We recently reached another life milestone when, after some convincing, Zoe (our eldest, recent college graduate daughter) bought her first home! A nice little one bedroom condominium in South Minneapolis complete with an in-ground pool (which of course means Stacie and I now have access to a pool). It needed some serious sprucing up but now that it is done it was well worth the time and effort.
We recently reached another life milestone when, after some convincing, Zoë (our eldest, recent college graduate daughter) bought her first home! A nice little one bedroom condominium in South Minneapolis complete with an in-ground pool (which of course means Stacie and I now have access to a pool). It had a stellar kitchen, but needed some serious sprucing up. But now that it is done it was well worth the time and effort.
So the question today is, should kids buy or rent? In our opinion, it is always better to buy than rent but at the young age of 23 wanting to be mobile and not over committed is a key concern. Zoë has always expressed the desire to move to a warmer climate and buying a property may lock her in more than she may want. However, once you look at the numbers and if you buy smart, the right move is obvious.
The key for Zoë was to one, run through the numbers of buying vs. renting, and two, make sure she bought something that if she decided to move, it could be rented out. Based on the current South Minneapolis rental market, a basic 1 bedroom, 1 bath condo/apartment rents on average between $800 and $1,100 per month. The apartments at the lower end of this range were pretty rudimentary and dated in many cases. The place we found for her she bought for $100,000 with the seller paying $3,000 of her closing costs. With that price her all in costs for purchasing were around $3,500 (3% down and a small amount of closing costs that were not covered). Her all in payment, (principle, interest, taxes, insurance and association dues) came to about $835/month, about the same as renting at the lower end of the local 1 bedroom rental market. After factoring in the tax savings and the principle paid off each year her actual payment was just under $600/month, which is way cheaper than renting!
The real difference though is in what you get for that money. The unit we found had a kitchen that was updated in 2003 with beautiful craftsman style oak cabinets, granite counter tops and high-end appliances like; Viking cook top and range, Sub Zero cabinet faced refrigerator and ASKO dishwasher and laundry pair. This top level unit with west and south facing windows also had hardwood floors through the main areas which was not the norm in the complex. All we had to do was clean from top to bottom with Krud Kutter degreaser, as the previous owner was a heavy smoker, paint every surface, and why not, completely re-do the 1965 bathroom which we did for about $5,000 and she was set. This property has few restrictions on rentals and we estimate she can get $1000-$1200 per month for rent with these upgrades and the property will now cash-flow if and when she decides to move to a warmer climate. Not only does she have a fantastic place to live, she has a long-term investment property that will generate a future passive income. She definitely got a gem of a place, and let's not forget, the pool!