The age old question rears its head when you venture into the world for the first time as an adult: Should you rent a place to live in or buy? Young Wealth would like to offer a third option, the one most often left out of the equation, which is do both! But first let’s take a short trip to a little place we
like to call reality. As a recent college graduate, or even simply a person in your early to mid-twenties, banks and other lenders might not offer you the option of buying a home yet, at least not without your parents or other adult with an established credit record to co-sign for you.
Most young people rent first because that’s all they can do. Buying is not an option yet, and it’s not even because they have bad credit, but because they haven’t had time to establish much credit history at all yet. Don’t feel bad about it. That’s the way the world works. You build a good credit rating as time passes by paying your bills on time, not exceeding your credit card balance, and keeping a debt to income ratio of about 16%.
But back to the point of the article. How does one both rent and buy at the same time? Using a type of investing called income property, you can gain the benefits that go beyond what renting or buying a house can do for you individually. Let’s consider a nice little duplex. Nothing fancy, but clean, neat, and in a decent neighborhood. Run the numbers, considering what your mortgage payment would be if you decided to buy it, and how much you could earn in rent from a tenant by renting out one side. If the numbers work, you live in one side and rent out the other. Often the rent paid by your tenant will completely cover the amount of the monthly mortgage payment and, even if it doesn’t pay it all, should make a good-sized dent.
The end result is you either get free rent (if income from the other side covers your payment), or greatly reduced rent yourself if it doesn’t cover everything. Either way, it’s a heck of a deal for you, especially when you consider you’re going to own the asset (the duplex) at the end of the mortgage, even though the bank put up all but about 20% of the purchase price and your tenant’s money was actually what paid it off.
Even better might be to rent both sides out, a move that could leave you with positive cash flow above and beyond the loan payment. And you can repeat this process again and again and again with different properties? Are you beginning to see the possibilities?
The Young Wealth Team
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