Home, shelter, a house. A basic need we all have and one of the most expensive things we spend our money on.
Housing remains one of the biggest expenses for most people and is inescapable. While it can be easy to spend less on food, clothing, and vacations … it can be harder to save on rent or homeownership. Whether it’s the competition in finding a new place, the long-term commitment of a mortgage or the cost and annoyance of moving, it’s not as easy to simply “cut back”.
In 2017, Americans spent $485 billion in rent, with the average coming in at $11,300 a year or $941 a month. I’m not sure where they are paying that, but here in Northern California, you can’t rent a studio for under $1,000 and homeownership is often a million dollar goal. It’s recommended you keep rent at 28% of your yearly income, which is a lot. Still, many break this rule living in expensive cities.
But, no need to worry or stress yourself out. Today we have 8 tips for you to spend less on homeownership and save on rent. Reducing your housing costs is a great way to increase your savings and accelerate your wealth journey. I’ve personally used many of these tactics over the years to save thousands.
1. Buy a Multi-Unit Home
House hacking, as us real estate investors call it, is the act of buying a house with multiple units, living in one and renting out the others. It’s a great way to get started in real estate investing, build wealth through income and home equity, and significantly reduce your housing costs.
A personal friend has done this with a 4-unit building in Washington DC for years. After some renovations, in addition to having his mortgage paid for, he’s making extra income and has benefitted from the increase in the value of his home over the year. He’s turned housing from being an expense into regular income.
One of the reasons this works better than just buying rental properties is because of the preferential mortgages for homebuyers. Since you are going to live in this house, you may qualify for lower down payments, grants, and better interest rates. An FHA 203k loan, for example, will even let you include renovation costs in the mortgage, but you must be moving into the house to live.
2. Live with Others aka Get a Roommate
Can I be real with you for a second?
Black people don’t like roommates.
Yes, I know this is an unfair overgeneralization and a stereotype. It’s not true for all people and I honestly don’t have any data to prove my statement. But I have enough anecdotal conversations and jokes with friends to feel good about saying it publicly.
As someone who has had roommates countless times over the years, it pays. It pays like sh**. If you are single, there is only one way I know of to save more on rent (covered next). Renting a room in a house or apartment will be much cheaper than your own apartment and can save you hundreds or a thousand a month in rent.
If you own a home, adding a roommate can get your entire mortgage paid or pay for a lot of the monthly payment. When I purchased my first home, I found a roommate after a couple of months and loved the extra $700 a month I made.
Adding a roommate to your life can significantly boost your ability to build assets, increase your net worth, and build wealth.
3. Chill with Your Family
When I finished undergrad, I begrudgingly moved back in with my parents to save on rent. I loved my parents, but I was a grown a__ man. I didn’t want to sneak women into my bedroom.
I wasn’t forced to move back either. I graduated undergrad having signed a job offer for $65k in consulting, had no student debt (scholarship, parents, and working), and no other debt. I had the money to get an apartment and live it up after school.
Instead, staying with my parents rent-free let me buy my first home in less than 2 years, later becoming my first rental property. It was just as annoying as I expected, but I never expected my savings and investments to grow as quickly as they did during those 2 years.
Depending on where you are in life, a few months or a year spent with family at little or no rent may give you a long-term advantage in moving along your wealth journey.
4. Just Move Someplace Cheaper
We often don’t think about moving until something forces us to move. Maybe it’s a new job, a new love interest, the need for more space, or a new neighbor who gets his trumpet practice in at 3 am.
You should regularly look for a new home, even if you don’t plan to move. You may be shocked to learn how rents changed since the last time you looked. An area may have dropped in price or new developments may have decreased rent, giving you a chance to move and save on rent.
Pro tip: try setting up a saved search in Zillow. When I was looking for a new home in Oakland, CA, I had setup Zillow searches for the different neighborhoods I liked with the type of homes I was looking for. I now use them to get notifications for super good deals that may pop up.
And don’t be afraid to completely relocate. Especially if you live on the expensive coasts, you might be shocked how affordable the heartlands and south are. Don’t forget that Texas and Nevada also don’t have state income taxes. You could get up to 10% of your salary by moving to a tax-free state, in addition to the savings on homeownership.
5. Negotiate Your Rent or Home
I’ve said before that you should negotiate ever job offer. The same advice applies to renting an apartment.
With any landlord, you are fully within your rights to ask for lower rent. As a landlord, I’m surprised I don’t have more people asking for discounts. It’s much easier with a small-time landlord, but even larger apartment complexes may have specials or incentives they can leverage to get you to sign. The worst that can happen is they say “no” and you pay the rent. Best case, you save money every single month by asking one question.
Same thing when buying a home. Make a competitive offer, but fight for the best price. Ask the seller to give you a credit. Use the inspection to get repairs done or additional credits given. There are plenty of ways to save when looking for homeownership.
6. Rent Your Home … for Good
If you are a homeowner, you can just let someone else rent your entire home.
Once you are a homeowner, you may stop checking rental and home prices around you. But there may be new opportunities that didn’t exist before. You may be able to rent your house for more than you thought, covering your mortgage and associated costs. This extra income can be applied to your new residence.
You may even be able to move across the street and save hundreds every month. Maybe dropping housing prices means you can buy another house at a bargain, but rent your current home. You would get a better homebuyer mortgage by moving into the new home. In the end, you move down the street, get rental income and pay less per month than before while building equity as someone pays your mortgage.
Seriously track and understand how much you could earn by renting your own home and living somewhere else.
7. Rent Your Home … Temporarily
If you don’t want to rent your entire home and find someplace else to live, just do it for a little while.
You know you can rent your home away to pay for your vacation, but it doesn’t have to be a vacation. I know friends who will put their apartment, home, or condo on Airbnb, HomeAway, or VRBO, and just stay with a friend or partner when they have a renter. If you live in a popular city, you could find yourself with an extra $500 a month for spending one weekend a month away from home and a little housekeeping.
A close friend of mine is able to pay off his entire mortgage every month by staying with friends and family a couple times a month. Getting rid of your entire mortgage will significantly boost your ability to build wealth.
8. Go Abroad
For those of us who make travel a priority, with travel rewards of course, you know how much cheaper some countries are compared to the US. Hell, watching enough House Hunters International will show you that a 3 bedroom in Chaing Mai, Thailand will cost you less than a studio apartment in Austin, TX.
If you have the flexibility with work, or even with a significant pay cut, you may find a real financial benefit in moving abroad, even if temporarily. When combined with subletting an apartment, or the Airbnb rental route, moving abroad can be a quick infusion of extra money. A well planned month-long vacation could earn you a few hundred easily.
With so much of your hard earned money going to putting a roof over your head, take the steps to reduce this huge expense and invest the savings. By reducing your expenses and increasing what you can invest regularly, you will progress along your journey in wealth. Got a tip we missed? Leave us a comment and share it with the community.