Wow, this is a crazy time to attempt to get into the housing market. Prices are at all-time highs, we are starting to recover from a timber shortage, and we can’t build enough homes to keep up with demand. Even homes going up for sale are going through bidding wars with other buyers—what is a person to do?
I just finished an article on Business Insider that talked about the shortage of starter homes. The report also said that buying land may be an alternative to purchasing a house; that way, people could build what they needed.
What the article didn’t do was offer up actionable steps to getting into a new home, especially as a young person today. To buy a home in today’s market, we will have to use all of the skills and knowledge we have been putting together over the last six months.
How to Determine the Best Time to Buy a House
Terms like leverage, taxes, business, and house-hacking come to mind when I think of all the ways to offset the expensive homes of today. In this article, I want to give you some suggestions on buying your first home in today’s market. I can tell you upfront that most people will not like the ideas I recommend because they involve using teamwork. Let’s jump into it.
Family. My number one suggestion is working together as a family to buy homes. With teleworking becoming much more prominent, it has allowed us to move freely around the country. We need to team up with parents and siblings to form a massive pot of resources to enter the market.
The Business Insider article mentioned that it was almost impossible to find homes under 1,400 square feet. When we work as a family team, we will buy bigger houses, with much more space—this obviously will come in handy if we decide to live together.
Yes, I recommend that you house-hack with family members. Who better to live with than family? I know in America that this is a no-no, and family living together is frowned upon. However, would you rather be rich and live with your family or be poor and rent a home?
Living with family would allow us to save and invest tons of money. The prices of housing would be considerably more affordable for multiple working family members under the same roof. I write about similar situations in “The Advantages of Adult Children Living at Home.”
To be honest, I don’t see a better viable option than teaming up with family to get ahead in today’s market truly. Once you have your foot in the door, it will be much easier to accumulate multiple properties. There are some other advantages to living with family.
Creative Financing in Real Estate 103: Home Equity
Daycare. Another colossal money pit is daycare. No matter where you live, and even if you work from home, daycare is necessary when both parents are working. Between paying a high mortgage and massive daycare costs, it will be almost impossible to get ahead financially.
Enter family members to assist with daycare needs. If you have two families living under one roof, at least one person can stay home to babysit the children. Yes, it will be a huge sacrifice for one person to leave the workforce, but sometimes we need to return to our roots.
I can tell you from experience the huge help it is to have multiple incomes under one roof. In the article “Mortgage Zero,” I explained how everyone’s goal should be to lower housing expenses to zero. My wife and I have not only achieved mortgage zero but are making a small profit ($70) from our primary residence—having this income has done wonders for our investment portfolio. Let’s do the math of buying and living like a single-family versus a combined family setup.
The Math. Here we have a bigger home in Yuma, Arizona, which for intent and purposes is a medium-to-small city. Look at the price of the home- $550,000 for 3,300 square feet. Zillow tells us that with 20% down ($110,000), our house payment will be $2,375/month.
Investing Insider vs. Outsider
For daycare, we are looking at $700-$800/month per child. Across the country, this is probably an average amount, but I know bigger cities can get upwards of $2,000/month. If we have two kids and two working parents, we would look at $1,600/month in daycare expenses.
To live comfortably, where housing is 20% of our total household income, as a couple, we would need to make $11,875/month or $142,500/year. I lived in Yuma for seven years, and I can tell you that these numbers are sky-high. It would be hard to find two $70,000 jobs in Yuma and still have time to rear children. Possible, yes, but highly unlikely.
Let’s not forget that we also input a down payment of $110,000, which is also highly unlikely for first-time parents. Ladies and Gentlemen, this is just for an average house in a small city. I am not even talking about city centers like Seattle or San Diego. It is tough to get ahead when we are working alone in this world.
Enter family. I won’t go through the math again with my family, but you can see how having three incomes and someone at home to watch the children will pay dividends for everyone involved. If there were a total of four children, that would save the group $3,200/month or $38,400/year.
Retirement Planning for in Your 30s
Also, we could avoid the down payment by using techniques I explain in Maximum Leverage 1 & 2. Our costs would be higher, but we could use that money as an emergency fund, to fund other business ventures, or build a dividend portfolio.
From there, I recommend starting some other low-cost ways to bring more money into the household by leveraging each other’s talents. More people equates to more skills to go around. I always try to talk about a home-based business, whether content creation, outdoors or online.
Buying Land. I wouldn’t recommend starting with buying land first. We need to get a house as early as possible. The problem with the acreage is that to become a land millionaire, you will be far removed from the city center by getting the best prices.
Plus, it will take a ton of time to research lots delinquent on taxes. Don’t pay retail for land. Remember, owning land is excellent to buy and hold for long periods, but you will have to wait 20-30 years to recoup your cash if you pay retail unless you know of an upcoming freeway or development that will intersect with your land.
Also, if you pay a high amount for land, don’t forget that getting a home built will also be costly. Even mobile homes are jumping in price now. In my most straightforward terms, we need to find land for pennies on the dollar to make any sense.
Other ideas. If you can’t get family onboard, you will have to rent rooms to reduce costs. Again, 95% of people can’t afford housing at these prices, in my most expressive language. My wife and I can’t afford to pay $2,500/month on housing, and we make a combined $200,000/year. Being able to pay for something and being able to afford something are two different things.
Pay for College with Real Estate 103
You have to consider investing as part of your regular expense budget. Investing is right behind food, shelter, and clothes on the importance scale. If you are buying housing without investing at least an equal ratio of housing and investing ($2,500 mortgage, $2,500 investing), you can’t afford your house. You need to find a way to supplement your income or lower your mortgage.
Some other real estate businesses to consider are starting an Airbnb business, becoming a real estate agent, or a starting property management business. Both of these will help you get a bird’s eye view of real estate and make future buying decisions.
Conclusion. I know that most people do not even want to consider living with family as a way to build wealth. Most people also think that working their job will make them rich. If you do as most people do, you get the results most people get—see the pic below.
Do you want to limp into retirement with $172,000? My wife and I already have that in our accounts, and I just turned 40. I am not bragging; I am telling you we have to share our house to build wealth. Working as a team is the only option—outside of building a business and selling it via IPO—to create considerable wealth.
Real Estate prices are skyrocketing with no end in sight. The best case is that the prices flatline for a year or so. But there is too much money on the sidelines for this. As soon as there is a slowdown, more money will flood the market. Investors are waiting for any chance to get homes for cheaper.
Also, do not forget that you are competing with Real Estate Investment Trusts (REITs) for single-family housing. Look at the picture above—this is in my hometown of Pensacola, Florida. My REIT, Fundrise, has purchased an entire community of single-family homes.
To get ahead, you need to build your own REIT by working with family, as you can see what you are up against. Hopefully, I have at least got your brain moving in a slightly different direction. It will take everything we have to beat this market. Read more about Real Estate in the article “Financial Independence through Real Estate (book)” Enjoy and Happy Investing.
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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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