July 24th, 2014
In today’s roundup, we’ll look at the pros and cons of buying a house for your college student, five home buying tips for Millennials, and the increase in homeowners tapping into their home equity with lines of credit.
If you’ve thought about real estate investing, buying a house where you kid goes to college may seem like a great idea. After all, your child will be living there saving you money on room and board costs, and they’ll be able to keep an eye on the property. Plus, at the end of four (or five, or six) years, you’ll have equity built up.
But it’s not necessarily a good idea.
Rule No. 1 of prudent real estate investing: Focus on long-term ownership. The longer the property has to accrue in value, the higher the chances it will be a wealth-building investment for you. After your kid graduates, you either will want to sell, or continue to rent to college students. If you can find a good property management company, this may be an ideal situation.
Another downside is putting your child in the position of property manager. If something breaks right in the middle of finals week, your kid will have to handle it instead of study. Only you know your kid well enough to know if this will be added stress or just another day in the life.
In previous generations, many people bought “starter” homes while in their 20s or 30s. But times have definitely changed. In the next generation of real estate, we’re a much more mobile society. The media portrays Millennials, Generations X and Y as not wanting to be tied down by house payments. And owning a home doesn’t have the same status to them that it had to earlier generations. Plus, all of the horror stories in the news of money pits and lost values could scare anyone.
That being said, there are still quite a few who do want to own a home. And these tips are for them.
Borrowers took out about 230,200 home-equity lines of credit in the first quarter, up 9% from a year prior, letting them tap up to $23.4 billion, the highest quarterly amount since 2008. The average credit line in March was $100,207, up 4% from a year earlier and the highest since 2008, according to credit-reporting company Equifax.
The most common reason borrowers give for taking out loans and lines of credit is to pay for renovations. Others use them to cover emergency expenses. Still other homeowners use the money to pay off credit-card debt or personal loans, according to banks and borrowers. That can be a savvy move, because the interest rates on home-equity products often are lower than on other loans.
But you need to be cautious and not default on the loan. And you also need to be sure that you don’t rack up the credit-card debt again.