Becky was
a Sophomore at the University of Illinois -
Champaign. She planned on
being in school for the next five years as
she was working towards a Masters in
Business Administration. Her Freshman year
she had a 2-bedroom/2-bathroom apartment
off-campus that she had shared with her
friend Alicia. They split the rent down the
middle and each paid $450 per month.
After completing a Intro. to Finance course
in the Spring of Becky's Freshman year,
she had a completely different perspective
on renting. She knew that if she could
buy a house to live in for the remainder of
her college career, she would be much
better off financially after graduation.
Becky started looking at houses for sale.
And she started to get discouraged when she
would fall in love with houses and lenders
would not qualify her for a loan. She was
only 20 years old and hadn't established
much of a credit history and her job on
campus didn't pay much.
When Becky consulted with Schwaps, we were
able to show her that a house purchase was
still a possibility.
Becky wanted a 3-bedroom/2-bathroom house,
as she would have two roommates. We
suggested that she opt for a lease/option
arrangement. The lease was for 5 years, with
an option to purchase the house at the end
of the 5th year for $125,000. This option
worked well for Becky as she liked that
there was no obligation to buy. Her monthly
lease payment was 1,300 per month, when
split 3 ways with her roommates, everyone
had to pay $433 per month. There was a
credit, in the amount of $200 monthly, to be
used towards the purchase price of the house
if Becky exercised her option to buy at the
end of year 5.
When the 5th year came and Becky was ready
to graduate with her MBA, she had a
decision to make; to purchase or not to
purchase. She had $12,000 credit ($200
credit x 12 months x 5 years) towards the
purchase of the house. The value of the
house appreciated from $125,000 to $145,000.
So, she would be able to obtain a house
worth $145,000 for $113,000 ($32,000 in
equity).
She made a wise decision and opted to buy
the house. She pondered renting the house
out and keeping it as an indefinite
investment. But, she choose to sell the
property. She sold the property for
$143,000, the result of such sale provided
her
with a $30,000 profit.
Had Becky rented her entire College career,
she never would've been off to such a
great start following graduation. Becky was
able to use the $30,000 to pay off
school related debts and had a substantial
amount left to spare.
* The
story above is just one example of the many
ways Schwaps may serve your Real Estate
Needs |