If you are like the millions of Americans who are struggling to pay rent or wondering what can be done to lower your rent, you are certainly not alone. Rent is basically a reoccurring payment for occupying the area that you sleep and eat in. Each year, this number goes up and eventually you’re being asked to put more and more until, well, you’re dead.
Instead, think of buying– irrespective of whatever market condition you currently live in. Buying a property can actually prove to be cost effective on a monthly basis and also act as an investment. Think about it….
Every time you buy a home, there is a value to that house, lets call it X dollars. Each time you make a mortgage payment, it chips away at the total amount you owe and by the end of the year you technically have an asset that you can sell in the open market. Now compare that with rent—everything you pay for essentially is gone and you wont get it back…
In 5 years time, without even realizing it, you have an object or an item that you can actually sell for thousands of dollars more than what you had paid for. However, with everything great, there are preconditions.
Here are the conditions you must abide by:
1) This is not going to be your dream home, so DO NOT purchase the perfect home on the market
2) The house you will buy will need to be less than perfect and require a certain kind of TLC. Paint, flooring, molding and ceiling lights and appliances in the house can and should be outdated. This allows you have a bargaining chip when negotiating the price of a home.
3) The house you are looking at isn’t huge in terms of square footage, but has several bedrooms so that taxes are low and short term rentals can be profitable.
4) The neighborhood must be safe and be walking to most means of transportation.
Once these conditions are met… you are ready to start house hunting. Here is a detailed version of how you can pick the right home to stop paying rent and also earn money in the long run.
Find an area nearest to the city that is busiest to you. Ensure that the area is safe by checking crime rates and the types of crime that have happened within the past 48 months. Then, ensure that the area is populated in a well and upcoming neighborhood with local businesses thriving. Find a small 2-3 bedroom house with less area space so that your taxes are cheap. Calculate your mortgage payment by looking for a house whose monthly payment with taxes + home owners insurance comes out to about the same as your rent. Let’s say you are currently paying $1400 a month for rent– you can then look for a house whose value is 200,000 with property taxes not exceeding 4,500 a year. You then negotiate the price of the home by putting an offer about 20-25 thousand dollars less than the asking price. You are most certainly required to do an inspection report and it is your responsibility to use all the negatives within that report as your bargaining tool. Once you have come to an agreement after several rounds of back and forth with the seller, you are then ready to purchase your home. In doing so, make sure you use an FHA loan that requires a 3.5% down payment, which means you can put very little money down. In reality, if you were to put a 5% down payment, your monthly payments would be around $1500/month. Once you close on the house, spend couple thousand dollars in paint, floors and new molding. Once you are done with the minor renovations, proceed to the do the following.
Caveat 1: You cannot enjoy that house all to yourself. The remaining rooms in your house need to be rented out on Airbnb so that you have a steady rental income every month. With a monthly mortgage obligation of $1500, you can cut that in half to $750 a month by renting out one-two of the available rooms. As you accrue that rent on a monthly basis, take that rent money and put it towards your principal with balance of your house. In 3 to 4 short years, your mortgage balance will have gone down significantly and you can get ready to sell your home for about ten to fifteen percent more than what you had paid for it AND you make a profit off that home because of the principal you’ve already paid off. Using the example referenced above, with a $1500 mortgage on a $200,000 property, you’ve paid off $40,000 over a 4 year time span. You’ve essentially paid down forty grand and can now sell your house for $225,000 and pocket the $65,000 less applicable fees AND you get the down payment you had initially put to secure the mortgage on the house. For an individual fresh out of college, you can essentially live rent free over a time span of 4 years (or longer) and come out with a 5 digit return on your first investment called your home.
Now imagine the alternative….. You paying $1400/month for 48 months and the amount of money you would spend without any return. Alternatively, you can buy, renovate, host and pocket a total of $65,000 using the example of a house worth 200,000.