Gain equity and property value from your investment within a few short years
There is no debating that the Coronavirus pandemic has changed the approach to traditional classroom education. One thing is not changing though: investing in a home during your college years can be a great strategy for boosting your finances into your 20s.
Misconceptions about real estate, loan processes and affordability have made homeownership seem entirely unattainable for younger generations. However, our agents have tips, tricks and resources that not only make it possible – but can help you make it profitable as well!
First-time homebuyer loans and credits
Most students have not purchased homes before. That means you could qualify for first-time homebuyer benefits with the Federal Housing Administration. FHA loans offer low down payments, low closing costs and have easier credit requirements for qualification.
You really can afford it
FHA loans require virtually unbeatable down payments. You could put down as little as 3.5% on a home including 1-4 units. We’ll come back to that unit count number in a minute (it has big benefits of its own)! Let’s talk about how much money it takes to make that down payment first.
Consider this:
- 3.5% of a $90,000 home is $3,150
- 3.5% of a $100,000 home is $3,500
- 3.5% of a $150,000 home is $5,250
- 3.5% of a $200,000 home is $7,000
For some students, this down payment amount is the perfect place to invest cash gifts from high school graduation gifts. It can also be a great place to invest any funds saved from previous part-time jobs.
Let’s stick with that $90,000 home price for another example.
Using our online mortgage calculator, you can get a general idea of what payments on the home might total.
Benefit from mortgage payments instead of rent
For a $90,000 mortgage with a down payment of $3,150 at an interest rate of 3.5% over 30 years – the monthly payment would land around only $390. Now, keep in mind that taxes and insurance are often added into your monthly payment. In total, you would likely pay less than $800 for all three (mortgage, property taxes and insurance).
If that seems a bit high, consider the rent costs in your area. Many one-bedroom and studio apartments around Kansas City and Lawrence have spiked to more than $1000 per month. When you pay that money in rent, you never get any of that back. By investing in a home, you can lower your monthly expenses immediately. Then, when you’re done living there, you can sell the home and use the equity you’ve built to put cash back in your pocket!
Earn extra income by sharing the space
Here’s where that unit count number comes back into play. We’ve seen college homebuyers purchase multi-unit homes (like connected duplexes or townhomes) so that they can live in one unit and lease the others. This is a genius option for the handy entrepreneurs out there – but keep in mind that it takes a little elbow grease. You’ll be expected to take care of your tenants and any issues they have with their units.
However – the pros can quickly outweigh the cons – especially where cost and value are concerned. Let’s say you buy a 2-unit duplex at the $200,000 price point.
For a $200,000 mortgage with a down payment of $7,000 at an interest rate of 3.5% over 30 years – the monthly payment would land around only $866. Now, keep in mind that taxes and insurance are often added into your monthly payment. In total, you would likely pay less than $1800 for all three (mortgage, property taxes and insurance).
Now – here’s the real trick! You’re renting out the other side of the duplex. Depending on your location, it’s highly likely that you can charge your renters more than half (if not all!) of the full payment cost. You could be bringing in an income using the property that actually ends up paying for the property. It’s entirely possible that you could graduate, sell the duplex and snatch up significant equity without ever having to spend money on a monthly payment of your own. Woooo!
If you’re not entirely ready to jump fully into being a landlord, consider pulling in a little extra cash each month by leasing a room inside of your house using a service like AirBnB or VRBO. When the city is hopping and visitors come to town for games, shows and large events – you can pull in quick cash that will help to lower that monthly payment or pad your pocket for other fun activities.
Avoid hidden costs for parking, laundry and more
When you rent an apartment, condo or home – there are often a barrage of hidden fees and costs that pile onto your monthly expenses after you’ve already signed a lease.
- Parking can add hundreds – even thousands – per year depending on your area.
- Trying to do laundry is critical. While a few quarters here and there may not seem like much – they really do add up. Even two rolls of quarters a month total $240 a year when all is said and done. That’s $960 over 4 years of college! You can easily purchase a simple washer and dryer set for your house well under that price – and still earn money back for them when you sell them with the house later!
- Security and pet deposits will have you losing thousands of dollars each year when you renew one lease after the next. Some complexes even require pet rent – which skyrockets your monthly losses. Instead, welcome Fido home to his very own backyard and enjoy pocketing that cash every month to spend on something he’ll truly enjoy. Like bones and peanut butter.
- What about moving?! We’ve seen friends beg time and time again for helping moving. Finding a truck and trailer is a pain. Renting a pair is expensive. Hiring movers is downright outrageous. Multiply that by 4 – moving year after year after year for a change of pace or to avoid rising rent costs. Nah, pass.
Plan minor improvements over time
A great way to gain even greater strides in what your home will be worth when you sell is to buy a home that needs a few fixes. Not only will it be cheaper to acquire, but you can plan fixes, updates and improvements over the time you will live there to increase the value.
Not taking classes in the summer? Plan to add a new back porch. A little bit of elbow grease will give you a great space to enjoy with friends and will add exponential value to the property. Breezing through online classes and need some projects to fill the time? Give rooms a fresh coat of paint one-by-one to create a whole new look and feel through the home.
Pick an area on the rise
Keep in mind that you’re purchasing this home with the intent to sell it for more money within a few short years. Work with a Realtor to explore areas of town that are not hot, hot, hot right now but are likely to grow in demand as urban development expands. Up and coming areas typically have hidden gem properties that are a steal in the current marketplace but quickly become incredibly valuable as the neighborhood gains ultimate trend status.
Want to talk more about how to invest in a home as a student? Our agents are here to chat. Reach out today.