Case Study of a Successful 30-Year-Old Couple
I’ve recently been talking with some friends who are leaving the busy San Francisco area in pursuit of homeownership closer to family. They are a young a couple, both 30. One has family in the mountains of Northern California, the other in a not-so-pricey area of Southern California. Their dream of homeownership involves two homes, one in each location of California, and it’s a unique perspective in my opinion because often times what we do as young buyers is try to buy the most expensive home we can comfortably or in many cases – uncomfortably – afford. And maybe we think about how one day we’ll hope to afford a second home, but that is so far off in the distance that it’s not getting our attention quite yet. But, not for these two. They are looking in less expensive areas of the state, certainly less than San Francisco, and are buying a much less costly home than they could qualify for on their first purchase because they intend to own two homes in the near future. These friends of mine have had success in their careers, and are fortunate to be in a strong financial position, but their foresight and strategy is what I admire about this. A few concepts come to mind with this play.
They will be moving into the first home for two years so that they can get the $500,000 capital gains exemption if they decide to sell after living in the home two of the last five years. This is a great way to build wealth as a young homeowner. If they don’t sell, they will keep it as a rental, and when they buy their home in Southern California, they can pull equity out of the first home using a cash out refinance to help with their down payment of the next home. They speculate that maybe by that time, rates will be lower, which would be great for a cash out refi. This brings us to rental possibilities.
The location of their first home in Norcal will be a quick walk from a very popular downtown neighborhood in the mountains where you can wine taste, eat at great restaurants, and shop. This will make for an excellent short term rental, so when they remodel it, they’ll do it with the intent to eventually use it as a vacation rental. One exciting thing they are considering, since they have family close by, is renting it out once a month while they stay with family nearby to offset their mortgage payment. I love creative ways of making real estate work, and if they really want to take it to the next level, they can self manage the vacation rentals to qualify as real estate professionals even though they are W-2 earners, which would give them access to incredible tax benefits such as depreciation, bonus depreciation, cost segregation studies, and more.
Having a home near each side of the family is an exciting path for these buyers and I like the way they are creating a plan with both lifestyle and financial considerations top of mind. Each of these locations are very close to airports, so they can hop back and forth, and with modern technology, the vacation rental aspect of this plan can be managed remotely wherever they want to be. It’s an exciting time to be making real estate investments.