Renting will always be necessary, but why not rent from yourself? Meaning, why not purchase an “in the meantime house? You can invest in a home that may not be your dream home, and possibly pay less than or equal to what you are paying now in rent. Instead of losing your rent on a monthly basis, you can be investing in your own portfolio and building toward your dream home.
Take my clients, Marissa and RJ, for example. They were renting a 2-bedroom apartment in Sandy Springs for $1,500 per month. They decided that they wanted to purchase their first home at the end of their lease. Due to the location of RJs clients (he the owner of RL Commercial Systems – http://www.rlcommercialsystems.com/), they decided to purchase a 2 bedroom home in Alpharetta. The home they selected is located in a nice neighborhood and is very close to shopping (North Pointe Mall) and entertainment. This was the perfect location for this young couple. Their monthly mortgage payment came in at close to $200 less per month than what they were paying in rent.
One year later the good Lord blessed Marissa and RJ with a set of twins! They quickly realized the house no longer fit their needs and decided they needed to sell and purchase a larger home. Given that the real estate market is rebounding from the Great Recession, they had a significant bump in equity. They are easily going to walk away from their first house with more than $20,000 cash. This will afford them the opportunity to purchase a new home at a higher price than their original home and allow them to put an at least 10% down payment on a new home.
Let’s compare what Marissa and RJ would have spent had they decided to continue to rent their apartment before purchasing their home. If they had renewed their lease for the 27 months between when they purchased their first house and now, they would have spent $40,500 in rent ($1,500 x 27 months), with not much to show for it. However, since they decided they wanted to “rent from themselves” they are walking away from a home with more than $20,000 in their pockets and have the ability to purchase a home that is closer to their dream home.
Many people adopt the mindset that they must wait to be able to purchase their dream home. This mindset only continues the cycle of paying rent to a landlord and does not provide much financial advantage to the renter. However, as you can see in Marissa and RJ’s case, purchasing an “in the meantime” home is turning out to be a lucrative decision.
Obviously, there are several factors that play into someone’s ability to purchase a property. One must have a decent credit score, a reasonable debt-to-income ratio, a verifiable and reliable source of income, and funds for a down payment (or be eligible to qualify for a down payment assistance program). If you can qualify to purchase a home, you are well on your way to being you own landlord and renting from yourself.
While not everyone’s situation will turn out in the same manner as Marissa and RJ, they serve as an example of one positive outcome of investing in real estate. Are you ready to become your own landlord?
The purpose of this blog post is not to criticize renters (there is always a good reason/rationale to rent), but it is to encourage those who have the means to purchase real estate to do so.Enjoy the read? Share this article with your friends: