I sent out a letter to my clients yesterday, another article I just finished about rental property. This is one of my favorite subjects because I think it’s one of the best investments possible, and open to practically everyone.
This one presents a seemingly radical notion – that your first home should be an investment property. This is actually strong advice, and not at all radical. This piece offers a potential solution to the younger generation who are struggling to get into their first home and begin the home ownership cycle.
~ ~ ~
Why your first home should be an investment property
If I could give one piece of real estate advice to young people, it would be to get started owning property as soon in life as possible. Time spent paying rent and trying to save for eventual home ownership is time and money wasted.
It’s true that getting started on the ladder of home ownership can be tough. But there is one excellent way for young people of ANY income level to get started. This is for them to use multi-family rental property as their first home, and to live in one of the units.
The first-time home buyer can take advantage of the FHA loan, designed specifically to help people get into their first home with limited income, and with little to no credit established, and even in some cases with mildly blemished credit. The FHA loan allows purchase of rental property up to 4 units, as long as the property is owner-occupied.
The FHA loan only requires 3.5% as a down payment, as opposed to the conventional loan amount of 20%. Most anyone can scrape this smaller amount together in a short time, but prospective first-time buyers will hesitate to launch into home ownership before they have an adequate and secure income – and rightly so.
But note the key point here: purchasing a duplex, triplex or four-plex provides that adequate and secure income.
At the same time, a first-time homeowner can also become an investor in rental property, decades before the typical time in life that most homeowners branch out into a second property or real estate investment.
Rental property is one of the best investments you can make. It’s an asset that pays for its cost of ownership over time and continues to produce income.
One of the best ways for parents to give their children a good start in life is to help with the purchase of a rental property when they go to university. A duplex in the college part of town, that kids buy themselves, takes care of housing and represents a very stable form of income for them as they grow.
Rents help pay the mortgage, and equity builds daily. And when it comes to accumulating money for a better home than you can afford today, you can typically build equity faster than you can save discretionary income.
I believe multiplex rental properties are the best investment for most beginners. There are so many benefits to owning small multifamily properties that I could write for a week about them.
Being young and buying a first home is actually a huge opportunity to begin creating wealth early in life. This contradicts what most people believe, but it’s actually true, and it provides the answer in this day and age to the problems that millennials are facing getting started in their first home.
© Stephanie Passman
