Preparing your kids for Adulthood & Homeownership (Generation Alpha, Z, and beyond)

For some of us, our biggest challenge when we attempted to buy our first home was not having sufficient credit to qualify for a decent mortgage. In some cases, our credit scores were simply too new, or we didn’t have a long enough credit history to meet most lending guidelines.

Fast forward to today, here is what you can do as parents to help your future adult(s):

If you have strong credit, add your children as authorized users to your credit card accounts. (I didn’t say to give them a physical credit card) As an authorized user, your children will inherit your credit history, bolstering their credit profile for when the time comes to purchase a new home.

Now with credit profile in hand, let’s discuss renting vs buying their first home. First, here are the disclaimers:

1. The following opinion is that of mine.

2. Please check with your tax advisor and lender with regards to giving your child any part of the downpayment towards their first property.

3. I think that buying a 2-4 unit as your first property is better than renting or buying a single-family home and will discuss the advantages of what is referred to in the industry as “Househacking.”

“Househacking” is a term used to describe the practice of purchasing a multifamily property, living in one unit, and renting out the other units to cover the mortgage or generate income. It’s a strategy that can help your young adult achieve financial freedom and get them on the fast track to building wealth. In this article, we will explore the benefits of Househacking and how they can get started.

Why Househack?

There are several benefits to Househacking, including:

1. Lower Housing Costs: When they purchase a multifamily property, they can live in one unit and rent out the other units. The rental income can offset their mortgage payment or eliminate it altogether, reducing their housing costs and increasing their cash flow.

2. Investment Opportunity: Househacking is a great way to get started in real estate investing without having to come up with a large down payment or qualify for a commercial loan. They can use an FHA loan, which only requires a 3.5% down payment, to purchase a property with up to four units.

3. Forced Savings: By living in one unit and renting out the others, they can use the rental income to pay down the mortgage faster, build equity in the property, and save money for future investments or to accelerate repayment of those lingering student loans.

4. Tax Benefits: Rental properties come with a variety of tax benefits, including deductions for mortgage interest, property taxes, repairs, and depreciation. Consult a tax advisor.

5. Lifestyle Flexibility: Househacking affords them the opportunity to live in a desirable location and enjoy the benefits of homeownership while still generating income from the property. Should they get a job transfer, they can also choose to move out and rent out all the units to generate even more income.

Getting Started with Househacking:

1. Determine Their Budget: Start by determining their budget and how much they can afford to spend on a multifamily property. They’ll need to factor in the down payment, closing costs, and any repairs or renovations the property may need.

2. Find a Property: Look for a multifamily property in a desirable location that has good rental potential. Consider the number of units, the size of the units, and the condition of the property. Work with a REALTOR® that specializes in multifamily investment properties such as ROC Advisory Group. (Like that plug?)

3. Finance the Property: There are several financing options available for Househacking, including FHA loans, conventional loans, and VA loans. Work with a mortgage broker or lender to find the best loan option for your needs.

4. Move In and Rent Out: Once they’ve purchased the property, move into one of the units and start renting out the other units. Set competitive rents, screen tenants carefully, and manage the property effectively to maximize your rental income and minimize your expenses.

5. Manage Your Property: Managing a rental property can be time-consuming, but it’s essential to your success as a Househackers. Be prepared to handle repairs and maintenance, deal with tenant issues, and keep accurate financial records.

Final Thoughts: Househacking is a powerful strategy for achieving financial freedom and building wealth through real estate investing. By living in one unit and renting out the others, your young adult can reduce or eliminate their housing costs, generate passive income, and build equity in the property. If you’re interested in Househacking, start by determining your budget, finding a desirable property, and financing the purchase. With careful planning and management, they can live mortgage-free and achieve their financial goals through real estate investing.

If you would like to discuss Househacking or anything real estate related, feel free to email me at kjrocio@atproperties.com and let’s set-up a time to chat. For past articles, visit htps://rocadvisory.group/links

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