Buy Investment Property, Live With Parents OR Buy a Home, Move Out

[The BMW Guy]

My nephew is in a bit of a dilemna, and I thought it would be wise to get perspectives on the situation other than my own.

He recently graduated school, lives with the parents (no rent), making a decent amount of money that is starting to accumulate steadily. He's a smart kid, never buys anything that he doesn't need so he has quite a bit saved up (50-60k) from jobs throughout his schooling.

He's come across an opportunity to buy a new rental property but doesn't know if he should buy it or save up for a house to move out. He doesn't need to move out at all at this point in time, but does want to move out in 3-4 years time with his girlfriend.

The property in question is a unit near the new south hospital.

I advised him to buy the unit. I suspect that area's value will rise a decent amount in the next 3-4 years, making him more money than what his current savings are doing in the bank. I think the unit could also be self-sustaining if he can find long-term renters, building him equity. Should he want a house in a few years time, he can sell the unit and put that money towards a home. Or, if the unit is doing well he can simply keep it as a rental property.

What do you think?

[Kloubek]

Would he lose his first-time buying grant if he bought a rental unit as his first property?

No matter how you look at it, he is best off milking his parents for as long as possible for sure. One of the biggest reasons people don't get ahead is due to housing expenses they need to pay.... if he can get that out of the way and truly save all his money he'll be in an amazing position in a few years to purchase if he doesn't now.

[JordanLotoski]

Have him call me. I have sold 6 units by the new hospital this year and currently have an investment property there as well

[ercchry]

there are a few options... depends on the person more than anything. could do the old 5% down primary converted to a rental trick... he could do this twice, so 5% down on two places and like at home still, put together a 20% DP for his forever home...

or since he is young he could move into the second one and rent out extra rooms (who doesnt like living with friends when you are young?) would probably cover all sunken homeownership costs leaving his monthly amount owing to go straight towards the principle of the mortgage, so same position as living at home.... but not :dunno:

[supe]

Originally posted by Kloubek

No matter how you look at it, he is best off milking his parents for as long as possible for sure.

I disagree. You're right in terms of a financial perspective but you have to consider lifestyle as well. Money isn't everything.

[Neil4Speed]

Originally posted by supe


I disagree. You're right in terms of a financial perspective but you have to consider lifestyle as well. Money isn't everything.

Your totally right, the lifestyle is fabulous.

1bMs04JK0BQ

haha, but in all seriousness, if you can live at home, and enjoy it (tolerate), your best off financially.

[The BMW Guy]

As far as lifestyle goes, he has no real reason to move out just yet. Him and his girlfiend adopted three large dogs that are doing well in their parents' massive backyads.

If they were to move out they would need a house that had a big yard while also giving them a reasonable commute to work. Very costly for them at this point in time in the current market. Hence why he is fine with being at home for the time being. However, he doesn't want his money to be sitting collecting tiny amounts of interest when it could be possibly making a lot more in a rental property.


Originally posted by ercchry
there are a few options... depends on the person more than anything. could do the old 5% down primary converted to a rental trick... he could do this twice, so 5% down on two places and like at home still, put together a 20% DP for his forever home...

or since he is young he could move into the second one and rent out extra rooms (who doesnt like living with friends when you are young?) would probably cover all sunken homeownership costs leaving his monthly amount owing to go straight towards the principle of the mortgage, so same position as living at home.... but not :dunno:

I am not sure if his financial situation would allow him to pay the mortgage for two places should things go sour but I'll run it by him.

[Sugarphreak]

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[firebane]

Originally posted by The BMW Guy
As far as lifestyle goes, he has no real reason to move out just yet. Him and his girlfiend adopted three large dogs that are doing well in their parents' massive backyads.


That in itself will create a HUGE monthly cost for anyone who is a home owner on top of the already huge costs of owning/renting.

If he was so young and so good with his money is sounds like he is enjoying living at his parents and should just stay there. If he moved out I think he'd be in for quite a shock.

Also people don't realize how much stress this would put on the relationship and would test that as well.

[The BMW Guy]

He just graduated as a chemical engineer half a year or so ago. He is pretty young at 21. Seems to have a stable job, as does his girlfriend.

I'm pretty new to the rental investment scene, so correct me if I am wrong, but wouldn't a good screening of tenants ensure that you get someone that doesn't trash your place? It would be ideal to live in the same place as the people you rent to though, in regards to keeping an eye on them.

In regards to what he wants to do with his life, he has expressed interest in owning a small empire of 5-6 rental properties by the time he is 40. I am not sure if this is feasible but he likes the idea of getting a head start at a young age.
His current plan is to jump onto this unit near the hospital and pay as much of it off as possible. His girlfriend and himself are putting 20% down and dumping a significant amount of their money into it while they have very little expenses living at home. When they are ready to move out, they are hoping this unit would have appreciated in price which they can sell to use towards a home. Or keep it (if they are making decent positive cash flow) and take out another mortgage for their home.

As for the dogs, the cost isn't an unforeseen issue for them. They have had the dogs for 4 years now and budget accordingly.

[ercchry]

if thats his goal then i'd totally do the 5% down thing on a pair of properties, then stay living at home, get 20% saved up for a home with a basement suite and move into that... will be well on his way

ps: if thats his dream, then its going to require some risk. as long as he has a decent cash buffer (3 months rent/property) i'd say its will be safe enough. still young means still time to rebuild if shit goes seriously south.... also Sugarphreak is kind of anti-landlord... so remember that when you read his posts :poosie:

[Mibz]

Originally posted by The BMW Guy
Him and his girlfiend adopted three large dogs Stay at home.
Force the parents to form an attachment to the dogs.
When he breaks up with his girlfriend, move out and claim the dogs remind him too much of her so the parents keep them.
Profit.

[sputnik]

Personally... I would leave the girlfriend out of the transaction.

[nobb]

As mentioned above, it's best to leave the gf out (in terms of a joint contract for the mortgage) unless they really plan on settling down. Also, as an investment property you must have 20% down...you cannot do 5%. As long as he doesnt plan on living at home by the time he is 30 I dont see a problem with that. I'm doing a similar thing and have no regrets with my rental. It's a landlord's market right now and as long as you manage it properly, it should be cash + equity positive.

[ercchry]

you can easily have two 5% down rentals if you plan to live at home still

[Darkane]

Keep the girlfriend out! Man I can see this getting ugly.

All the houses should be under his name. They don't live together and won't for a while, being co-owners fucks shit up.

She'll let him do this because if she truly trusts him, it's not an issue.

[The BMW Guy]

Originally posted by ercchry
you can easily have two 5% down rentals if you plan to live at home still

I think my realtor mentioned that investors must have 20% minimum down, if you plan to live on the property, then it is 5%.

Having the property in his name shouldn't be a problem, good call in case things go sour with the relationship.

[ercchry]

yup, but no one can predict the future... if you catch my drift

[Isaiah]

Originally posted by ercchry
could do the old 5% down primary converted to a rental trick... he could do this twice, so 5% down on two places and like at home still, put together a 20% DP for his forever home...

Originally posted by ercchry
if thats his goal then i'd totally do the 5% down thing on a pair of properties, then stay living at home, get 20% saved up for a home with a basement suite and move into that... will be well on his way

Originally posted by ercchry
you can easily have two 5% down rentals if you plan to live at home still
Please repeat it again just so we're clear.

[Sugarphreak]

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[ercchry]

Originally posted by Isaiah



Please repeat it again just so we're clear.

its obviously not clear yet... so i might... :rofl:

[ercchry]

Originally posted by Sugarphreak


I am not anti-landlord.. haha

Being a landlord is risky, I've watched more than a few people I know be ruined so I approach it more cautiously.

As an example I have an uncle who started renting a house... went great for 3 years or so, money was coming in and it was pretty profitable. Then he got a pair of tenants that missed rent, so he evicted them. They took every appliance, put holes in all of the walls, smashed windows, and trashed the floors and bathrooms. I think he got estimates in the 100K range to get it fixed... he just walked away in the end. I think he had a hell of a time renewing the mortgage on his own home a few years later, had to take a huge increase in interest.

No amount of screening is going to catch all the bad apples, it is more a matter of time and luck.

did he not have insurance coverage for a rented dwelling?

[brown911]

Quick question, how did he graduate from chem engg at the age of 21 a year and a half ago...

It's a 4 year degree, is he some sort of genius and got into engineering at the age of 15 lol?

[Sugarphreak]

...

[guessboi]

Originally posted by ercchry


did he not have insurance coverage for a rented dwelling?

If your tenant vandalize your property and left. Insurance won't cover the damage if you can't find the person. Most people don't know this. :drama:

[yoda124]

Originally posted by guessboi


If your tenant vandalize your property and left. Insurance won't cover the damage if you can't find the person. Most people don't know this. :drama:

a few simple steps to lessen the odds of this happening:

-photocopy drivers license and SIN of all tenants
-reference check including record of employment
-only rent to educated professionals
-do not rent to people with dead end jobs
-do not rent to a group of friends...no boyfriend/girlfriend couple either.
-rent to a family or married couple with no young children.

[nobb]

Originally posted by yoda124

-rent to a family or married couple with no young children.

This last one might be hard to avoid. Personally, I like couples with children because that "ties" their relationship together and you have a better chance of long term tenants. Also, children keep people busy and so they are less likely to shop around for another house :D

But depending on your rental property type, your choice of demographics might change.

Other points to add:
1. Verify income (paystub)
2. Do a credit check/identity verification. There are online services like atenantscreen.com. Credit score isn't a 100% indication of character though. Sometimes I might even be willing to accept poor credit tenants, as long as they are honest about why they have a poor score and are willing to leave a larger security deposit for contingency.

[yoda124]

Originally posted by nobb


This last one might be hard to avoid. Personally, I like couples with children because that "ties" their relationship together and you have a better chance of long term tenants. Also, children keep people busy and so they are less likely to shop around for another house :D

But depending on your rental property type, your choice of demographics might change.

Other points to add:
1. Verify income (paystub)
2. Do a credit check/identity verification. There are online services like atenantscreen.com. Credit score isn't a 100% indication of character though. Sometimes I might even be willing to accept poor credit tenants, as long as they are honest about why they have a poor score and are willing to leave a larger security deposit for contingency.

Good idea about the credit check.Personally I never had to do one.I follow all the simple steps I mentioned and never had a problem.What is most important is an educated professional will more than likely treat your place as their own and always pay rent on time.As for young children,they like to horseplay.In the past I've had kids damage my walls with crayon, kick a soccer ball through my basement window and crack my front living room window with a baseball bat.

[The BMW Guy]

Thanks for all the tips. I think he will be pulling the trigger on one rental property for now. If that goes well he may try for another.

Maybe I make him out to be much younger than he is. Its not uncommon to be 17 and in first year engineering. He skipped internship and only did summer jobs and graduated last May, pretty sure I said half a year ago, not a year and a half ago.

[nobb]

Good point. Did you get your tenant to fix those items?

[max_boost]

Ya that's quite extreme. Most ppl are easy to deal with and end of the day just want a place to live. It's easy when both sides just cut the bs and deal with matters straight up. I trust my gut when renting and it's been right 95% of the time.

[yoda124]

Originally posted by nobb
Good point. Did you get your tenant to fix those items?

I did but the issue with the living room window got a little messy. Tenants moved out after I raised the rent on them and did not return their damage deposit. They claim the crack was due to temperature change when clearly it was not. They threatened me and backed down after I called the cops on them. I told them I'll see them in court and never again heard back from them. That happened 5 years ago. Since then I've rented to an engineer, a nurse and now an airline pilot and haven't had any problems. They will always try and help the landlord out. Fix minor problems themselves and even pay the rent early.

[Xtrema]

Being 21, I would buy a rental only if:

- GF stay out o fit.
- Try to get parent of sibling into the investment (share the responsibility and profits)
- stay at home if he's fine with it.

Keep rental by oneself tends to feel a bit tied down. But if he's already kinda tied down with GF and job anyway, why not.

[Isaiah]

Originally posted by yoda124
They claim the crack was due to temperature change when clearly it was not.
Classic example of a perfectly executed Fordian defence.

[Manhattan]

Sounds like a bright kid and will do well either way. That being said it's always better to begin investing sooner rather than later. Even if it doesn't pan out the way he hoped the experience is valuable.

He's fortunate that he has a gf and parents that don't drive him nuts. Ifa bachelor lifestyle isn't a high priority then it's a homerun deal to buy that rental property with tenants flipping the bill. I have a friend in his 20's living in his parents' basement while owning and renting multiple properties. He's missing out on life experiences but who am I to judge.

[pheoxs]

I'm in a similar situation (ish, just living somewhere really cheap, left parents at 18 and never looked back haha).

With how things are in Calgary if I was to buy a place (assuming house is best value) and rent out all the other rooms, how much of the total costs do you think I could reasonably expect that to cover?

Based on what I've been going through I can cover all the mortgage/utility/tax cost myself so I am mainly hoping to get as much $$$ as possible from roommates and put it in a separate account and dump it straight onto the mortgage whenever possible (year end etc, upto whatever limit is allowed)

40k downpayment so far if that helps and aiming for a 350-400k place.

Would this be something better to ask Jordon about? I don't want to waste too much of his time though if this isn't his thing.

[ercchry]

for suburbs you are looking at $500-$600/room, innercity probably $600-800/room

i have a buddy who rented out his entire basement in the burbs for ~$900, just to one person, who still shares the kitchen

[pheoxs]

Originally posted by ercchry
for suburbs you are looking at $500-$600/room, innercity probably $600-800/room

i have a buddy who rented out his entire basement in the burbs for ~$900, just to one person, who still shares the kitchen

If that's reasonable that's good to hear.

I was thinking about seeing if I couldn't buy a 4 br home around the ~350-375k$ mark and rent out 3 rooms for ~1700-1800 a month. (500-550+util)

Dumping 15k / yr onto the mortgage would be paid off in 11 years ...:poosie: though I'm sure there is more to that. And obviously risk associated with stuff getting wrecked and months with empty rooms etc but I think living there will make damages a lot less than if you just rented it to a random person/family.

[ercchry]

if you like playing the role of "Dad" then go for it, shit gets old though. i basically did the same thing, but limited it to only two roommates, some damn cheap living though :thumbsup:

[Xtrema]

Originally posted by pheoxs


If that's reasonable that's good to hear.

I was thinking about seeing if I couldn't buy a 4 br home around the ~350-375k$ mark and rent out 3 rooms for ~1700-1800 a month. (500-550+util)

Dumping 15k / yr onto the mortgage would be paid off in 11 years ...:poosie: though I'm sure there is more to that. And obviously risk associated with stuff getting wrecked and months with empty rooms etc but I think living there will make damages a lot less than if you just rented it to a random person/family.

I would stop at 2. Too much drama.

[pheoxs]

Originally posted by ercchry
if you like playing the role of "Dad" then go for it, shit gets old though. i basically did the same thing, but limited it to only two roommates, some damn cheap living though :thumbsup:

True I suppose. Maybe 3 people (me + 2) or finding a suited place might be better. But yeah main goal is to just pay it down as quickly as I can for the next ~5 years or so until I'm actually ready to start needing a house. Makes more sense to buy a place + rent out than buy a condo and then look for something else a few years down the road.

Originally posted by Xtrema




I would stop at 2. Too much drama.

I suppose the place would get more crowded and yeah. 2 Might be better though I guess it depends on the house. Some houses feel packed with 2 people others feel fine with 4 I guess.

So long as there is more than one fucking shower
:banghead: :banghead:

[ercchry]

i was doing it in a massive house, 4bed 4 bath... had one roommate upstairs and the other in the basement. everyone had their own shower. biggest issue i had was not being "that" house... with all the damn cars :nut:

but yeah, the condo isnt a terrible idea since you could convert it to a rental when you are ready to move up :dunno:

[blubs]

I was essentially in this exact same position up till a few months ago, and was looking for a place in the same area. I ended up buying a place (in Acadia) and live in the upstairs, and converted the downstairs to a suite. I am sure that he has a couple of buddies that would be more then willing to move in, and essentially pay 90% of his mortgage.

Why not get the best of both worlds? - The only downside to this, is these types of places do not come up often. It took me 6 months to find my place.

Edit: Err.... Should have read the rest of these posts.

[Twin_Cam_Turbo]

Pheoxs make sure if you buy a place and want to rent a few rooms out that you think of parking spots ahead of time, I only have my 1 car garage and my 1 car driveway but three cars between me and my roommate...

[pheoxs]

Originally posted by Twin_Cam_Turbo
Pheoxs make sure if you buy a place and want to rent a few rooms out that you think of parking spots ahead of time, I only have my 1 car garage and my 1 car driveway but three cars between me and my roommate...

Yeah parking is going to be a factor for sure. Plus either the place needs to have a good garage or space to potentially build one down the road.

If I can find something with a back alley and room to toss up a garage + 2 spots out front I should be okay, but if its a house in a culdesac, nope haha

[ercchry]

mine was top of cul-de-sac... with no ally :rofl:

BUT i did side a small park, which helped... car in the garage (my off season one) two in the driveway, and two in front of the park... it was messy :D

[sexualbanana]

No one else finds it weird that he and his girlfriend adopted THREE dogs without having a place to themselves? Not really sure what the rationale was, but it seems like odd decision-making.