I was reading a great article on the 12 Cheapest Towns in America, and it got me thinking, should I invest in a small city? There are many advantages to buying or moving to a small town; the chief reason is housing prices. But is it a genuinely viable solution? Let’s explore.
Why would anyone want to move to a town with less than 30,000 people? For many people, the idea of living in a small, one traffic light town disgusts them. For me, I see a world of opportunity. Two reasons I see to move to small cities are home equity and passive income.
Home Equity. Every day someone tells me how much their house value has appreciated. And every day, I think, “Great, what’s next?” Indeed, to take advantage of your home equity, you will need to have a plan. Better yet, an investing strategy.
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I grew up in San Diego, California and the place is extremely expensive. If you bought a house ten years ago, your home value has grown tremendously. Let’s use two examples centered around home equity in San Diego. One example where we sell a home, and the other where we perform a cash-out refinance.
The first plan would be to sell your home in San Diego to take out all the home equity at once. If your home loan was $200,000 and the value was $700,000, you would have $500,000 in home equity. This scenario is where many people are today. They are excited about their home appreciation, but there is one problem. If they sell their home, they want to stay in San Diego.
Staying in San Diego will buy them no dividends. The next house that they bought would be just as expensive as the one they sold. Sure, they could upgrade, but to truly unlock the value of that home equity, they would need to move.
Enter the small towns. Some of these towns had homes for less than $100,000. When you talk about buying a home for cash and being able to invest $400,000 towards passive income, these are game-changing ideas. Think about it; you could sell your home, buy 1-3 houses in a small town, and still have a nice lump sum for passive income. It is equivalent to moving overseas.
What if you want to keep you home? I have an even better scenario. Say you are 40 years old and have $400,000 equity in your home. You can easily take out $200,000 and buy a house for cash and invest some as well. Go to a small city, like Meridian, Mississippi, and purchase a home for cash to rent out.
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This rental property would continue to grow alongside your San Diego home for as long as you want. You could even perform another cash-out refinance in 10 years and buy another home. What’s the advantage of doing things this way? Options.
Now when you turn 60 years old, your home in San Diego is completely paid off. It is worth $1.5 million and can rent for $5,000 a month. We will say that you paid off the home in Meridian. You could move to Meridian, Mississippi, and still keep your home in San Diego.
The rent from San Diego would be enough to fund your lifestyle entirely in Meridian. You add in a 401k, pension, social security, investments, and a small business, and you would have an above-average lifestyle. If you are willing to relocate, the world is your oyster.
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Passive Income. Passive income could also bring you to a small city. If you have worked hard to build a Retirement 4-50 cash flow portfolio, you have options. But sometimes, moving somewhere cheaper is the best of those options.
Moving to a cheap, small city does three things: it keeps you from moving overseas, lowers your expenses, and improves your quality of life.
1) I would love to move overseas because of the people and family environment. I can appreciate that not everyone would want to make this move. Moving from a city such as San Diego to a town like Meridian could be like moving overseas to some. You get lots of the advantages of moving overseas but keep the US dollars and English. Not too bad of a deal.
2) If your cash flow retirement pays you $5,000/month, you will want to maximize your living costs as much as possible. Moving to a small city will grant you instant cost-of-living discounts across a wide range of categories including, utilities, housing costs, shopping, and luxuries.
3) Along those same lines, your quality of life would improve. Yes, small cities have less to do than more prominent cities, but you could also afford to travel more. Every small town has a big city nearby. They also have college sports, factories, and other historical attractions. You will have to stay positive and look at all the excellent options moving can do for you.
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The disadvantages of moving to a small city. You know, I am not going to list any disadvantages of moving to a small town. The positives will surely outweigh any negatives.
I see a lot of people in their 30-40’s downplaying the importance of thinking ahead. Creating a plan to move to a small city to take advantage of home equity is the definition of thinking ahead.
My wife and I both lived in San Diego at some point, and it is a fantastic city. It is just not a place where you can get ahead financially. By getting ahead, I mean to get to a point where you can invest 80% of your monthly income.
It is hard to buy multiple homes in a place where each home is $800,000+. If you had a renter, if they missed one payment, you are on the hook for $3,000 to $4,000.
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My wife and I own three homes, all in small cities. These homes have helped us build a nice nest egg and the ability to invest an additional $8,000 a month. We are debt-free and living the passive income life of dividends, royalties, and rents. Real mailbox money.
My advice is this: read the article and do some serious thinking on how to leverage small city life. Even if you can take out a cash-out refinance and buy a rental home for cash, this is proper retirement planning.
For our families and future generations to survive, we will need assets. Buying homes in small cities qualify as assets. These homes will help set you free. Sure they aren’t next to professional sports, opera houses, or theme parks, but they all have their own charm.
Think big by going small. Buying in small cities has helped my wife and I become financially free before 41. We still have a few more years of grinding to help pad our numbers, and buying in more small cities is definitely an option.
Did you take the time to review the article? Did you see a place that interests you? What do you feel are some of the benefits of moving or buying in a small city? How can these benefits make you rich?
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Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. I am an Amazon Affiliate. Please research any investment vehicles that are being considered. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
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