Millennials are often painted in the news as the generation that refuses to invest in real estate. The 20- to 30-somethings are flocking to major cities based on employment opportunities and lifestyle choices, where they inevitably end up renters due to high housing prices and the average student loan debt.
But some forward-thinking millennials are trying a hybrid approach: becoming both renters and landlords.
Being a Landlord and Paying One Too
Ashlee Dozier, a 31-year-old independent consultant for Rodan & Fields, became a renting landlord when she moved from Austin, Texas, to Atlanta in 2010.
“I originally decided to rent when I moved to Atlanta because I already owned one property,” says Dozier, explaining that she didn’t feel confident about maintaining two properties.
Like many millennials, Dozier doesn’t consider herself stock market savvy, but feels investing in real estate is a safe long-term strategy.
“I purchased the home when I moved from Florida to Texas so that I could no longer waste money by paying someone else’s mortgage, but rather put that money towards my own investment,” Doizer says.
Dave Olverson, on the other hand, felt more comfortable with the stock market than real estate landscape — until he bought his first property in Indianapolis in March 2014.
“Unlike owning the home that you live in, owning a rental is an investment that generates real income,” Olverson says. “Therefore, I treat it more like buying a much riskier index fund than finding a place to live.”
Olverson, a 31-year-old who founded the site TheNewYorkBudget.com, has lived in seven apartments since graduating college nine years ago. Like many of his millennial peers, Olverson prefers to keep his living options open by staying a renter.
“I chose to live in New York City, and so I spend a lot of time figuring out ways to decrease my cost of living,” he says.
The Financial Balancing Act
The process of being a landlord and a renter isn’t without its financial pitfalls.
“I had a tenant who stopped paying rent,” Doizer says. “Luckily he moved out willingly, and I didn’t have to go through the eviction process.”
Dozier had the savings cushion to pay both her mortgage and rent while searching for other tenants, but it certainly put a strain on her monthly budget. She recommends anyone looking to be a landlord have at least three to six months of mortgage payments saved up in case a tenant doesn’t pay or an unexpected maintenance issue occurs.
Olverson has yet to deal with the financial pain points of being a landlord, but it doesn’t make him naive.
“So far, the rent I get from my tenant covers more than my mortgage,” he says. “However, if there were a long stretch without a tenant, I probably would feel a squeeze.”
In addition to having emergency savings like Dozier, Olverson also advocates for making a 20 percent down payment and having a few thousand extra for closing costs. But investing in real estate is about much more than just affording the initial cost.
“You need to learn a lot about how to find properties, and you need to network with people in the city you want to invest in,” Olverson explains. “Buying property is not a one-person job. It takes real estate agents or companies, rehabbers, financiers, inspectors, appraisers and property managers at the very least. You need to find the right people.”
Learning through experience is important, he adds, but he doesn’t suggest leaping into real estate without a well-researched plan.
Ditching the Rent?
Paying rent often serves as a double-edged sword to financially-savvy individuals. Some view it as a way to keep options open, minimize monthly living expenses, eliminate the stress of dealing with the wear-and-tear of a home and provide the opportunity to live in an area with sky-high real estate prices like New York or San Francisco. Others consider rent nothing more than throwing away money each month without building equity. Doizer is the latter.
“Paying rent for five years, after previously owning a home and paying towards my own investment, feels like I am wasting money again,” says Doizer, who is in the process of buying a home in Atlanta that she plans to turn into a rental when she moves again several years down the road.
Olverson considers homeownership just another piece of his portfolio.
“Maybe someday I will want to own a house and live there for 20 years, but for now, I want to keep my options open,” he says. Olverson doesn’t foresee buying into New York City real estate any time soon, and he doesn’t have any plans to leave. “Owning a home elsewhere is just simply an investment to me.”
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The Balancing Act of Being a Renter and Landlord originally appeared on usnews.com
