Stop Making Your Landlord Richer and Start Investing in Your First Home
Renting an apartment needs be temporary and investing in a home should be the goal. It seems to be that a lot of renters are complaisant renting and don’t take the next step to be a homeowner. A trendy report Rent vs. Buy from Trulia explained how homeownership remains cheaper than renting with a traditional 30-year fixed-rate mortgage in the 100 largest metro areas in the United States. When you start putting your rent money towards purchasing a home, you are building equity. And it can be tapped into later in your life for renovations, to pay off high-interest credit card debt, or send your kid to college.
As a renter, you are guaranteeing that the landlord is the person with that equity. Right now is the best time to act for your hard-earned money and put it towards an investment. Consider your landlord could easily raise the rent and payments will increase gradually over the 15 to 20 years, whereas you are paying for someone’s mortgage; you are in fact, making someone else rich. In Los Angeles, it is 25.4% less expensive to own a home (and 33.1% nationwide) due to the fact that interest rates have remained at or near historic lows. CNET Personal Fiance reports that the current interest rate on a 30-year fixed-rate mortgage is 3.07% as of April 2021.
As the Rate Increases, the Price of Your Home That You Can Afford Decreases
The interest rate that you secure will impact your monthly housing costs and your purchasing power. Purchasing power is the amount you are able to start investing in the budget that you are able to spend. As the rate increases, the price of your home that you can afford will decrease, when you plan to stay in a monthly housing budget. Here is a chart to explain and show what impact rising interest rates have on when you plan to purchase a home in the median home price range, and keeps your principal and interest rate payments between $1,850 – $1,900 per month.
Homeownership allows you to lock in an interest rate with a fixed-rate mortgage, for the next 5, 15, or even 30 years. And nationally interest rates with 4% all year, at marking one of the lowest rates in history. Nationally, rates would have to reach 9.1%, a 128% increase over today’s average of 4.0%, for renting to be cheaper than buying. Rates haven’t been that high since January of 1995, according to Freddie Mac.
Experts Foresee Mortgage Rates Will be Closer to 5% Around This Time Next Year
Across the board, experts agree that the tax plan decreases incentives in obtaining homeownership, reduces the tax benefits of owning a home and there will, in particular, be highly taxed markets –such as California, Illinois, New York, and New Jersey. However, this will mean less competition for those who want in. And taxpayers-including renters- will have a tax break. The buyer’s hard money will raise demand in those looking to build equity as a homeowner. Instead of throwing it away on their savings by paying rent.
It is well-known that the American dream is to own a home, and it is a long-term attraction. When renting, on the other hand, has become a shortsighted option. So as more people begin to get cash savings in their pockets, buying will start to become the better option. The new predictions of 2021 foresee more reasonable gains in housing prices and inventory levels, and with unemployment levels low. There are record levels of confidence, and investing should feel better about finances.
Financial Benefits of Investing In a Rental Property
You may consider buying a property to live in and reaping the financial benefits of owning a rental property. Since the interest rate is lower on an investment property. It may be a good option for you to consider the following:
1: Start investing in a home, live in it a couple of years and rent it out when you buy your next home.
2: Buy a home, rent out a few rooms to your friends to cover the monthly expenses.
3: Buy a multi-family property, such as a duplex, or a triplex. Live in one unit while renting the other units out.
Beginners Property Investment
It is expected this is the year many buyers are willing to take the plunge. And when you are ready, where do you get started? Today, you are more likely to take three to six months before deciding where to invest. And at times, the home or investment property has multiple offers, so it vastly complicates negotiating. It is better to get a move on your search, so start now. A beginner’s investment property can be found anywhere… the city, the suburbs, high-income areas, low-income neighborhoods, and middle class. They can be huge, ugly, beautiful, small, new, or old. Specifically, search for multi-family homes: duplex, triplex, and four-plex (or quad) because there are so many benefits to add wealth into your life by investing in them.
- When you purchase a home to live in, it requires constant attention
Think about the amount you pay towards your mortgage and the amount it costs you each month. And does the value of appreciating every year equivalate to the amount you are spending, plus the cost of repairs? Think again. That $1000 a month on a mortgage payment, and plus another $100 on repairs, you end up losing $13,000 a year on that deal. Do you honestly think that your home is gaining $13,000 a year in value, every year?
Living Rent-Free and Cash Flow Pouring in Each and Every Month
Wrap your head around living rent-free and cash flow pouring in each and every month. Most people do not have the luxury of having money when you first start out, so be sure to do the math. While most real estate investments require a 20% down payment. You can purchase a home for your own personal residence with just 3.5% down with an FHA loan through most lenders. Meaning, for a $100,000 home, you will only need to pay $3,500.00 (plus closing costs, which the seller will usually pay for). And $3,500 sounds like a heck of a better deal than $20,000. The great thing is that when you buy up to a four-plex and utilize the FHA 203K remodel loan. You can incorporate repair costs into the loan.
Say you need about $10,000 in renovation costs; you can include these costs into the loan and borrow $110,000 for the home (lowering your 3.5% down payment on the $110,000). Investing in a home is not easy but people have been doing it for years so it’s definitely doable.
Buying a Multi-Family Property Can Lead You to Great Success
Ensure your standards are high and know to buy that expensive property may not produce the cash flow you want. Your risk is determined by the amount you are willing to spend on a property. That being said, not every multi-family investment is a prize winner.
There are some properties that will be more vacant than others and your expenses can whim. Therefore, it is all about how you manage your finances effectively, and that will determine your success. Investing in a multi-family property can lead you to great success, and if purchased correctly, can be a huge quick start in attaining cash flow. Be sure to do your research and make the right move towards finding a competitive rate. And in making that dive into this New Year as someone that did their homework.