at the same time. It really doesn’t get much easier than that.
This being your first home, you will need your parents to cosign for the loan and maybe help with closing costs. But, once you have a renter, they will be paying the principal, interest, PMI (private mortgage insurance), condo maintenance fees, insurance, and taxes on a property that you own. And if you rent it for more than the total monthly payment, you could end up with some additional monthly income. Not bad, right?
Eventually, you will be moving out to buy your dream home. You can show the bank you have someone else paying the mortgage on your rental property, you will have some credit history, and the bank can see it as collateral in case you fail to pay your new mortgage.
You could also sell it and put that money into the new home. Not only would you get the money the renter has put into equity but if the value of the house increases, (which it should) you will get that as well. Even if you’re only renting it for a couple of years, that’s thousands of dollars of income and appreciation you would not otherwise have, or would have to earn in some other way.
When I sold my condo, I wasn’t living at home, but it appreciated around $60,000 in 5 years. That more than made up for the condo fees I had to pay during that time. It also became the down payment on my house and covered the 20%, so I didn’t have to get PMI. As you can see, it has a few benefits.
If I could have kept it I would have. But this was the disadvantage of not doing this while I was living at home, because I didn’t have any savings that I could use for the house. Being out on my own, financially, it was just not possible. Later in life it would have been but that’s the point I’m trying to make here. Things tend to get more complicated later in life.
But, imagine having a property that’s paying for itself and having that money available later when your kids are going to college or having that property available if they are looking for a place to rent out.
Having the extra property will give you extra equity in case you need loans for improvements or repairs, on either home. Some improvements can mean higher rent. If you finish a basement, for example, or add a garage. And you can write off any equity loans that were used for home improvements during tax time and get a bigger refund.
Anyway, if you decide to keep it, you will have equity in two homes that you are pretty much guaranteed to own long before you retire. You will have two properties, no mortgages, and rent coming in that’s not going towards a loan. You can even buy a third property to rent out and sell each as needed.
I know all this may not seem relevant now but you can set yourself up for some easy passive income and big savings. Life moves fast, and it only gets easier if you make it easier. Because, in the future, you will know what you missed out on and you will probably feel bad about it. But, in the present, it will cost you almost nothing to work towards a future that you can feel good about.
