Renting or Buying a Home? Why not do both?

Renting or Buying a Home? Why not do both?

Post by Greg Rutkowski on curerabbitears.com

Not long ago, I discovered another cool house hack that would work out very well for new real estate investors. I call it my Rent AND Buy Strategy.

It all started when my fiance and I decided that it was time to move closer to the downtown Chicago area and add a square foot or two to our living space. Our little one-bed/one-bath condo by the lake was charming and all, but it just wasn’t going to cut it for the family we had in mind.

As we started house shopping in our target neighborhood, one statistic piqued my interest: I noticed that we could rent a property for the same monthly payment as buying it.

This small detail was extremely important to me for a few reasons.

1. It limits our exit strategies– If the house turned upside down and we needed to move, we would be forced to short sell or else hold it for a loss.
2. The average price of homes are overvalued- Prices of overvalued assets tend to fall rather than appreciate. This would put us at a higher risk of going underwater with our mortgage. Sure, you can make the case that rent is actually undervalued but the “Rent Is Too Damn High” committee would give you a run for your money.
3. Opportunity here would be hard to find- Pennies on the dollar is my mantra. Whether buying a home for myself or as an investment. I don’t get too excited about paying full price for large, overvalued purchases.

OF COURSE this particular neighborhood of Chicago just so happened to be the perfect area for us to live. This troubled me, but I was determined to find a solution.

And here is a strategy that I created:

Rent AND Buy Strategy

• Run the numbers

You MUST consider every single detail of the equation. One wrong calculation can send your whole analysis into a tizzy. The first time I was running the buy vs. rent equation, I forgot to deduct the principle that was going toward my home. OOOPPSSS!

• Rent a comparable home

One thing we were not going to compromise on was square footage and location. After all, what would have been the point? Find a great rental property and don’t forget to negotiate with the landlord.

• Use the down payment and the mortgage to buy rental property(s).

Why would we max out our cash and loan amount on something that will take money from our pockets? —When we could invest in something that will put money in our pockets. Such an investment property would obviously NOT be in our target neighborhood but rather in one that produces better income.

Why is this strategy preferred over putting the money in the stock market and getting an average of a nine percent return? Because of leverage. When you buy a stock, you have no leverage. Even if you did use leverage, you have no control over that leverage. Your one dollar is worth one dollar. When you buy a rental property, your one dollar is actually worth five dollars. In asset value and in tax benefits.

• Cash flow baby!

From my estimation, we would be making $300 more per month, $3600 per year, and $18,000 after five years if we bought AND rented. That is a lot of dough and will help offset what we are paying for housing month to month.

Now the most important question to ask yourself here is:

Can you put a price on living in a home your own verses a rental property?

In my case, I would basically be getting paid $300 per month to live in someone else’s home. Is it worth it? You decide.

*A few notes

• In my situation, we only planned on living there for five years
• Buying a home in this neighborhood would max out our available credit that could be used to finance more rental properties
• I’m deathly afraid of using “bad debt” especially for huge purchases

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You’ve heard the sayings before. Even from me.

“Own your home.”

“Renting is like throwing money way.”

“Stop paying your mortgage or property taxes and you will see who really owns your home”

Now I’m not here to answer the age old question of whether you should rent or buy a home… That would be the literal translation of beating the proverbial dead horse. But if you are interested in that, here are a couple cool videos to help you out!

https://www.youtube.com/watch?v=JNL6f1xkie4

https://www.youtube.com/watch?v=KAMeI4uHAFE

Heck, I will even throw in a buy vs. rent calculator for good luck.

http://www.trulia.com/rent_vs_buy/

Have a great weekend!