Housing is an expense we all must deal with which can add up to a large portion of our income. The US the Bureau of Labor Statistics last survey on Consumer Expenditure found housing to be the largest category for the average American at 33% of their spending. The Pareto Principle would tell us this is an area ripe for action. What are some ways we can reduce the amount we spend on housing?
- Live at home for as long as you can. Living with your parents is becoming a frequent stepping stone for college graduates. Outside of America, multigenerational households are already much more common. Not only is it more efficient to combine more family members under one roof, but younger generations living rent free is a great tax-free wealth transfer tool! Don’t forget about grandparents or close aunts and uncles living in areas you would like to work.
- Chose a low cost of living area. Include the cost of living in your calculations when choosing the next place you want to live. Sometimes the job with the better salary will be more than offset by the expensive housing, high rents, high taxes, or high cost of goods in an area. Rather than being yet another person complaining about the cost of living in your area, make your choice of location intentional by balancing the costs against the benefitsAccess to jobs, proximity to family, weather, etc. of the location. With the expansion of work from home policies and positions in the last couple of years, you may even be able to practice geo-arbitrage by making your money in a high cost of living area but living somewhere more affordable.
- House hack with multi-family rentals. House hacking is a term for buying a duplex, triplex, or quadplexSpecifically, these all count as residential, 5 units or more is commercial with a slightly different set of rules but can also be done., then living in one unit and renting out the rest. The idea is to have your tenants paying the expenses and mortgage so you are not only living for freeMaybe slightly less than free with only a duplex, or even turning a profit with more units., but building an asset at the same time. When you eventually move out, you’ll have the choice to sell the property or fill your old unit to increase the cash flow.
- Live with roommates. In this old school, simplified version of the house hack, sharing a space and splitting the rent can drastically reduce your cost of living. Adding roommates to a space you are already rentingJust make sure you are complying with the lease. may even offer an opportunity to live for free or turn a profit.
Multifamily homes like this duplex can offer attractive places to live while still being a cash flowing, wealth building asset instead of simply an expense.Links to more information on house hacking from BiggerPockets: