When you buy your first property, generally, you buy your primary residence. This means that you can afford to buy a place where you work, which is often hard to do if you live in a high cost of living area and are at the very start of your career, and also that you should be pretty sure that you will spend the next few years in said place, because if real estate prices go down, or simply if you move just a year after you buy, between the closing costs, realtor fees and the cost of moving in, you may lose money.
Another idea would be instead to buy a rental, so you can get the benefits of getting on the property ladder while at the same time keep the flexibility of renting a property fit for your needs.
Why would you opt for a rental?
Well as I said above, the first thing that comes to mind is that your local property market may not be ideal for home ownership if priced are on the rise. The rent vs buy calculations may not lean towards buying in overpriced housing bubbles. But you live there, so you still need a place to stay. What better way to have someone pay your rent while you build up equity on the property they live in?
You may not make enough to buy a place in New York, but already have savings that would represent a hefty deposit in Kansas City. And the rent would bring a better return on your deposit than the 0.1% your cash is bringing right now.
If you are living with a significant other, and not ready to put both names on the deed, it allows you to keep your place together while you start investing on your own.
And if you are just starting your career, you should not get tied to a property when your next job could be 3,000 miles away.
By buying a rental, you could move pretty much anywhere without worrying about having to sell your home before doing so. That is what I did with my UK property. I lived there for less than a year (with roommates) before putting the whole place up for rent and moving to Morocco. Now, I am still a continent away, and on top of that have put six time zones between my property and myself. And you know what? It works out just fine.
My tenants each rent a bedroom on separate contracts, and when one is about to vacate, they interview potential tenants to find the new roommate. I take care of bills and include them in their rent so they don’t have to fight about splitting them equally. The only little bumps on the way are generally about cleaning habits of some of them, so I am thinking about raising the rents and including a weekly cleaner. Other than this, if the washing machine or the heater breaks, I just send a handyman and wire them the money.
So I wouldn’t be worried about having a property two hours drive away, if one ocean away is doable.
What I thought before I left was that the rent I would get from the bedroom I used to occupy, around $1,000, would basically cover my rental needs anywhere in the world. Yes, $1,000 is pretty expensive for a room, but that is under market price when said room is in an affluent suburb of London. I have only had one week vacancy in one of the rooms over the past 5 years.
In Guatemala, $1,000 happens to cover my entire living expenses and the salaries of two staff, because I paid cash for my house, but it would more than cover my rent of a three bed luxury condo in a great neighborhood of Guatemala City. Even in Europe, aside from London, Paris and a few overpriced capitals, I could get a comfy two bedroom and live on my own. And if I felt like going back to Paris for a while, $1,000 would still get me an independent, albeit smaller unit.
I really like that the money from rent can be allocated to my living expenses, just like the time my motorcycle insurance company paid for some advertising on my blogs, enough to cover two years of bike insurance. You get the idea, getting a fixed source of income gives you the freedom of using that same income to cover the same category of expense for your flexible life.
Where should you buy a property?
If you have a nomadic lifestyle like I do, the world is pretty much your oyster. And if your career could take you anywhere in the country, buying next to where you live now may not be buying where your next job will be, so once again, you could look at your whole state, or your whole country. Some ideas include
– A college town. Students rarely buy a place during their college years, and you have a constant influx of potential new tenants. I am in a college town and my prices deter the freshmen so usually I get the PhD students or the recent graduates working their first job. They are serious, and often have mum and dad behind, which is extra consolation.
– Your hometown. While you may not live there at the beginning of your career, you may aspire to come back once you settle down and start a family. Plus your parents could keep an eye on the property, send their trusted handyman to do maintenance or chase payments face to face for you. You don’t want to be a burden but it gives you some peace of mind to know there is still a family member nearby if things go sour. You are also able to make an educated decision about each neighborhood without too much research, as you lived there for years.
– The highest yielding market. A quick online search will tell you which markets offer the highest rent in your region of choice.
– The best house you can afford on a high down payment. Things may not always go the way you planned and your property may sit empty for a while, and having low repayments will make life much easier. You could look for a place that is affordable right now, and put a 30-50% deposit on it, so the rent is only a fraction of the repayments. That will also allow you to live on the surplus should you lose your job, to pay off the rest of the mortgage early as well, or to set aside a good chunk of money for future renovations.
– A duplex. When you live a nomadic lifestyle, you often want a base to come home to. Buying a duplex or a triplex allows you to have renters pay most of the housing costs while you still keep a small unit as your own to store your stuff and re-energize when you are tired of traveling. Plus they serve as free house sitters!