Own What You Can Rent; Rent Where You Want To Live!
I’m going to go against the traditional “American Dream” philosophy with this one, but it’s actually not as farfetched as people might think. In fact, it’s becoming the ideology of a few millennials, including myself. I remember when I first heard serial real estate investor, Grant Cardone say “Own what you can rent and rent where you want to live.” When I first heard the statement, I understood the ideology, but it didn’t resonate with me. A few months, books, and podcasts later, I still found myself hearing the same phrase, this time by my girlfriend’s colleague who had just purchased his first property while we were in the process of purchasing ours.
This time, it resonated with me. In fact, it completely changed my philosophy and reaffirmed the direction I wanted to take my real estate investing.
I guess this concept of owning what you can afford and renting where you want to live piggy back’s off of the Rich Dad Poor Dad concept that argues whether or not your home is a true asset or not.
The truth is: it is AND it isn’t.
Individuals are starting to catch on and since millennials are dealing with the highest level of student loan debt this country has ever seen before, they are getting smarter about how they handle the biggest “purchase” of their lives.
Owning What You Can Rent
“Don’t wait to buy real estate, buy real estate and wait” – Will Rogers
In simpler terms, “Buy Investment Property.”
Whenever you can afford to purchase a home, use that money to purchase income producing real estate; that will BRING you money instead. It’s a common misconception that your house is an asset even if you’re paying the mortgage, which makes it a liability.
I won’t say it counts as a total liability since technically you’re “buying” back some of the equity in your home, but we all know the consequences if you decided not to “buy” back some of the equity for that month. Your mortgage holder will be giving you a call and it won’t be say “How’s everything going? Hope all is well!”
Taken from my article on buying a home in 2018, “To put things in perspective: There are 168 hours in a single week. Easy to say that a minimum of 40 hours are spent at work. Add in an average of 7 hours a night for sleep per week totaling 49 hours. Let’s add another 30 hours a week spent away from your home for commuting time, recreational activities, family outings, picking up kids/dropping them off at practice or daycare, etc. That’s a total of 119 hours. That’s almost 70% of your workweek that is spent OUTSIDE of the home. Does it make sense to spend a ton of money on something that is enjoyed only 30% of the time?”
Whether you just purchased your home, or have been paying your mortgage for 11 years, that bill will come through your mailbox every month like clockwork, taking more and more money out of your pocket.
I researched for answers to the reason why people choose to buy a home. The answers were plentiful: The desire to own a home, the desire to own equity and stop throwing money away on rent, to move into a better school district, to downsize now that the kids are in college, and more!
According to the National Association of Realtors, at 30 percent, the primary reason for purchasing a home was the desire to own a home of their own.
So the main reason why people chose to buy a home was to fulfill their desires. I understand! Get your piece of the American Dream, right?!
Another reason why was to stop throwing money away on rent. I understand! It makes no sense to spend money on something that you don’t own!
Another reason; to move into a better school district. Your kids deserve the absolute best education and safety. There’s no second guessing!
All these points are extremely valid and shouldn’t be taken any other way.
Here’s the only issue with these validations. They all COST MONEY AND MORE OF IT.
To make it real simple for you to understand imagine you pay $250,000 for your new home with a 30 year conventional loan, 5% down payment, and a 4.5% interest rate. Let’s also assume you have an annual property tax rate of $6,000 and your homeowner’s insurance premium is the best out there.
Your monthly mortgage payment will be around $2,000 a month.
With these figures, you’ll actually be spending around $650K+ for your $250,000 home.
More than 2x as much!
Why? Interest, taxes, insurance, and PMI (if applicable).
So let me get this straight, you spent $650k over 30 years to afford a $250,000 home, which you spend 30% of your time in. Hmmmm.
Now what if you spent that same money on an income producing multifamily that brought you $800 a month positive cash flow after expenses?
Instead of spending $24,000 a month on housing which will barely put a dent in your principal during the first few years, you’ll now make $8,000 a year in extra income.
So Austin, should I just never buy a home for just me and my family? It seems like the only one that wins is the bank!
Not necessarily. I just want you to take another peek at your current financial situation.
For example, I’m a total advocate for using a FHA loan to purchase your first investment property.
Why? The barrier of entry is so low for instant access to your first or next investment property. Some of the minimum requirements include a 3.5% down payment, 580 Credit score, PMI, and a steady, decent paying job. Requirements that most working individuals have.
Could you imagine if companies such as Apple, Disney, or even Cash Money Records opted to sell their companies (revenue producing assets) for only 3.5% down?!
So why can’t we treat real estate, a revenue producing asset, with the same business perspective?
The way I see it, the human population is not going down anytime soon and as long as us humans continue to procreate, whether planned or not, the demand for housing will continue to increase.
As a result, the demand for rental units will also increase.
Own what you can AFFORD to rent out!
Rent Where you want to live
“In the land of ideas, you are always renting” – Steven Soderbergh
According to Alex Hemi of Forbes, “Millennials are driving up the single-family rental market.”
Which would be easier? Finding a very nice home or a very nice rental?
Most can’t even fathom the idea of moving their spouse and two kids into a rental just to get into the best location and school district. I don’t blame them.
However, finding a very nice rental is 10x easier than finding your dream home in the best location with the best school district. It’s safe to say the best homes in the best neighborhoods will bring out the most competitive offers. If you’re not prepared to put down 10, 20, or even 30% down, your competition will beat you; It’s just that type of market.
Not to mention, most individuals will completely stretch their budgets beyond their comfort zone in order to get into these types of home.
I truly respect and admire your desire to give your kids the best, after all, they are the future of this country.
But if stretching your budget beyond reason now means that you can’t take them to Disney World, then is the home worth it?
I don’t expect you to move your family into a rental in pursuit for financial freedom, but I could expect you to purchase enough rental property that you can afford that will produce enough passive income to cover your current mortgage and other expenses. This methodology will HELP you get into the best neighborhoods and school districts without breaking the bank.
What’s wrong with renting? Who’s to say you can’t find a very nice home or townhome for rent in the exact city you’re looking to move into? It can easily be newly renovated, have a driveway with garage, a large backyard, open floor plan, etc. Why don’t you choose that option with less of a financial headache?
Is it because your better than that? Don’t let pride kill you.
Is it because you’ll be “throwing money away?” You’ll be doing that anyway with interest payments.
Is it because you want the best for your family? Think about what’s best for your wallet which, in turn, will take care of your family.
At least if you’re renting you don’t have to worry about any repairs, the landlord will fix those!
Down payment? No need. Just your security deposit and 1st month’s rent.
Preapproval process for a mortgage? Scratch that. Just need a credit score and background check.
30-45 day closing process? Nonsense. Pay your security deposit and move within 2 weeks or less, maybe even the next day.
Property taxes? Ha. Null and void.
Have to place your rental for sale when you want to leave? No need. Just cancel your lease.
Imagine if this is your current situation AND you’re bringing in extra sources of income via your rental properties.
This ideology has barely scratched the surface of it’s true financial potential.
As a disclaimer, I’m no Suze Orman or David Ramsey so please consult with your financial advisor for the best advice.
What I do know is that your housing/living expense will most likely be your highest monthly expense.
Regardless of your current financial position, I want you to think about what you would do if you didn’t have to worry about your mortgage/rent expense? Would life look totally different for you? I bet it would.
Instead of first looking for ways to earn more money, which would require more time, dedication, and skill, first look for ways to save money first.
Owning what you can afford to rent and renting where you want to live can be an ideology that accelerates your financial freedom journey.
What will your choice be?!