Why and When Living in Rented Accommodation Can Make a Lot of Sense
Owning your house does give one a sense of achievement, it is true. There is also something to be said about the emotions of pride and joy of living in a home that one owns. However, when one thinks logically, this doesn’t have to be the only outcome of owning a home. In a lot of cases, it can actually make much more sense to live in rented accommodation while renting out one's own property to someone else. The correct choice ideally should depend upon where you live vis-à-vis where you own property.
When it makes sense to live in a rented home.
For people who live in San Francisco, Los Angeles, San Diego, New York and so on, where property prices are really high, renting can make a lot of sense. While property prices in these areas are very high, rents are low relative to these valuations. So it may not be affordable or even advisable to buy property here, but it could make a lot of sense to rent property in these areas.
You could say that rent of around $5000 a month is high, and you would be right. However, it is high only in absolute terms. That amount is actually really low when you factor in the fact that it’s what you're paying to live in a $2.7 million home! So if you're living in these areas with high property prices and low rents, it simply makes sense to live in rented accommodation.
You can still be a property owner.
In places like Atlanta you could still buy and live in your own home, but this could make a lot less financial sense in other places. It can make sense to own property in one place while living in rented accommodation in another place. You can still have the joy and the sense of achievement and ownership that comes from buying a house. You can own it, but not necessarily live in it.
There was a time when I was living abroad and the parents of my new wife came to visit us. We were living in a rented home – it was a beautiful home but it was rented. My mother-in-law’s first reaction was to say – oh if only you owned it! She knew that I owned dozens of homes in the US, but she still said this. It merely echoes the mindset that living in the property you own is somehow better than living in rental accommodation. If you can get past the mindset that wants you to live in the home that you own, you could find that you're actually making a wise financial decision. If you can overcome emotion and think logically, you would find that my point of view makes a lot of sense. Check out this video for more details.
I'm going to be speaking more about this in my nextquarterly event – about the possibility of living in a rented property while still being a property owner yourself. I will be touching on the best places to rent and the best places to buy property right now.
Why Your Cash Flow Will Increase Even When Cost of Living Rises
Our clients are familiar with our Remote Control Retirement Riches formula. This is among the best and more reliable ways to create wealth for yourself and your family, and to secure your financial future. Real estate is, in a sense, an investment that pays for itself. When you take out a loan and buy a house, you then rent it out. The rental income generated then helps you repay the mortgage. Over time it generates a profit. So what is the right way to use these cash inflows?
Two ways to use your cash inflows.
If your investment is not generating a profit for you right now, it will do so in the future. This is because as the cost of living goes up, rental incomes do the same. However, your mortgage payment amounts will remain the same over the years because you're going to have the benefit of the 30-year fixed-rate loan. So you will have surplus cash. What do I do with thiscash flow, my clients and people on social media sometimes ask me.
Well, one option is to create an emergency fund for expenses that may crop up for you as a landlord: maintenance, breakage, repairs, replacements etc. So you can put aside some money for this. On the other hand, you can accumulate your cash inflows and invest in more houses. You can buy more homes and further secure your financial future.
How I used my cash inflows.
There was a time when I was also putting money away for emergencies and contingencies. I would do this because I felt that as a landlord, I should have a way to defray expenses such as house maintenance, repairs and so on. I soon realized, however, that this was not helping me meet my goal – which was to buy as many homes as possible. I was not making the best use of my liquid assets by parking them in a contingency fund.
The better option was to use the money and accumulate my cash flows to buy more homes, and then generate higher incomes. And what about the times when those expenses cropped up? I found that it made sense to open up a line of credit with the bank – to be used as and when needed. This is also what I would advise investors to do with the cash flow that their investments generate.
It makes sense to create wealth, for a more secure, prosperous future. For this to happen, you cannot afford to let your cash flows stagnate. You have to put them to the best use possible. If you would like to know more about our investment strategies, visit us at icgre.com. To get more real estate investing tips, check out my podcasts and videos.
Investing In Rental Homes? What Matters and What Does Not
As a real estate investment guide, I get a lot of questions about the dos and don'ts of investing. People ask me questions on our quarterly expos as well as on social media – and you can subscribe to myYouTube channel and follow me onInstagram, by the way. One of the questions I get asked is, whether investors should buy subsequent homes in the same location as their first property purchase. Should they buy their second and third homes and so on in the same area? And my answer to them is, it doesn’t matter!
Why it doesn’t matter.
Now if you buy one home and then you buy another in the same location – the same city, say, it can be convenient. You already are in touch with the brokers, you already work with the property management people, and you're already familiar with the mortgage company that did your paperwork. So you know the ropes and you're familiar with the people. Getting a second and third loan may well be easier when the lender has already advanced one loan. This is convenient and the familiarity is comforting for you as an investor.
So, I'm not saying there are no advantages at all. There are advantages but they are not significant in terms of any financial advantage they will bring you. Where you buy your second, third and fourth homes – this is not going to make much of a difference to your retirement riches in the end. There are other far more significant factors that will make much more of a difference to your financial outcomes in the longer term.
What really matters.
Number one is the 30-year fixed-rate loan. Yes I know I've said it before, but I’ll say it again – it is a gift and one that you cannot afford not to take. This is the loan that you pay off over 30 years at a fixed rate of interest. So if you're repaying X amount today, you're still only paying that X amount ten, twenty years later. By then, inflation is going to make that amount seem puny in comparison to what it seems today. Meanwhile, the rental income will help pay off the loan.
Number two is the sort of investment you make. Quality single family homes in good areas have the best chance of getting top dollar rent. So that is what you're going to want to look at when you invest in real estate. If more than one of your investments is in the same geographical area, well and good. If not, that is no problem either! So long as you have the important aspects sorted, this doesn’t really matter.
To know more, watch this video or listen to this podcast.
If you would like me to address a particular issue in one of my videos or podcasts, be sure to let me know. Just drop us a line at email@example.com
ICG uses single-family home investments, bought in advantageous locations and the best U.S. markets. We enable you to enjoy the clout that comes from purchasing a multitude of houses, even if you only buy one.
165 N. Redwood Dr. Suite #150 San Rafael, CA, 94903