I don’t like the stereotype of adult children moving into mom and dad’s basement. We don’t have basements in Florida anyway. With all the real estate deals, it makes more financial sense to move our Millennials into the foreclosure next door instead of converting a garage, clearing out attic space or a guest house. According to a recent CNBC article, home ownership is not a priority for a growing number of young people ages 18 to 34. Some Millennials claim they want the flexibility to move around. A new study cited by CNBC shows that age group named saving for retirement as their top financial goal. While saving for retirement is important, it’s just as important to have an affordable home. In my Florida community, the cost of rent is skyrocketing. We looked at the possibility of buying a foreclosure for our young adult sons. The idea would be for our sons to pay rent to cover the mortgage.
Locking in on low rates
If we buy an investment property now, we can lock in on the lower interest rates at about 4 percent. However, if my husband and I take out the mortgage, our bank says we have to put 20 percent down. Our adult children don’t earn enough income to qualify them for a mortgage due to strict lending requirements including the debt-to-income ratio. Putting down 20 percent means a lower mortgage payment, which will means we can afford to charge them less in rent.
Crunching the numbers
We have located at least a half dozen foreclosures and short sales in our own neighborhood that are within budget. For a 3-bedroom, 2-bathroom, our mortgage including property taxes and insurance would cost about $600 a month. Homeowner association fees cost $400 a year or $33 a month. By having our sons pay the electric and water bills, they can build up their credit scores. On the downside, we will owe higher property taxes since an investment property doesn’t qualify for a homestead exemption.
Becoming a parent landlord
Although experts say parents should charge their children rent when they live in their home, I think it makes more sense to become parent landlords of a separate dwelling. My children are more motivated to pay rent in a home they can call their own. And, we can offer them a much better deal when competitive rentals charge about $1,300 a month. Many Millennials can’t afford to pay rent because of massive student loan debt. According to CNBC, the number of college grads with debt rose from 47 to 71 percent since 1993. Fortunately, my children are on the younger side of the Millennial generation. They didn’t accumulate any student loan debt.
Although it may put me in a different position to serve as both a mom and a landlord, I think I will be doing my children a service by taking advantage of the great real estate deals available this decade. By the time my children are in their 30s, the interest rates may be into the double digits. If situations change, we can always sell the “investment property” or rent it out to other tenants. With my children living in a fixed-up foreclosure, I’m starting to see the possibility of their old bedrooms as my new home office or exercise room.
More from this contributor:
Financial Setbacks to my Sandwich Generation
A Half a Million Retirement Miscalculation
My Home But Not Its Equity Will Matter In the Future