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most homes in desirable areas are no where near 400k . they are in the 600k -700k area and just go up from there . . you never really want to go by average because those areas you would never want to live in will drag the real price you need to pay in a decent area down .
you need to figure 3k to 3500 a month to rent or higher . . but few rent a home unless they are just transient . if they are not buying most rent co-ops ,condo's etc which are multi family and far cheaper .
where we live we rent a 2 bedroom 2 bath apartment for 2300 a month with pool and tennis court . . homes start over 1 million . but you see very few private homes for rent . most will be co-ops and condo's .
in long island , without going to what is considered a high end area , i like merrick
You said you got a good deal and in an ideal location for 16 whole months (more than the typical 12 month lease)...and now it's raised 16% to what is typical.
Stay where you are. I think you expect too much - the absolute cheapest with the best possible location. A 625 sq. studio? That's huge for studio! So yes, more like a convertible. Be glad you are not paying a PREMIUM for this and that you're able to max out your 401k. Really, you sound like someone who found a great sale on something but still complaining it's not another 25% off!
You just need to accept reality, especially since you really don't have time to find something cheaper and move yet again with only a month to go - if you REALLY wanted to move you'd started looking before now...so you're just venting.
I think the biggest issue is you can handle the rent increase--this time. But what if those stiff rent increases keep coming like clockwork? That's what happens here in Silicon Valley. At some point, you just can't do it.
Location: Formerly Pleasanton Ca, now in Marietta Ga
10,309 posts, read 8,476,488 times
Reputation: 16586
Quote:
Originally Posted by mathjak107
most homes in desirable areas are no where near 400k . they are in the 600k -700k area and just go up from there . . you never really want to go by average because those areas you would never want to live in will drag the real price you need to pay in a decent area down .
you need to figure 3k to 3500 a month to rent or higher . . but few rent a home unless they are just transient . if they are not buying most rent co-ops ,condo's etc which are multi family and far cheaper .
where we live we rent a 2 bedroom 2 bath apartment for 2300 a month with pool and tennis court . . homes start over 1 million . but you see very few private homes for rent . most will be co-ops and condo's .
in long island , without going to what is considered a high end area , i like merrick
Location: Formerly Pleasanton Ca, now in Marietta Ga
10,309 posts, read 8,476,488 times
Reputation: 16586
Quote:
Originally Posted by mysticaltyger
I think the biggest issue is you can handle the rent increase--this time. But what if those stiff rent increases keep coming like clockwork? That's what happens here in Silicon Valley. At some point, you just can't do it.
Why I advocate house hacking
Unlike the bay area many homes in Atlanta have daylight walk out basements that you can rent out with separate entrances below the main house. A while back I found a $200K 3/2house that the payment would be $1140. The basement had about 1400 sq ft that could have rented for $1300 a month. The owner could have basically lived there for free with $160 extra to cover their utilities and Internet. OP would get favorable financing as owner occupied.
If the OP had done this they could have probably banked their housing cost (let's say $1000 a month in rent) and in 2 years in the market with 7% return have $26,830 more saved instead of paying rent.
If they repeat the process and buy a 2nd property to live in they get the same result. Over the next 2 years living in the new house they get $26,830 more saved by renting out the basement again. In the meantime they rent the house they just left for $1400 a month as well as the basement still for $1300 leaving a cash flow of $33,600 for the next 2 years (now 37,563.17 @7%) plus the $26,830 they save currently in their 2nd house. So now they have $64,393 saved and have lived for free for 4 years.
Of course there are some variables and you need to put a down payment, but the numbers look good.
If OP put down 20% each time (although as owner occupied they can get 3.5% down) they would be out $80k over 4 years. But if look at their savings $64,393 for 4 years and no rent paid $48,000 ( if their rent is $1,000 a month and NEVER goes up) their net is $112,393. Taking out their down payments of $80K total they are $42,393 ahead plus no housing cost for 4 years.
Looking at the next 25 years the numbers could look like this if rents are raised at 2% a year (cost of inflation let's say). Over 25 years the mortgages are pretty much paid off. Cash flow is with mortgages is about $2700 a month currently.
In that time they have collected 1,054,266.73 in rents. If they took that money and invested it in the market at 7% in 25 year they would have roughly 3,052,431.95 saved.
Now with home appreciation let's say it 5.4 % historically the 2 homes could be worth 1,538,304.52 and paid off.
So to start out they OP has invested 80K and in 25 to 30 years they let the rentals do their thing and invest the proceeds. The basically live housing cost free and wind up with over $3.5 million saved. Houses are paid off so OP is now collecting $5,000 a month in rents and still living for free.
Free housing for life
$3,500,000 saved at retirement
$5,000 a month in income for life at retirement.
If the OP is so concerned with maximizing savings, I cannot see why they would not do this approach. But most people will not do it and keep doing the same thing over and over.
I think the biggest issue is you can handle the rent increase--this time. But what if those stiff rent increases keep coming like clockwork? That's what happens here in Silicon Valley. At some point, you just can't do it.
Exactly.
I did give the example above that my apartment I had back in 2012 doubled in price by 2017.
Unlike the bay area many homes in Atlanta have daylight walk out basements that you can rent out with separate entrances below the main house. A while back I found a $200K 3/2house that the payment would be $1140. The basement had about 1400 sq ft that could have rented for $1300 a month. The owner could have basically lived there for free with $160 extra to cover their utilities and Internet. OP would get favorable financing as owner occupied.
If the OP had done this they could have probably banked their housing cost (let's say $1000 a month in rent) and in 2 years in the market with 7% return have $26,830 more saved instead of paying rent.
If they repeat the process and buy a 2nd property to live in they get the same result. Over the next 2 years living in the new house they get $26,830 more saved by renting out the basement again. In the meantime they rent the house they just left for $1400 a month as well as the basement still for $1300 leaving a cash flow of $33,600 for the next 2 years (now 37,563.17 @7%) plus the $26,830 they save currently in their 2nd house. So now they have $64,393 saved and have lived for free for 4 years.
Of course there are some variables and you need to put a down payment, but the numbers look good.
If OP put down 20% each time (although as owner occupied they can get 3.5% down) they would be out $80k over 4 years. But if look at their savings $64,393 for 4 years and no rent paid $48,000 ( if their rent is $1,000 a month and NEVER goes up) their net is $112,393. Taking out their down payments of $80K total they are $42,393 ahead plus no housing cost for 4 years.
Looking at the next 25 years the numbers could look like this if rents are raised at 2% a year (cost of inflation let's say). Over 25 years the mortgages are pretty much paid off. Cash flow is with mortgages is about $2700 a month currently.
In that time they have collected 1,054,266.73 in rents. If they took that money and invested it in the market at 7% in 25 year they would have roughly 3,052,431.95 saved.
Now with home appreciation let's say it 5.4 % historically the 2 homes could be worth 1,538,304.52 and paid off.
So to start out they OP has invested 80K and in 25 to 30 years they let the rentals do their thing and invest the proceeds. The basically live housing cost free and wind up with over $3.5 million saved. Houses are paid off so OP is now collecting $5,000 a month in rents and still living for free.
Free housing for life
$3,500,000 saved at retirement
$5,000 a month in income for life at retirement.
If the OP is so concerned with maximizing savings, I cannot see why they would not do this approach. But most people will not do it and keep doing the same thing over and over.
Never said I was never going to house hack.
When was this you found that $200k 3/2 SFH w/basement? In what zip code?
I'm constantly (a few times a month) looking for such properties but I personally have found them to be a bit rare.
This, in essence, is really more of what I was thinking about when I made this post...perhaps I should have posted a thread and title more along the lines of:
"How have you been able to keep your high savings rate high in the midst of rising/increasing housing costs?"
That is kinda what I'm most interested in really. If you are on the way to or are FI, and have experienced moderate or high increases in your mortgage and/or rent, what have you done to be able to still keep your savings rate high? Exactly what adjustments did you make? Move to a different city, state or country? Get a roommate or several? Cut out all discretionary spending? Sell your home? Change something in your investments? Taking another job?
My rent increase is high in my opinion but I'm sure some others have seen close or maybe even higher. I am interested in how you financially savvy people make adjustments to mitigate things like this so you don't wake up one day and find housing costs have taken your savings rate significantly down over a period of time.
Mortgages don’t tend to increase. If you live in an area where rents are rapidly increasing and property taxes are not ridiculous, the choice is to buy. You might not have a huge amount now, but eventually you will make more and your PITI will not increase as much as the rent increases you are experiencing. It is unlikely even in a higher tax state like IL that your PITI will double in 5 years. The only things that can increase are taxes and HOA fees. You can heavily research both to avoid huge increases.
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