Society suggests that your typical timeline may go something like this; graduate university, gain your first job, move into your first rented property, move into a second rented property, get married, buy your first home, have children, purchase a second home and then look into investments.
While this can indeed help to build credit and save money whilst simultaneously enjoying your youthful years, it may actually be wiser to start investing in properties earlier than this.
It Just Got a Whole Lot Easier
If you’re lucky enough to go straight from university into a well-paid job, getting on the property ladder immediately as a form of investing could be a good idea. At this stage in your life, a lot of your finances are probably thrown away on various lifestyle habits that can easily be broken. This will allow you to save the money you’re spending on unnecessary things, to be put towards a deposit for a first home. As well as this, using the time to build credit will be a great help when applying for a mortgage loan.
With the rise in online mortgage brokers, applying for this type of loan just got a whole lot less scary – and simpler too. Perhaps the reason many people wait until buying their second home before turning the property into an investment is so that they are more knowledgeable on the subject. Also, traditional mortgage brokers tend to make the application long and dull, with customers having to visit the bank to fill out heaps of paperwork and wait weeks for the options to come back.
With online mortgage brokers such as Mortgages Online, the whole process became a lot more efficient. These sites use statistical data to examine various mortgage deals perfectly fitting the requirements of the customers. Results are returned within minutes, ensuring that the lenders are unbiased and impartial and bringing the very best mortgage deals. This kind of system is ideal for those looking to purchase their first property.
What Are the Advantages?
Since the mortgage crisis, many people are left wondering if purchasing a property is a good investment. The key to making your first home an asset to your future is to rent out the property. Whilst this may go against the idea of personal finance, transforming your home into an investment property by renting it out will mean you are not paying the fees, the tenant is. In his book Rich Dad, Poor Dad, Robert Kiyosaki explains the difference between an asset and a liability that many first-time buyers might be contemplating. In short, an asset will put money into your pocket and a liability will take money out. Whilst buying your first home and subsequently living in it will probably be a liability, renting it out is likely to be an asset.
Owning your own home is expensive. Paying the monthly mortgage repayments plus insurance and property tax is costly. Even when the home is paid off, there will still be expenses in the form of maintenance. After the mortgage is repaid, the only thing that will improve is your net-worth. All of your money is in the property, so to get your hands on cash will force you to refinance, open a HELOC account or to sell the house.
Offering the property to tenants for renting will cover mortgage payments, tax and insurance in monthly rent. If you’ve carefully ensured a good cash-flow for your home, the tenant will provide more money per month than what is required to cover the cost of the property. Thus, the house has become an asset as renting the property is another source of income.
Help is at Hand
To help even more, getting your hands on a distressed property is even more of an asset. A distressed property is a home that a bank is willing to sell at a loss in order to clear their books. Buying such a house is a good investment as you are likely paying less than the market value.
It may be hard to purchase any kind of property if you’re young. Normally, mortgage lenders will ask for 20% of the price of the house as a deposit. If you’ve just graduated, the chances of having this kind of money is slim. FHA loans are a great way for first time buyers to get into real estate. These loans offer those without great credit scores the chance to be homeowners. Although FHA loans insist that you live in the property, buying a bigger house with around four rental units means you can live here as well as making money by renting the other units.
More benefits of investing in property include price appreciation. The value of a home is built up over time, as the marketing value of the property rises. Hence, buying a house will build equity, but renting will not, as the mortgage balance reduces.
As well as this, if you take out a fixed rate mortgage, the amount you pay per month will not change for the agreed amount of time. When renting, it is likely the cost of the property will increase yearly, therefore signing a new lease for the same house will see an increase in the monthly rent price. Owning your own property will help to level out living expenses.
Try Before you Buy
Whilst buying property might seem like a great investment, it is important to question whether you really want to be a homeowner. Buying a home is likely to be the biggest purchase of your life, so are you doing it for yourself or to please society?
By Kiyosaki’s definitions, owning a home is often more of a liability than an asset. There are often multiple hidden fees, as well as the annoyance of chasing tenants for rent should you invest your property.
Before making the purchase, it is vital that you seek advice from a financial advisor – especially if you are unsure of anything. You also need to examine your short and long term life and finance plans. It is proven that millennials tend to move around more than previous generations – how long are you planning to live where you are currently? On average, workers tend to only stay with their present employer for around four years. For those under 25, it is less than this at around two to three years. If you do plan to move, buying a property is probably not on the cards for you. Renting allows more freedom. If “living while your young” sounds like you, maybe stick to renting – at least for a while. Fully assess your reasons for buying before making the commitment.
If it For You?
Investing in property is not for everyone. It is clear to see why so many people wait for a while before dabbling in real estate. The freedom of renting is sometimes more attractive to millennials, despite “throwing money away” to hungry landlords.
However, there are many advantages to seizing the opportunity of asset properties whilst you are young. Many new professionals have a lot of “disposable income” that could be saved and invested into property. Renting your first home to others in an additional source of income, and can set you out well for a bright future on the property ladder.