Author Topic: Advice for a 22 year old just starting out....house or no house?  (Read 4208 times)

Giro

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My daughter just graduated from college and is starting her first "real" job.  She has no real expenses and is currently living with her boyfriend and his mother.  The apartment is VERY small (1 bedroom) and she needs to think about moving out on her own.  My old school grandmother (my daughter's great-grandmother) believes the key to financial stability is owning a home and has offered up the 20% down payment.   I am nervous about her buying a home instead of renting an apartment first.  But, this money does add a dynamic to the basic arguments against home ownership. 

My grandmother, of course, points out that I bought my first home at 19 and did not rent at all.  Fair enough, but the housing market was not the same as it is now and I had a very handy fiancÚ to help with home repairs and maintenance.   

Is it silly to pass up that much free money? 

Daughter's finances.

09 Corolla (paid off and hopefully lasts awhile)
$5000 savings
$6000 ROTH IRA
$1000 401K

A 15 year mortgage payment for a decent 3 BR home would be about 28% of her net income.  A 30 year mortgage would be about 22% of net.  She has no other real expenses other than food and gas. 


mskyle

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Re: Advice for a 22 year old just starting out....house or no house?
« Reply #1 on: October 21, 2016, 08:55:35 AM »
I assume your grandmother's 20% down payment gift is *only* usable as a down payment, right (i.e. she's not going to just give your daughter the equivalent amount in cash if she doesn't buy the house)? So it's basically free money with no opportunity cost.

I say she should get the house. I assume the boyfriend will move in with her too and pay rent? And with a 3BR they could get another roommate or two, so your daughter could save a lot of money for repairs and other contingencies (and she has 20% equity to start out with). It could be a great opportunity for building wealth.

She can always sell later. Unless you're worried she's going to not maintain the house, take on lots of house-associated debt, or otherwise be financially irresponsible, or unless rents are incredibly incredibly cheap compared to the mortgage, buying seems like the right way to go in this particular case. (And I am ALWAYS on "team keep renting" - 38 years old and never owned my own home.)

LouLou

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Re: Advice for a 22 year old just starting out....house or no house?
« Reply #2 on: October 21, 2016, 09:02:14 AM »
Does your daughter want to stay in the same place for a long time? If she bought a place, could she easily rent it out for a profit if she needed to move? 

I would tell your grandmother that you appreciate the offer, but it may make the most sense to wait to buy a house.  A 22 year old may need to change companies (or regions) to properly build a career nowadays.  People often need to move for careers and love.  She could get an amazing job offer in another city, or fall in love with a medical student who gets a residency in another state.

I know a lot of people who still own their first condo/house though they have moved and it is a thorn in their side.

CowboyAndIndian

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Re: Advice for a 22 year old just starting out....house or no house?
« Reply #3 on: October 21, 2016, 09:05:41 AM »
I assume your grandmother's 20% down payment gift is *only* usable as a down payment, right (i.e. she's not going to just give your daughter the equivalent amount in cash if she doesn't buy the house)? So it's basically free money with no opportunity cost.

+1

I would suggest she gets a property which she can convert to a rental if she has to move. What you might buy as a residence may not work as a great rental .

Other suggestion is she can look into getting a duplex, rent out one unit and get rent from boyfriend/room-mates.

She is in a great place with no debts and great savings. With a rental, she would be on the fast-track to FIRE.

Giro

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Re: Advice for a 22 year old just starting out....house or no house?
« Reply #4 on: October 21, 2016, 09:10:08 AM »
Yes, the money is only for a house down payment.

Yes, my daughter will probably stay in the area for a very long time.  She has a twin sister who she will never leave.  The twin is married with a baby.  She visits her sister at least 3-5 times a week.

I thought about the duplex idea but I cannot find anything like that in the area.  I will keep looking.  The reason I said 3BR was because of the utilization as a potential future rental.  2BR homes just don't really sell or rent out very well around here. 



KBecks

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Re: Advice for a 22 year old just starting out....house or no house?
« Reply #5 on: October 21, 2016, 09:17:33 AM »
Does your daughter want a house?

Is she OK with mowing the lawn and shoveling the snow, etc?

Is she settled with where she wants to live, long term?

She's just starting out.  I think it's better to let her find her place in the world and then buy a house.   If she knows she wants to stay put for 10 years, then maybe a house is OK.

Grandma is generous but your daughter needs to make her own decisions for herself.

Is the boyfriend "the one"?  Or just "right now"?    She should not be living with a "right now".

I think your daughter should pick HER OWN HOUSE, not have you do the shopping for her and grandma paying for it.   If she's not motivated to shop, then she doesn't want a house.  Let her adult and make the choice.   

Maybe she can rent an apartment for a year and when she hates living with neighbors, then she will be motivated to pick something. 
« Last Edit: October 21, 2016, 09:20:18 AM by KBecks »

Cwadda

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Re: Advice for a 22 year old just starting out....house or no house?
« Reply #6 on: October 21, 2016, 09:48:40 AM »
I'm buying a house and I'm 22. Living in part and renting out the rest. I'm motivated by finances, not to buy a bunch of stuff, but allowing me to retire early and spend the rest of my life doing whatever I want.

frugaliknowit

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Re: Advice for a 22 year old just starting out....house or no house?
« Reply #7 on: October 21, 2016, 10:12:59 AM »
Daughter's finances.

09 Corolla (paid off and hopefully lasts awhile)
$5000 savings
$6000 ROTH IRA
$1000 401K

A 15 year mortgage payment for a decent 3 BR home would be about 28% of her net income.  A 30 year mortgage would be about 22% of net.  She has no other real expenses other than food and gas. 


Assuming she will live there at least 10 years:

Scenario #1:  If the BF lives with her, I say "no".  The reason is, I don't think it is healthy for one unmarried partner to move into another unmarried partner's owned home (just my opinion, from experience).  The partner who does not own the home never has a stake and things tend to get "sloppy".  The partner who owns, subliminally always thinks "I can always boot him/her out..."  If they live together, rent or buy a place together and not with grandma's money.  They need a written cohabitation agreement spelling out all financial and household responsibilities.  If it's a community property state, they need to consult an attorney.

Scenario#2:  She lives in the house without BF and plans on living there 10+ years.  OK, even though she's not very "financially  thick". 

Overall, home ownership, especially with a one person household, is not vital.  The cost of housing is mostly correlated with square footage, especially in the "21st century".  Ownership anchors SOME of the costs, not all.
« Last Edit: October 21, 2016, 10:21:17 AM by frugaliknowit »

ketchup

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Re: Advice for a 22 year old just starting out....house or no house?
« Reply #8 on: October 21, 2016, 10:16:18 AM »
She has to want to do it.  I dove headfirst into home ownership at age 20 while working for $12.50/hr part-time (GF was 19 and in a similar state) and figured everything out as I went, but that drive doesn't just happen and could be overwhelming for someone that feels like that's their only option or that they're being pushed into it.  Especially with someone else's money at stake.  I was scared enough playing with fire on my own dime.

And everyone clamoring that it could make sense as a future rental, she has to want that too.  Does she want to ever be a landlord?  Does your market even make a lick of sense for that?  Would your daughter know if the numbers made sense?  I turned our first house into a decent rental after the fact, but it's not just flipping a switch and making that happen.  It's work.

It all worked out for me doing all this, but part of that was that it was 2012 with the housing market in the toilet, and I had a good enough deal without trying that it was hard to screw up even without knowing what the hell I was doing.

I'm not trying to be negative, but this could all be a good idea if she makes the choice for herself.  At that age, my parents meant well with life advice (and generally had reasonable things to say), but unless I actively asked for it, it often felt like them twisting my arm.  Maybe present it as "you could do A, B, or C; here are the pros and cons of each" vs "I think you should do A."

gggggg

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Re: Advice for a 22 year old just starting out....house or no house?
« Reply #9 on: October 21, 2016, 10:22:36 AM »
I wouldn't turn down 20k+ dollars, but that's just me.

little_brown_dog

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Re: Advice for a 22 year old just starting out....house or no house?
« Reply #10 on: October 21, 2016, 10:25:29 AM »
I lean towards no house - 22yr olds are prone to moving, changing jobs, etc and a house will tie her to a very specific location. She won't have the option of pursuing different opportunities in other locations without worrying about the house. Not to mention the fact that homes are money pits, and she will be on the hook for paying for routine maintenance, repairs, necessary upgrades, increased utility bills, etc. I found it was much easier to save more when we rented - sure the rent was the same price as a mortgage in our area (HCOL), but we didn't have all the extra costs ontop of it. The management companies ate the cost when things broke or needed to be replaced. Now it's like we are always fixing something, and easily spend more than we would renting an apartment.

Can the money be saved and earmarked for a later date when she is a little bit older/more sure of her long term location? You definitely don't want to pass up such a generous gift, but at the same time, I suspect most 22yr olds would be biting off more than they can chew with home ownership.

nyxst

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Re: Advice for a 22 year old just starting out....house or no house?
« Reply #11 on: October 21, 2016, 06:53:24 PM »
I was 23 when I bought my house. 900 sq. Ft.  I've been in the same house ever since and have raised my kids here. (Added about 300 square feet to accommodate everyone... They each have their own rooms.) Eventually all the kids will leave the nest and it will be too big for just me... At that point I will probably rent it out or sell and get a little condo or rv or something. Either way, it will be paid off and a passive income or a cash lump. If someone had given me a fifth of the cost, I would have done backflips! I hope I can help my kids or grand kids in that way someday. I'd say tell her to take it and find something she can add on to if she starts a family.

doneby35

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Re: Advice for a 22 year old just starting out....house or no house?
« Reply #12 on: October 21, 2016, 08:35:24 PM »
I think the most important question is: what is the price of the house that is being purchased. Is it 20% down payment on a 100k house or a 500k house? 100k house I would definitely go for it. 500k house, not a chance.

chesebert

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Re: Advice for a 22 year old just starting out....house or no house?
« Reply #13 on: October 21, 2016, 09:53:49 PM »
Stop tying her down at 22. Your daughter may decide to take a job in NY in yr2, SF in yr3, London in yr5, Hong Kong in yr7, Paris in yr8 and when she hits 30 she may decide to settle down and buy a property.

Do get the 20% gift - promise to invest responsibly and only use for eventual housing down payment.
« Last Edit: October 21, 2016, 09:55:35 PM by chesebert »

Metric Mouse

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Re: Advice for a 22 year old just starting out....house or no house?
« Reply #14 on: October 21, 2016, 10:28:17 PM »
I wouldn't turn down 20k+ dollars, but that's just me.

I could turn it down easily, if it meant having to buy another house... :D

Lmoot

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Re: Advice for a 22 year old just starting out....house or no house?
« Reply #15 on: October 22, 2016, 03:07:04 AM »
 A house doesn't have to tie you down. I bought my house at 25 and seven years later I still have it and plan on moving back in. I left the country for several months and rented it out almost 3 years ago.  And not all young people move for work, especially if they have a lot of friends and family and their significant other is based in the same area. And moving is not specific to young people, anyone moves at any time for a number of reasons: aging parents, having children, going back to school, a relationship, and yes a job.

 The fact that she starting her first "real" job, and it's probably not a good idea to quit your first job out of college right away, we can assume she'll be there at least a few years.  Also banks today typically like to see someone working in the same industry or job for at least two years so even with the gift she may not qualify or will have difficulty qualifying depending on how long ago she started her job and what her degree is in.

 Unless you have specific plans that you know will interfere, then it's probably best not to second-guess yourself out of a good opportunity. Good Opportunities are few and far in between so it's not a good idea in my opinion to pass one up on the off chance that it might not be useful to you later.

redbird

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Re: Advice for a 22 year old just starting out....house or no house?
« Reply #16 on: October 22, 2016, 08:15:30 AM »
I bought a house when I was 21. But I actually wanted to live there. I only ended up living there for about 5 years and sold it because I was moving 3,000 miles away and didn't want to be a landlord. It's been about 7 1/2 years since then and I don't regret selling. But I've never owned since then because I've always lived in places extremely short term.

When I bought that house, I thought I would live in it for many years. Obviously, it didn't turn out that way. When you're young and your career is also young, you don't know what's going to happen. She might stay in the area for her whole life. Or she may not. Either way, she has to want to buy the house. Buying the house may help her financially. Even with only living in my house for 5 years, it did for me. But a house also has other responsibilities like maintenance, mowing the lawn, etc. She also needs to set up some agreement with her boyfriend if he moves in with her. If things go poorly and she wants him to move out but he refuses to, she might need to go with whatever your states tenant laws are.

AshStash

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Re: Advice for a 22 year old just starting out....house or no house?
« Reply #17 on: October 22, 2016, 09:07:33 AM »
Stop tying her down at 22. Your daughter may decide to take a job in NY in yr2, SF in yr3, London in yr5, Hong Kong in yr7, Paris in yr8 and when she hits 30 she may decide to settle down and buy a property.

Do get the 20% gift - promise to invest responsibly and only use for eventual housing down payment.

I'm in the camp of "don't buy the house right now" because your daughter's finances aren't where I think they should be to safely buy a home, but the idea of asking grandma to put the 20% (pick a fair value in real $) in an account at Vanguard in daughter's name for a future home purchase seems like a great idea. This idea could even help grandma avoid gift tax [I'm guessing she'd have to pay gift tax on the amount but I don't know] because she could put the amount in over the course of a couple of years if necessary.

MBot

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Re: Advice for a 22 year old just starting out....house or no house?
« Reply #18 on: October 22, 2016, 01:21:28 PM »
She's wanting to stay there long term.
Her finance story does not include stupid debt and already has big savings for that age. 
If she wants a house, those are excellent factors.

Age alone does not mean she wants to be mobile.

However.... I also agree on the feedback that states being very careful about having the boyfriend live there, and making sure she's invested in the house-picking process. And being able to rent it out