So I am a senior in college who will be graduating May. I have a job offer I am excited about and will be moving to the Chicago where the office is. I have been looking at renting places, but recently got into a conversation with my parents about buying. The way they (and I) see it, renting is lost money that will never come back, but buying is a way to keep wealth. At first, the idea was just them maybe purchasing a condo as investment property and me paying them rent to live in it. Then, it turned into me potentially having co-ownership in the matter. I just got off the phone with a mortgage banker who said that it is likely with the income level with my new job, credit history, and minimal student loan debt (I was SUPER fortunate to have my parents cover most of my college costs, and I had a few small jobs and modest scholarships that made a small dent), I could likely get pre-approval even by myself.
I have a few reservations.
It feels wrong in a way - because I literally know no one my age who has equity in a home. It seems like everyone rents for at least the first 5-10 years after college.
I feel like I am only getting this privilege because of my parents and I kind of wanted my first home to be more of an achievement I can be proud of. I understand that anything I accomplish can be attributed in some way to the privileges I have been afforded, but you get the idea.
Is it a smart financial choice? The realtor and mortgage banker make it sound like it is, but they obviously have a vested interest in the matter (but they seem like good people).
Is it weird to have home ownership without a spouse - are there financial repercussions that I may face now or in the future for doing so?
Sorry for the long post and thank you in advance for sharing your thoughts/advice.
Not weird and often a good financial choice. My only concern would be if you didn’t want to stay in the Chicago area. If you think you’ll stay for at least five years, I’d go ahead.
FWIW, I had my house built when I was 23 years old and single. My mortgage was less than rent would have been and I was able to have roommates which allowed me to keep up with the maintenance and real estate taxes pretty easily. I refinanced just prior to paying it off so I could enlarge and do some much-needed home improvements. My mortgage still remained affordable. Once again, just before paying it off completely this year I refinanced again and built a two car garage with an in-law apartment where I’ll be moving and renting the main house. This is my retirement plan. Both of my kids were raised here (single parent).
The one downfall was when I wanted to travel in my 20s and backpacked Europe for 8 months. I left the house in the hands of two good roommates though and they cared for my dog as well. Its a big responsiblity but having equity in property has been a lifesaver for me. Good luck!
What happens if you get transferred to Los Angeles in two years and the market takes a tumble between now and then ( I.e. the house is worth less than you paid for it). What happens if you decide to go to grad school out of state in a couple of years?
You may not know anyone who has ever lost money buying a house- I’ve done it twice, and believe me- it’s no fun. One house- a huge GM plant about 10 miles from my house announced it was closing and overnight, property values fell by 20%. I was about to accept a new job out of state- and had no choice but to “dump” my house for less than I paid, which meant I couldn’t buy in the new location (my downpayment had vanished) and had to start all over again- renting and saving for a down payment. The second time it was a major recession.
Mortgage bankers get paid when they sell you a mortgage- they are sales people. Real estate agents get paid when you buy a house- they are sales people. Get financial advice from someone who is not an interested party, and can look at your finances and determine if you can afford to take a loss if/when your property value declines.
You do realize that the purchase price is just the beginning, right? Property taxes, heat, electricity, insurance (you don’t want someone falling on a broken step outside your house and suing you- and taking the house as their settlement), day-to-day maintenance, etc. You need to determine if you can afford to OWN a house, not just buy a house. That’s where most people go wrong (you’ve heard the term “house poor”?) And the most recent tax cut eliminated SALT- go look it up- which has changed the financial picture for most home owners.
I don’t know anyone who bought a home right after college, especially these days. But everyone is different and if it works for you and your finances go ahead!
Have you lived in Chicago? If you have not, I highly recommend renting for a little while just to get a feel for the area. You might hate it so much that you would want to get out asap. Or you might like a certain part of the city and want to live there… It is like dating - get to know the place before you commit. A real estate round trip is very expensive: as a seller, you will have to pay excise tax, closing costs, and realtor fees in the amount of 8-10% of the selling price. So if your home has not appreciated that much between buying and selling, you will be on the hook for the difference.
To follow on @blossom : if you’re looking at condos, be sure to factor in the, typically monthly homeowners dues. With a condo, a lot of times, most of the exterior maintenance is covered by the monthly dues. But be sure to read any documents - in CA, they are CC&Rs - to understand more about how the condo is managed.
My first property purchase was a condo, and it served me well. I purchased the condo before spouse came along, and I can’t think of any “negative” repercussions. We rented it for a few years after we moved out, and then sold when we moved out of the area.
I would suggest you focus less on what others are doing, and more on what is possible/works well for you. And do figure out your own budget. In each of the real estate transactions I/we’ve been involved in, we always had our own budget that was less than what the banks were willing to lend us. This has served us very well,
One last thought: perhaps consider renting long enough to build a 6 month emergency fund first. There’s always one more thing that a home needs, and having a cash reserve to “borrow” against is very helpful. ( but work hard to pay it back!)
I think you should give it serious consideration. I am a Realtor, and I sure wish I had started early with buying and holding real estate. It is generally a wise investment if you buy in a good area. There’s no need to give a landlord money if you could be building equity. That being said, you do have to buy in the right area for YOU and for the future trends. If your Realtor is knowledgeable about the areas that are good investments for the future, you should be in a good situation.
It seems like your first two points above are from feelings of guilt. You have nothing to feel guilty about, if you’re using your opportunities to be responsible and to prepare for the future. My niece bought her first house by herself at age 25. She had two roommates that helped pay her mortgage while she was building equity, AND it was cheaper and nicer for them to live with her than in an overpriced apartment. Now, less than two years later, she just got married. She moved into her husband’s condo, and the house she bought is their first investment property. They are both in their 20s, and they are building equity while three single women are paying for that mortgage and also getting a great deal for themselves. So, don’t let guilt drive your decision. You can bless others with your good fortune if you decide to buy.
My only hesitation is that if you don’t know much about the area you’re moving to, you may want to give it some time to feel things out and see where you really want to be. However, if you already know enough to feel comfortable with the neighborhoods, that shouldn’t be a concern.
A few other things to think about . . . don’t buy more than you can afford. Sometimes people do this, and they can’t furnish the place and/or do the activities or travel they might want to do. It is a fine line, though, since you are just starting out and your future salaries will likely go up. Buying near the top to get something that might be a better investment for the future isn’t always a bad idea, if you know your salary is likely to increase quickly and especially if you know you’ll have the benefit of roommates helping to pay the mortgage. Also, if you do plan to do what my niece did, you’ll need to look for options that don’t have rental restrictions that would prevent you from renting it out in the future, should you want to move and keep it as an investment. Again, your Realtor should be able to help you with this.
Sounds like you’re in a great situation, and congrats on your job offer. And seriously, don’t feel guilty for being in the position you are in. Holding yourself back does not help others advance. Just use your opportunities to also be a blessing to others, and you will always be doing the right thing.
“We rented it for a few years after we moved out, and then sold when we moved out of the area.”
If renting your condo out is a possibility, you need to carefully read the bylaws of your HOA. Some do not allow renting to non-family members, some allow renting, but have an annual cap on how many units in the building can be rented to anyone.
I agree with buying rather than renting as a wealth building tool. However, my adult kids moved jobs frequently their first few years of employment. Buying usually doesn’t make sense financially in those circumstances, and adds a whole additional layer of difficulty and stress to a job change. If the housing market collapses (2008-9) it is possible to end up in a bind.
My rule is to only buy when you could imagine living there the rest of your working life, if necessary, or you can afford to let the house/condo sit empty while you live someplace else. An exception would be a place near enough a college that there is always a rental market.
My very conservative financial opinion… not a risk taker.
Speaking of renting one’s condo out, decent, non-slummy condos in buildings with no rental cap usually cost more than comparable condos with rental restrictions; here it is by about 10% …
@yikesyikesyikes There are three main considerations before you buy -
Your partner’s needs. From your OP, I gather you are single, but I’m assuming that will change.
Your career. Are you in a job that you know you will stay in for at least five years? Again, that seems like a “no”.
Your kids. This may be jumping the gun, but it will be a consideration at some point. Most house purchases for young families are influenced by the local school options.
The overhead from commissions makes real estate a bad, and even risky, investment if you are not in a position to stay in place for a period of several years at least. I strongly recommend renting until either 1) or 2) above are settled.
I own part of a condo in a ski area. There was a fire at one of the other buildings, but we still got whacked with a huge adjustment to pay for the repairs. Just remember condo fees and taxes never seem to go down!
To point number two, you don’t need to feel guilty. This is much more common than anyone admits. We didn’t buy our first house until we were in our thirties. (Partly because we were living overseas before that.) My parents helped us with the down payment so we wouldn’t have to pay mortgage insurance. When we bought our second house they helped by renting the first house for a month so that we had time to do some work on the new house while it was empty. (The bank didn’t think we could afford to own two houses at the same time, but was okay as long as we rented house number one.)
I’d suggest that you rent for at least a year. That will give you time to really get to know Chicago and be sure of what neighborhood you want to live in. We moved within the same city ten years ago, because we really did not like the old neighborhood. It will also give you more time to learn about the Chicago real estate market and whether it really does make financial sense to own.
You’ve gotten some good advice. Another question is whether you know enough about Chicago real estate and where you want to live to make a purchase. At this point, it may make more sense to rent for a while to make sure the job is a good fit and to scope out neighborhoods. You may think you want to live in a certain area but find it is too far, too boring, too loud or just not where you want to be.
Another potential downside is that as a young person your life may change dramatically in the next few years. You may meet someone and together decide to move somewhere else. Or you could decide to move in together and your place does not work with your partners job or preferences. You may get a fantastic job opportunity elsewhere or decide to go back to school. There is a cost to renting, but it may be worth it to keep some flexibility at this point so you can make decisions that don’t require consideration of having to sell a home.
On the other hand, if your parents are looking to buy an income property, you could rent from them for a while and then either purchase the home or move out. They would get the income and liability of ownership.
Be sure to check out the cost of property taxes - my brother recently left Chicago to move north over the border to Kenosha, Wisconsin, because the property taxes were killing him. He takes a train to Chicago when he needs to be in the office physically.
GAMOM- “It is generally a wise investment if you buy in a good area.”
You can’t get better than Greenwich or New Canaan, CT, or Newton/Wellesley, MA. Property values declined quickly (and without much warning) in late 2008 and then before in 2001, and then before that in 1987. And you had the perfect storm for some families- laid off in a recession AND can’t sell the house without taking a beating.
Meanwhile, property taxes and insurance don’t go down by much even when your house is worth much less- sometimes less than you paid.
I think your advice is solid for a 40 year old who already knows where they are going to live for the next decade. I think your advice is suspect for a young person just starting out, who really can’t afford to lose their principal in a downturn, while keeping up with taxes, heating bills, etc.
All neighborhoods go down in a recession. It’s just that in a neighborhood of multi-million dollar homes, nobody talks about it.
Realtors ignore the downturns but real people get hurt by them.
Twice we have rented for a year after relocating for long term jobs. We never would have known where exactly we wanted to live before actually living there. I’d advise that strategy, especially as you’ll have some time to see whether you love your new job enough to stay put for awhile!