Cutting Back on Expenses-Mortgage
I am a firm believer in spending less than you earn, but if things were that simple everyone would be debt free and whittling wood in our rocking chairs with our Grandpops. Most of us out there have spent more than we have earned and in return accumulated credit card debt, loans from the bank for our new car, or made the choice to have student loans in college and now pay those years after we wore our graduation cap and gown. This may have continued even further buying a new house with that enticing low interest rate spread over 30 years of payments. Which leads me to how I cut back on my mortgage by making a couple simple choices.
When we first moved to Chicago from Florida, we searched for houses before we moved that would meet our budget, but due to time constraints ended up renting a smaller apartment close to public transportation for the first year. While it was not intentional to rent an apartment that first year it ended up being a smart move.
Take your time and research the market and neighborhood that is right for you.
We were pre-approved for a large amount for our mortgage, we did not take this letter and look for a 300K house (arbitrary number), instead we looked for houses that were almost half of this number during our search.
Don’t take your pre-approval amount to mean you must buy the most expensive house on the block.
These first two planning tips could literally save you thousands of dollars, these tips are about BIG WINS. If some of you have read about banks and other mortgage lenders they might not be the best choice in deciding how much money you can borrow.(here’s a good summary article on the Mortgage Crisis). Make your own decisions do the research, plan ahead, and look for the Big Wins, this isn’t cutting coupons to save $5 at the grocery store, this decision could literally affect the rest of your working life, treat it that way!
If you have followed the game plan you are looking at houses with your Realtor, checking out the MLS property lists like its the Royal Wedding plans ladies and guys like Michael Jordan is coming back to the NBA, this may be flip flopped, but in our household this is spot on. Before you make that decision for the house that is your dream house consider two more BIG MONEY tips………
Create your own equity by buying a fixer upper.
One of the things we especially looked for during our house search was a property that was not perfect and needed some fixing up. This was exactly what our search was for: foreclosures and fixer upper’s, 100% of the time. What this does is create equity in your home, while also getting the home you really want. This does involve spending more money to have the house updated, but we budgeted for this by cutting our house budget in half already from the pre-approval letter, mentioned above. Imagine buying a 150K home, putting 50k into the property and immediately have your house appraise at 250K, that’s what we did (numbers are arbitrary). This tip does not save you more money, rather it creates immediate equity and when you decide to sell will create a BIG PROFIT.
The above tips have included Big Wins and Big Profit. The last one does both, buying a multi-unit property.
This can be a number of different property types, but the most common are: duplex with similar houses side by side connecting, Single Family Home with a basement rental, and our property of choice the Multiple Unit Building. Buying a multi-unit property starts as a Big Win because you are paying less rent due to the tenant paying some of your mortgage, in many cases the tenant is paying the entire amount of your mortgage, sounds like a Big Win to me. This can even create a Big Profit, now it might not immediately like our fixer-upper from above, but eventually the mortgage is going to be paid off and those same mortgage payments are now all Rental Income, that’s a Big Profit. One of the best ways to build wealth is through real estate and in many cases this is done through having tenants pay for your mortgage. Not coincidentally this is what we did, we are currently living in one of our units while renting the others. For those of you out there who say I can’t be a landlord, my quick witted response is most people say they cannot imagine ever being a Mother or Father, but you learn what you need to do. It’s the same with owning and managing a rental property.
If you are interested in Big Wins on cutting expenses and Big Profit from owning real estate, take these tips into consideration.
Just a quick recap:
- Take your time and research the market and neighborhood that was right for you
- Don’t take your pre-approval amount to mean you must buy a house as high as your bank will allow
- Create your own equity by buying a fixer upper.
- Consider buying a multi-unit property.
This is part of our plan to financial independence, we will use real estate to provide future income, these tips are almost identical to what we did with our current home. I’m not a contractor or handy man, the best I can do is mow a “mean lawn”, but I am honest, want the best for our tenants, and I’m able to talk to people to get things done. I encourage everyone to use these tips when purchasing a home. I’m not a financial adviser and the advice is as valuable as the price you paid, free.
Have you used any of the tips to cut your expenses with your mortgage? Do you own a multi-unit building?
Photo courtesy of: www.socalmultiunitrealestateblog.com/