How Young People Can Become Entrepreneurs and Find a Home
I wish I had started purchasing properties that were or would become income producing when I first moved out of my parents home. I had no idea it was even an option rather than renting so I want to let kids and parents know it can be done. I know of several young people who bought properties instead of renting. Yes, most of them had to have some help from their parents but it was a great learning opportunity for them and an opportunity for the parents to help their children learn about business and real estate.
Let me give you two examples. First, my nephew bought a one bedroom condominium with some assistance from his parents and the generosity of the requirements for an FHA loan. It was several years ago and it was a challenge to get an FHA loan on a “condo” but he got it done. In my last post I noted that you can rent a one bedroom apartment in McKinney Texas for about $800 a month. My nephew bought a “condo” instead, also in North Dallas, and got a monthly payment at less than half that amount. Of course he is responsible for the maintenance and repairs but with the lower monthly payment that need not be an issue. He has been in that “condo” for several years now but could turn it into an income producing property by renting it and getting a positive cash flow.
I like this second example even better. A friend after college bought a three bedroom “condo” and rented the other two bedrooms to friends and covered his monthly payments. How do you like that idea? Ideally you save up the money to put down, perhaps while living with your parents, and you purchase the property and rent the other bedrooms to your friends to at least cover your monthly payments. Your friends may find this more attractive than paying $800 a month in rent for their own one bedroom apartment.
If you do not qualify to buy the property you probably should wait until can save enough and establish your own credit so as to qualify. Another option would be for your parents to co-sign on the property for you with an agreement that you will refinance the property to get them off the note within a few years. I am not a mortgage expert but I assume this can still be done. However, your parents and you together would have to qualify. When you do this and rent the other bedrooms to your friends you can learn how to buy and rent properties and run a business. It is great training for a young person. Of course eventually you will be ready to buy your own property to live in and raise a family but you will still have this “condo” as a rental property to give you another stream of income.
Parents should be excited about this opportunity for their kids and the opportunity for their kids to learn about money and business. I know many families do this when their kids go away to college. Often the kids develop into entrepreneurs who become very successful.
If I had known I could get a lower monthly payment by purchasing a “condo” using 3% of my own money with an FHA loan I would have discussed with my parents staying with them for less than a year to save up that money and make the purchase happen. I would probably still own that “condo” and by now it would be paid for and I would be getting a great monthly cash-flow on it. If only I had known. Well now you can know and take advantage of it.
So I hope I have helped you to see that there are options to renting an apartment and actually ways to start building other streams of income.
In addition to your housing expenses if you purchase or rent a property you also need to count the cost of your other living expenses. See my previous blog about Are You Ready for Your First Apartment/House.
Remember I prepare tax returns for people for a living. When you buy your first property and rent out bedrooms to your friends your tax return gets complicated. In that situation you will likely want me or another tax professional to do your taxes for you. Also, please call before you start a business as I can help you avoid many surprises and save you money. In the case of buying a rental you will want to look at some ways to protect yourself from liability issues. I would be happy to talk to you about those issues and help you with your tax returns. Feel free to contact me using the information below.
Jeff Haywood, CPA
I prepare the following types of tax returns:
Federal and State Returns
I especially enjoy discussions about you, your business, your dreams and goals.
For recent US income tax content see the following links:
IRS Top Ten: Facts about Amending Your Tax Return
Are You Ready To Get Your First Apartment/Home?
How to Succeed in Business: Pricing
Credit for Education Expenses: American Opportunity Credit – Extended Through 2012
How to Prepare Before a Disaster Strikes
IRS: Summer Day Camp Expenses May Qualify for a Tax Credit
IRS Tax Tips for Students Starting a Summer Job
IRS Tax Tips for Deducting Charitable Contributions
Tax Planning Tips
Tax Tips – Tip Income
Are You Ready to Purchase a Home? Factors to Consider.
Foreign Earned Income Exclusion
A Most Valuable Resource for Entrepreneurs
How to Profit From Your CPA
Begin With The End In Mind
If the band you are in starts playing different tunes
Where Is It? Tax Refund
Deadline for 2010 Personal Tax Returns Moved
Now is the time to file those late tax returns for previous years
IRS: 8 Things to Know if You Receive an IRS Notice
IRS: Nine Fact on Filing an Amended Return
IRS: Eight Facts on Penalties
IRS Top Ten: Making Federal Tax Payments
Forming a New Business – Please Consult With Your CPA First
Questions After I Have Filed My Return
For a full list of prior posts see the CPA Tax Blog.
As always keep in mind that the content provided on this site is general in nature and may or may not apply to your particular case. It is best to check with a tax professional about your circumstances and what is best for you personally. Also, IRS regulations and tax laws are constantly changing and the information on this site is not constantly updated. Again please check with me about your particular circumstances and what will be best in your situation at the given time and law.
If you have a comment to share about this post or for me, please email me at firstname.lastname@example.org.
This article was written by Jeff Haywood, CPA.
Jeff is a licensed CPA in both Texas and Illinois.
He has prepared income tax returns for the public for over 10 years.
He also has an MBA in Finance from Loyola University in Chicago and he has 24 years experience in Corporate Finance and Business Analysis.