So you’re about to graduate from College, University, trade school or even high school. This time of year is not an easy one for graduates, you’re thinking about home ownership, your career path, finding the one and maybe even family. Let’s begin by talking about the first one, home ownership. Typically many will begin to look at rentals as their first option without considering the potential in starting an investment property portfolio. Now don’t get me wrong, rentals are a great opportunity for graduates to save up money for a down payment and give you flexibility for moving to another job if need be. Where you may be surprised is the cost of rentals compared to a mortgage payment.
Let’s look at a $200,000 property. Assuming a 20% down payment, this would put you at $40,000 initial capital required. Now, not many people coming out of school have a $40,000 to spend on a down payment, so let’s look at other options. Assume you can find a 3 bedroom home which is not unheard of it this price range, at least in London, Ontario. Now, take that $40,000 and divide it among three people. That’s $13,333.33, and based on RBC’s mortgage calculator, at an interest rate of 2.890% and an amortization period of 25 years, you are looking at $748.20 for the remaining $160,000. Divide that by three and consider how affordable that number now looks. This is also giving you the opportunity to see a return on an investment as opposed to paying into a rental where you will see zero return on your money. Think about where that additional income you are receiving from your job could go, repaying your student loans, investing in your retirement, which is never too early to do, or even saving up to buy out your co-owners in the future.You may be thinking about the potential issues that could occur with this type of ownership. Don’t worry check out our blog here on what to avoid and how to make sure you are placed in the best circumstance in this type of ownership.
Let’s assume another circumstance, you are able to put 20% down on your first home. Based on our previous example of $200,000, you will be looking at $40,000 down payment with payments of $748.20 monthly on the $160,000 remaining at an interested rate of 2.890 for an amortization period of 25 years. Now the home is in your name and only your name, although considering this is a three bedroom home, you could rent out even just one of the bedrooms and cut your mortgage payment in half at minimum. This is nowhere near the first example, however, consider that you own the home completely and if the time comes that you would like to move out, there is zero obligation to payout other co-owners or vice versa. You have the option to keep the property and potentially rent it out for more than the cost of the mortgage or sell it off for a profit, which is typically seen after four-five years of living in the home.