Everyone wants to live as comfortably as they can on the least amount of money, the isn't always the case when your pouring money into your housing. the average rent for my city is $1010, that is a good chunk of money, 12,120 every year. the average income in the area is $47,591 which equates out to 26% of your gross income goes to just rent not to mention the other living expenses. after taxes you are looking at a significant loss in income at that tax bracket. The good news is that it really doesn't have to be that way for you, you have options on reducing that number to a manageable number.
What if I told you that you could reduce your monthly housing expenses by up to and in some cases probably more than 50% every single month? you would think I was crazy for sure, but it is possible to do so and maybe even more. its not a free ride you will have to expend a bit of money to do it. the term house hacking refers to renting out a portion of your house to offset the costs associated with owning a home. this can be a bit of a red flag for some people because they don't want to live with strangers, the reality of it is you don't have to actually live with the people in the same home if you understand what type of property you are looking for.
A multi family home is usually two or more units occupying the same plot of land, these are your golden ticket to spending less and saving more. I have just put a duplex (Two units on the same property) under contract. the total mortgage is $925 a month, I will probably end up only paying about 400 of it out of my own pocket and perhaps less with the proper tenants. the average rent for a 2 bedroom house $1144 for my area. so naturally it gives you a great opportunity to undercut the average because you are Not trying to make money conventionally but rather trying to reduce the money you spend in this portion of your budget. you can make more money if you choose to, but in my case I am inserting hand picked and reliable tenants into my vacancy rather than some random people off of craigslist and creating a global effect on my budget and their budget. In my personal budget I am shooting for no more than 25% of my income to go to any one category. that puts me at a rough target goal of $375 per category including my savings account, this is the initial base line for the calculations which allows me to use average numbers to calculate how much my minimums are for rent received to meet or exceed my target goal
So all that being said, Ill run you through my numbers.
I financed my mortgage with a VA loan, This isn't an option for most people but a First time home buyers Grant could be used to accomplish the same goal.
the mortgage amount is $925 a month
I have two units a 1 bedroom unit and a 2 bedroom unit
the one bed rents for $500 a month according to records
the two bedroom was occupied by the owner but is estimated at Between $900 to $1300 a month
I have budgeted $375 a month to be contributed to mortgage every month
I will occupy the smaller unit
that leaves me with an income potential of between $900 to $1300 a month
My mortgage company allows me to skip the first two mortgage payments which puts me positive $1850 over the first two months
My inserted tenants are paying about $300 a person at their current place. the three of them and two other roommates that will not be moving in pay $1500 plus utilities a month.
at $300 a month from each of them that puts me at $900 a month in rental income. which takes care of all but $25 bucks of the mortgage.
I estimated total utilities at $225 (utilities,internet, trash) so by dividing that by 4 people that is about $56 a month per person.
So in my housing category I am coming out at about $350 under budget and in utilities I am coming in $325 under budget. So far I am saving almost $700 a month on my estimated monthly expenses and I am coming out $2550 ahead in the first 3 months of owning and renting part of my property
over the first year I am saving $8400 in expenses just to let my friends rent part of my house, its a sweet deal all around really.
But wait, it gets better with tax write offs, But I'll pick that up in a later post