<p>OK - I’m not interested in opinions on whether to do this or not, but, given the real estate market in its current phase, we are starting to explore/research/investigate the realities of purchasing a small, starter condo in Chicago. Prices are fantastic and availability is huge.</p>
<p>Of course this is D1’s idea; she wants us to make the purchase, so she can live in it, pay us rent, and of course, she’d have a roommate to pay rent also. Our taxes are relatively straight forward (despite some investments); D has heard of some financial advantages of this kind of investing, as it relates to our tax bracket, deducting interest from the mortgage, etc.</p>
<p>I’ve heard that a lot of parents are doing this… purchasing starter ‘homes’ for their kids, then once their kid is ready to move up, either continue renting it out, or selling it for a profit. I realize we’d need to hold onto it for at least five years to make any money.</p>
<p>The kinds of questions we have regarding whether or not this would be viable… are they the kind you ask your accountant, or a realtor? How do you even begin to figure out the formulas, etc. to determine if this could make money.</p>
<p>We obviously have our own set of criteria for our daughter if we were to consider this, but we need to move past the stage of getting generic answers from the internet.</p>
<p>I don’t know enough about current tax laws but a few years ago, you can also depreciate a rental property (since your D and rommates will be paying rent). That tax break used to be very attractive.</p>
<p>Im planning on making this move if our D ends up in grad school in our current area. I plan on buying a condo that would be suitable to rent to my D, that would be attractive to other renters and that I might inevitably sell or use myself as I retire to a smaller place. Ive been checking rentals in our area and while they have skyrocketed the condo prices have plummeted. Im not sure if there is a set formula. But I would keep abreast of what places are renting for in the specific area you are purchasing in.</p>
<p>You ask your questions of your accountant, your tax advisor, and an attorney that specializes in real estate. You do not ask these questions of a realtor, as their interest is in selling you a property. (Please, no flames - I am not insinuating that realtors will lie or deliberately mislead anyone. It’s just that their answers about future resale or ability to rent may be rosier or more positive than those of a neutral advisor.)</p>
<p>Your tax accountant should have answers for you about the tax consequences.
Padad is right, you can have depreciation expenses against income, but keep in mind you have to recapture it when you sell and that will bump up the taxes you owe. </p>
<p>The formula I know some people uses will be to put in a down payment X%, and calculate after expenses how much money will you have left, if any. Real estate investment is like any leveraged investment (buying on margin) with the rents(dividends) used to cover your expenses (interest).</p>
<p>If you talk to your bank/mortgage broker you can get an idea as to what your expenses will be. Can you charge enough rent to cover them? That’s question number one. I have no idea if the market has bottomed out. We stayed in our first house for ten years and made no profit at all and we’d have lost money if we’d bought it a year earlier.</p>
<p>I agree - talk to a tax person or, if you do your own taxes, get out your TurboTax (or equivalent) and calculate what your taxes would be if you were paying for the condo. Your tax obligation should go down since you’ll be able to deduct what you’re paying in interest and property taxes. You can also look into depreciation. The net reduction in you tax obligation equates to more effective money in your pocket which means that the cost of buying the condo versus renting an apartment might be more viable. You have the other benefit that you’re ‘fixing’ the monthly cost so it won’t go up like rents do (assuming you get a fixed rate loan which you probably should given rates are not too high). Of course, you have the initial outlay of the down payment to front - usually.</p>
<p>The realtor’s a salesperson working on a commission and not an expert in tax laws or investments so they wouldn’t be the one to tell you whether you should do this or not. Given that, if you have a realtor friend with a fair amount of experience they probably can give you some useful information on this but the tax/investment advisors are the first consultants to seek.</p>
<p>We do have a tax accountant, but we only see him once a year when we drop off our stuff at his office for our yearly taxes. </p>
<p>We do have a friend that is a realtor, and who I think could lead us in the right direction as far as asking the proper people for advice. She actually has kids the same age as ours (her S1 graduated in our D1’s high school class), and it wouldn’t surprise me if she’s not on the same page as far as investing in a place for him to live downtown, depending on where he ends up getting a job, so she’s probably explored many facets of such investing. </p>
<p>I just want to go into this somewhat able to discuss it without coming across like a fool. I’m a chaplain and my husband is a chemist; investment options are NOT our strong point!</p>
<p>Your local bar association may have an “Ask a Lawyer” program, in which you can get about an hour with an attorney for free. That may help. </p>
<p>And no one worth his or her salt will think you’re a fool - in fact, you’re smarter than most, knowing that you don’t know! Those who don’t ask are the ones who make the costliest mistakes. No one is born knowing this stuff - that’s why there are professionals for it!</p>
<p>Thanks Chedva. I appreciate the promotion you just gave me! Now, if anyone has any questions about hospice or chemistry, please feel free to ask :D</p>
<p>My parents made the same investment for me when I went off to school.</p>
<p>They bought a condo for me to use in 1998 and got a great deal at the time- paid $1.3 million and sold it in 2003 for $2.5 million when I moved out on my own.</p>
<p>They were lucky because luxury real estate in the area is growing and the demand for multi-million dollar homes and condos is rising as the market remains stable.</p>
<p>I highly advise you to research and understand the local market. Seek the advice of a financial advisor that specializes in real estate. If you’re seeing a lot of growth and stability in the area, then it might just be a good time to invest. Best of luck.</p>
<p>I suggest that you discuss this with an accountant as has been stated before especially since there are different benefits depending on your tax bracket. Also, when your d is finished with school, will you keep it and rent it out or sell it. Renting it out and maintenance can be a hassle if it is a distance from your primary residence.</p>
<p>^^ my daughter graduated from school in May. This would basically be an investment we’d make, where she and a friend/roommate would live and pay us rent as they get established down in the city with their jobs. When they’re ready to move on, we’d either keep it as rental property until we get a good return on our investment, or use it ourselves at retirement. North side of Chicago is less than an hour away (with no traffic), so distance is not an issue for maintenance.</p>
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