A few days after graduation, when the parties ended and my roommates and I were hanging out around the house, an idea struck me. Why let our house go? There was no impending desire to move back home. This was home, after all. The Victorian townhouse that we rented had been transformed. My roommates and I forged a bond with our landlord when we collectively took home improvement projects into our own hands. Whenever something broke, it was an excuse to learn how to fix it rather than call a repairman.
After a few years of dedication to the once worn down old suite, it was apparent that I’d become attached. Still, my dreams lie beyond the college town that hosted me for the last four years. Stuck at this crossroads after graduation, there was a decision to be made. Here, I’ll explain how and why buying this house was the best decision for me.
When you have lofty goals, sometimes tunnel vision can trap you. That’s why taking the time to write out a fully-fledged plan is a must–especially when buying a home. Since, there was already an in-depth relationship with the house and its issues, I didn’t have much concern about damages. Still, the first thing I did was get the home inspected. If cutting costs is a must, here’s a great DIY checklist.
Next, I needed to understand what financial obligations were in store. The first step was to start saving money every month. This was a difficult task as my roommates began to move out in search of post-college jobs. I picked up a second job to save money and keep focused during the lengthy process.
Having a desire to travel made me consider renting the home out after I had saved for a few years. Putting the calculations to work helped ease my mind. With student loans to consider, many wonder if buying a house after college is possible. Since the landlord was hoping to ease into retirement, my offer on the house was going to be perfectly timed. From here, I not-so-simply needed to figure out a payment plan.
Loans and a Mortgage
Many of us come out of college ready to sink into a job and pay off our loans. By this time, I had two jobs and was ready to pay off my loans ASAP. But taking out a mortgage could put a damper on these plans. Look at your credit score before going to discuss a loan; it’s advisable to have near perfect credit first. Here’s why.
If you have too much student loan debt, lenders may not qualify you for a mortgage. The results of their decision are based on your debt-to-income ratio. If a potential lendee has an issue with their credit then their debt to income ration could be low. This breaks down further.
- Front-End Ratio: The percentage of your income consumed by mortgage expenses
- Back-End Ratio: The percentage of your income consumed by all debt burdens
Once you’ve reached an appropriate debt-to-income ratio, you could be selected for a loan. Another important factor to consider, especially if unfamiliar with the house, is that there are plenty of costs that will sneak up on you after your final purchase. Once you start living in a house, you may notice damages that weren’t apparent before. For instance, the first thing to break in the old Victorian was the air conditioning system. Implemented in the early 70s, it had simply run its course. However, living in this house prior to purchase gave me peace of mind that everything was up to snuff.
Bottom line: make sure that you have enough room in your budget to absorb these additional costs, not solely the cost of mortgage payments, and student loans.
As stated before, my plans included renting out the house. This left me with time to save and make payments, as well as decide on a few significant factors regarding renting.
Landlord or Property Management
Choosing whether to become a landlord over the house, or leave the responsibilities to a property management company, depends on several factors:
- Do you manage multiple properties?
- Do you live next to or have access to the property easily?
- Short on time? Property management can require hiring or undertaking
Traveling was in my longtime goals, so it seemed that an eventual transition to property management was imminent. Still, property management deals don’t come cheap. The need for revenue through renting was a big part of my plan. Without this revenue, I couldn’t afford my loans and a mortgage while traveling. It seemed that for the first few years I was destined to be a landlord on my own. However, I started easy, with just a weekend stint here and there. I’ll explain.
Using sites like craigslist, and now Airbnb, it seems anyone is able to be a landlord nowadays. With these new tools at my disposal, there was nothing stopping me from finding prospective weekenders to rent to. The location allowed me to market towards the parents of students who wanted to visit for a weekend. The extra cash was nice, but I learned valuable lessons about how to run a rental. It’s important to understand how to market your place, and in a micro-niche like online vacation rentals, it’s easy to understand what it takes to successfully advertise in your area.
Make sure you’re flaunting the important aspects:
- Location: Close proximity to a college is prime real estate.
- Parking: If there’s ample parking then your listing should reflect that
- Space: Brag about the rooms you have available, If there are large king size mattresses or multiple bathrooms, these are all important for marketing.
- Backyard: If you have any yard at all it should mentioned in fine detail. College-area homes rarely come with a yard, so this could help your listing stand apart from the crowd.
- Neighborhood: College students need reassurance that the neighborhood in question isn’t a dangerous one. If you feel that this is the case, be sure to share your positive living experience.
Once you’ve made it this far you’re ready for the real challenges of taking care of tenants. Hopefully, this will be a worthwhile experience and help further your ability to be a self-reliant adult. And the extra income won’t hurt, either.
written by Ryan De La Rosa