Monday, January 19, 2015

Housing (Ways to save series)

How We Save on Housing

This isn't going to be shocking. Or maybe it will be?...

We save on housing by... renting!

The benefits:

  • Fixed costs
  • Easily alter housing costs by moving
  • Small living space
  • Low utility bills
We are so glad we found this option!

It was something we fell into by moving to a very expensive location, which does have cheap housing, that is unlivable. From what I could find on the market everything under $300,000 reeked of mold. I even had realtors tell me that the white fuzzy stuff growing several inches thick on the walls of basements was not mold but mildew. I immediately had headaches everywhere we looked that was under 300K. My son has developed severe reactions to the mold to the point where I actually stopped looking at housing options after several months because the houses we could afford were unsafe and the ones that were safe we couldn't afford.

Rental Living

This location is quite frankly very small. Around 900 square feet for the 5 of us.

This was not an intentional move. But, now, I love living in this small space!

  • I love living on one story! There is nothing better with kids!
  • Things get messy fast but it is so easy to clean up. It takes me minutes to vacuum the whole place, minutes to pick up toys etc.
  • When you have more space you buy more. Its just natural. If you don't have much space you don't buy as much. 
  • We don't have to repair anything, if the dishwasher breaks we call someone, they fix it and that is built into the cost of rent. 

Mobility and Employment

Many people today are going to face frequent moves because of work related relocation. According to the Census Bureau an 18 year old will move 9 more times in their lives. The Census on Migration

For us when we looked at the price of houses (that were livable) versus apartments in our area there would never be a time in a thirty year mortgage when buying made sense. But this is particularly true knowing that we would only be staying in the area for 2-4 years.

There are great calculators for renting vs buying homes. The costs of basic maintenance on a home, interest from a mortgage etc are so enormous and totally hidden. My favorite calculator is from  Renting vs Buying Calculator I am all for the idea of buying a home using a 15 year mortgage when the renting vs buying calculator indicates that is highly advantageous. 

For us we estimate that we will be moving around every 6 years at the least. So unless there is an advantage in that time period or we move to a location that could be permanent we'll skip the mortgage.

Real Risks of Home Ownership

That is the pipe from the toilet out of the house.
First the housing options in the area we moved to were ridiculously expensive. We bought a house, the former owner lied and had literally been holding the pipes together with duct tape. (See the green on that duct tape... its sewage leaking into the basement.) The home inspector had been paid off, in fact, he offered to pay me off when I asked him about the situation. And basically we were victims of fraud. This is very common in this area according to several lawyers and home inspectors I spoke with.

Of course, in spite of the evidence, we had no options because our lawyer told us the lawsuit would cost far over the value of the house, none of which we could recoup in the law suit. The former homeowner was a lawyer so he would face none of those cost issues and could drag the suit out for more than 2 years.

The house was unlivable and the lawyer said if the county found out about the conditions it would have been condemned.

As much as we LOVED the idea of living in a condemned building... our son developed life threatening reactions to the black mold in the building within the first 15 days of living there. We had, prior to purchasing the property, a home inspection, mold inspection, hvac inspection, appraisal of the home and foundation inspection. The bank was not interested in pursuing its legal options so we were left holding the bag. Lost our whole investment and much more.

This is the risk of purchasing a home using debt. I have heard stories where homeowners lost their entire investment because of improperly applied weatherproofing resulting in the house being dangerously full of black mold. If you have a mortgage you can't afford the extra place to live while the home is repaired, the repairs and the mortgage.

Debt Free

Had we stuck to the principle of debt free home ownership we would have been fine. We could have just fixed the issues with the house while living in an apartment in town. We'll never stray from these principles again.

The next house we buy will be totally cash and we recognize that this will probably mean waiting a long time before we buy again. But we think this is an excellent way for people to save money.

If you are debt free already and can afford to buy a house and rehab it as you go fantastic.

I believe that waiting until you can actually buy the house outright makes sense. Here are some reasons for my point of view.

  1. If you are 10K away from having your house paid off and you have a tragedy strike and cannot pay you can lose everything. As tragic as it sounds I hear so often about widow's left unable to pay the mortgage. That scares me. Yes, you could do a fire sale but waiting and finding something you can afford outright is so much better. 
  2. Renting allows you to expand and contract as needed. For us, right now, we have 3 children. How many will we have in 5 years? 10 years? I have no idea. We will probably need the biggest space when we have the most kids living at home, probably teenage kids. So in maybe 6-10 years. But with teenagers it would only be a few more years until the number of children at home will rapidly shrink. With the same speed as they came, they will be going into the world. Then we'd want to move back into that first starter home! So basically in the span of 20 years we could go from needing a 1 bedroom apartment to a 3 bedroom house, all the way to a 6 bedroom house, and back down again to a 1 bedroom apartment. 
  3. Freedom. When you don't have a mortgage payment you have the freedom to move anywhere you want or need. Many friends of ours have had to move for work and ended up losing sometimes tens of thousands of dollars. You are able to pursue the work you want rather than need. 
  4. There are several skills that are required to live: food, shelter, clothing, clean water. So in my opinion learning how to rehab a house yourself with some outside assistance is an essential skill to have. Most importantly its a skill your kids will really benefit from. Additionally, the housing market has many options that you neither need or want. For example, my dream kitchen... a long L shaped open space with open shelves, a counter top with open shelves underneath it. Just very simple. Aside from moving to Mexico I'm not going to find this useful and fun option. Instead I'd pay a building company to put in lots of options I don't need or want for 3-4 times the actual cost of the item. I think that is a big part of the way debt free is made possible you decide what you need. Not what other people want. 
  5. The banking industry makes hand over fist money on the backs of hardworking Americans perusing the American dream. Its funny because while I was trying to find how much the banking industry makes annually I ran across all these articles crying about how mortgages are no longer making tons of money only a few billion a year because people are getting wise to how little they need to buy a home using a mortgage. The banking industry made 40.3 billion in profits in the 1st quarter of 2013. According to this Wall Street Journal article. Why? Because we lack basic skills in home repair, and we buy more than we need and can afford. To me this is simply wasteful. If you buy a house for 200,000 but actually end up paying more than double for that house in interest, then put tens of thousands into repairs, only to sell it for around the same price you paid for it. Well that just doesn't make sense to me. Dave Ramsey's "The truth about mortgages"

If you stick to what you need rather than what you want costs dramatically decrease. For example, I need 3 bedrooms: boys, girls, and parents. I need less than 1,000 square feet. I could pay less than 20,000 dollars for this, fix it ourselves and then when we outgrown it sell or rent it out without worrying. Along the way we would be learning important home maintenance and repair skills, to live with less, improve our relationship with money, ourselves and our family.  

Renting and Saving!

One thing we have learned is that living in a rental is actually a fantastic way to save money. When I talk about a rental I am only referring to a well maintained one. No slum lords, nobody who is renting out their house until they can sell it. The big cost of renting can be having to move multiple times because of issues with the property. I'd say go with professionals who know the law and will ensure that you have a comfortable and safe living environment. 

I can't tell you how many local apartments I looked at that had scotch tape around pipes to stop leaks. And that was their idea of fixing the issue!

When trying to stay on budget renting really helps. You know exactly what your expenses are going to be every month. There is never a month where you end up with a surprise bill for replacing your ac unit. You won't be paying because your plumbing went bad and needs to be replaced. That just doesn't happen. And it can be a huge blessing when you are trying to budget or save money.

We are hoping that once we move to a more permanent location we can find something that will work to purchase debt free. After our last experience, I don't know what the future will hold for us, but I do know that we will not be entering into debt again. We can only serve one master and the bank will not be one of them.

What has helped you save money on housing?

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