The current housing market presents significant challenges for Gen Z and millennials looking to purchase property. With high mortgage rates, soaring home prices, and hidden costs, owning a home can seem like an unattainable dream for many young individuals. However, despite these obstacles, there are success stories that offer hope and inspiration to those navigating the real estate market.
Anirudh Kaushik, a 26-year-old, managed to overcome the hurdles of the San Francisco housing market and became a homeowner two years ago. In an interview with Business Insider, he shared his journey of buying property in one of the most expensive markets in the US and how he has been managing his investment since then.
The housing crisis in the Bay Area, particularly in San Francisco, is well-known. Despite a slight decrease in housing prices post-pandemic, the city continues to rank among the most expensive housing markets in the country, with a median price-to-income ratio of nearly 10 times. This makes it extremely challenging for young buyers to enter the market and secure a property.
Kaushik made the decision to buy property during the pandemic when the Federal Reserve had lowered interest rates to near zero, resulting in favorable buying conditions with low mortgage rates. By carefully calculating the costs, he realized that buying an apartment was only slightly more expensive than renting one. His monthly expenses, including mortgage, property taxes, and HOA fees, totaled around $3,300, making ownership a feasible option for him.
One unique aspect of Kaushik’s property ownership is that it falls under a tenancy-in-common (TIC) model. In a TIC arrangement, multiple parties share ownership rights to a property, allowing individuals to co-own and pool resources for investments. TICs are popular in California, especially in cities like San Francisco, where they offer a more affordable way to buy property compared to traditional ownership methods.
While TICs can be more cost-effective, they often require higher down payments. Kaushik’s lender mandated a minimum 25% down payment for residential TIC lending. Despite this initial investment, Kaushik found the TIC model to be a more accessible option for owning property in San Francisco.
One of the challenges Kaushik faced was securing a mortgage for his TIC property. Traditional lenders are often hesitant to provide mortgages for shared ownership models like TICs, leading Kaushik to opt for an adjustable-rate mortgage (ARM). While ARMs can offer lower initial rates, they come with the risk of fluctuating rates after the fixed period ends.
Kaushik managed to lock in a favorable mortgage rate of 3.1% during the initial purchase, providing him with financial stability for the first seven years. Looking ahead, he understands that the rate may increase after this period, prompting him to consider various options such as selling the property or renting it out for passive income.
As a young homeowner with a penchant for flexibility and adaptability, Kaushik is prepared to assess his options as the fixed-rate period nears its end. Whether he decides to sell, rent, or explore other avenues, Kaushik’s strategic approach to homeownership showcases the importance of planning and foresight in navigating the challenges of the housing market.
In conclusion, Anirudh Kaushik’s success story serves as a beacon of hope for young individuals looking to enter the competitive housing market. By leveraging favorable conditions, exploring alternative ownership models like TICs, and staying informed about mortgage options, aspiring homeowners can overcome the obstacles and achieve their goal of owning property.