Saving$ on Housing

So, we’ve established that there are usually three main expenses that take up our fixed costs: housing, transportation, and food. It’s time to tackle the big momma of the group, housing! The costs associated with housing, be it owning or renting, are typically the biggest number on the MFC! There are so many areas within housing that we can look to save, we’ll address some of the bigger picture things that can have an immediate impact on the Savvy Solo’s financial health.

According to the US Bureau of Labor Statistics, Americans spent on average over $25,000 in 2023, or north of $2k per month on housing! This might seem low or high depending on the geographic area you live, but either way most of us have the ability to mitigate the costs associated with keeping a roof over our heads.

Some of the options here will require a drastic change of lifestyle, and some of them will only necessitate a slight shift in mindset. Let’s explore these ideas, and see what changes could be made to your (most likely) largest expense.

Don’t hate on renting!

If you’re anything like me, every boomer in your life is telling you to buy a house sooner than later. Depending on where you live, the math might not add up. Check out this post where we ran the hard numbers showing cases where renting made more sense than buying. In each case, after 10 years, the renter had a greater net worth! Of course, time and location could easily change the equation, this case study was done October 2024 in a high cost of living area. It’s always worth double checking that buying is actually what makes the most sense given your situation.

Since mortgages are front loaded on interest, it really only makes sense to buy if you plan on living there for a longer period of time. Depending on the mortgage and rate of home appreciation, a Savvy Solo might be looking at an 8-10 year period before hitting the breakeven point. That’s not to say one couldn’t turn a profit in 3 years, but it wouldn’t be considered the standard. All the costs associated with buying and selling add up quickly, renting is almost always the best option for the Savvy Solo looking to keep their geographic options open to future opportunities.

When renewing a lease (or moving in) to a rental property, many people assume the price is firm without first asking questions. See if nearby rentals are going for less and use this as leverage when negotiating with the landlord. If the price is firm, or if you found a steal of a price, consider negotiating in certain amenities. It’s possible they can throw in a free parking spot or include you in on their cable service at little to no hassle on their end.

Signing a longer-term lease might incentivize the landlord to reduce rent. The landlord gets a longer period of guaranteed income from this property, as well as more time before they need to clean up and start showing the unit again. Vacancy is the enemy to every property investor. Mitigate this risk for them, and in turn many will mitigate rent costs and/or other amenities.

Keep in mind, the best negotiations can only be accomplished by good tenants. If one is constantly late on paying rent, consistently pushing for things above and beyond standard landlord duties, or caused harm to the property; these negotiations might not be going in the renter’s favor. Keep a record of past landlords and ensure with them that they will give you a good recommendation to future landlords for the best bargaining tool.

Traditional house hacking is a real estate investment strategy that involves purchasing multi-family property. The purchaser lives in one of the units and rents out the others. With the rental income, the owner can see a significant decrease in overall house expenses and even, in some cases, come out net positive! Finding a duplex, triplex, or even quadplex in your area might prove to be challenging. This is not an overnight endeavor, and certainly has its challenges, but the idea of living rent free is very exciting!

Even if house hacking doesn’t cover all housing expenses for you, it should essentially give you a living space that would otherwise cost significantly more. To do this correctly, a Savvy Solo would look to purchase a legal multi-family home. This means that each unit has a separate entrance, kitchen, living space, bedroom(s), and at least one full bathroom. Multi-family housing, in general, can be significantly higher priced which means higher barrier to entry than single family homes.

Another way to house hack would be to rent out a bedroom in a single-family house. In this case, the homeowner would share the living spaces, kitchen, and possibly bathroom with the renter. In general, this attack wouldn’t negate your mortgage payments entirely unless you are renting multiple bedrooms in a larger house. I like this approach more for the younger solos who are more accustomed to the college style of living.

Either style of house hacking does require the Savvy Solo to become a landlord. This means some level of homework needs to be done on the local market, and even the legal intricacies, of taking on this endeavor. The benefits to house hacking, however, are twofold: mitigate personal housing costs in the short-term, and boost your overall net worth from housing appreciation for the long-term.

This one is not for the faint of heart!

We’ve all seen the house flipping shows on HGTV. Someone buys a wonky ass house, fixes it up, and sells it for a profit. Same theory applies here, but in this case, you’ll be living in that wonky ass house while updating it. 🙃

Since you’ll be living at the property, you’ll have access to loans that traditional house flippers do not. This might even mean a specialty loan with a low initial downpayment if qualified (more on mortgages in a future post). Many house flippers need to utilize hard money lenders, due to the nature of the business. Since this will be your primary residence, a traditional homeowner mortgage rate will be far superior (sometimes even half).

Due to the high fees and high interest rates associated with traditional house flipping, timing is everything. The faster the place is renovated and sold the better the outcome for the investor. With the live-in-flip method, there’s no ticking clock; renovate at a pace that works for you. To get the most out of this method, you’ll want to do as much of the renovation on your own as possible.

Another reason to take your time with improvements, is the Section 121 exclusion. This states that your first $250,000 in profits from selling the house is exempt from capital gains tax! The kicker is that you’ll have to actually live in it for at least 2 of the past 5 years. All the more reason to do the repairs at your leisure!

The drawbacks to this approach are evident. Naturally you’ll be living in a construction zone and possibly moving every two years to get the most out of it. Also, like traditional house flipping, you run the risk of unexpected problems along the way. Finding structural damage after purchase, for example, might negate any real returns on this investment.

However, for those who are relatively handy, this method has a chance of negating housing costs altogether! Let’s say you decide to do a live-in-flip on a $500k house for two years. In that two-year span, you spent $100k on insurance, taxes, mortgage interest, and (of course) renovations. After two years you sell the house at $620k after renovations. Now you have lived rent-free for two years, and a cool $20k completely tax free! This profit can go towards a downpayment on your permanent house, or next live-in-flip if you so dare! 🤪

This tactic has grown bonkers within the FIRE movement. Instead of sacrificing living space for housing savings (like with many house-hacks), a Savvy Solo might decide to move to a lower cost-of-living area in the country. That 3 bed, 2 bath house might be priced out of your range in California but could cost half as much in Iowa! Typically, this is done in the same country as origin but can be expanded to other countries in an ExpatFIRE style as well.

The ones who benefit best from this approach are the ones who can maintain doing business with those in a high cost of living area while living elsewhere. Working remote is key here, and not everyone has this opportunity. With not only the savings on housing, but other cost of living expenses (like food, transportation, healthcare, etc.), it might be cost effective to make this move while also planning to fly back home to visit several times a year.

For those looking to buy a house, private mortgage insurance (PMI) is generally required for anyone putting a downpayment of less than 20% on a conventional mortgage loan. This is an added expense most mortgage lenders require till the purchaser till the loan balance reaches 78% (in some cases 80%) of the home’s value. Those that aren’t using an investment method to make up for this cost (like house hacking, or live-in-flip) should try to avoid this.

Nerd Wallet reports the average cost of PMI typically ranges from .46% to 1.5% of the original loan amount per year (depending on one’s credit score and size of the loan). Let’s say we buy a $500k house with a 10% (or $50k) downpayment and we are dealing with a PMI premium of 1%. This would cost $4,500 annually (on top of the new mortgage), or $375 per month! If the effort in buying was to stop throwing money at the wind, we sure are losing our shirts! 😩

Instead continue to rent at the lower monthly rate till you get closer to that 20% downpayment mark. Better yet, if a Savvy Solo is eager to jump into the market, consider a house hack or live-in-flip for your first home! This will ultimately make it easier to reach the 20% mark on that single family house with a white picket fence you always dreamed of!

Guess what?!? Your local government wants your money. 😂

Occasionally your home value may be assessed, and you might get hit with higher property taxes. 😬 The good news is that anyone experiencing this has the right to appeal it.

You can do your own research and challenge the assessment yourself… OR there are plenty of companies out there that will do this for you! Usually they will ask for some % of the savings in return for their services. For those not looking to spend hours of their free time sticking it to the man, these companies are a solid option. Either way, everyone experiencing a hike in property taxes should make an attempt to appeal.

Are you currently commuting an hour each way to your job in the city from your house in the burbs? For many solos out there, it might actually save you more money overall if this allows you to mitigate transportation costs. If you can get rid of the cost of a car for a year (along with the costs of insurance, gas, maintenance, etc.), imagine how much more you’ll be able to spend on the things you really value!

Already own your dream home in the burbs? Why not rent it out while you rent (or maybe even buy?) another place close to work? Nothing says you can’t go back and live in your original dream home down the road! Plus, it will give you a taste of real estate investing with minimal risk to see if it’s for you!

I’m not referring to buying an investment property to AirBNB out, although you may ponder doing this as well. Instead, consider renting out your current home while you are away (on vacation, work trip, etc.). In many cases, renting out your place for a week might completely cover the cost of your entire vacation!

If you are currently renting, or own under an HOA, there might be strict rules against this. It’s worth digging into the details to see if this is possible for you. Worst case scenario, you got something out of nothing and decide not to do it again. Best case scenario, it works out well and motivates you to make more money moves like this!

This one’s pretty basic, but worth pointing out. The less heat, AC, gas, water, electric you use each month, the less your utility bills will be! This can start with simple things like moving to energy efficient light bulbs and utilizing weather tape, to installing a smart thermostat which will adjust temperature automatically. These little changes don’t break the bank and can have outsized returns.

Down the road, if owning, you may be forced to replace certain appliances around the home. Moving to Energy Star or other high efficiency products will not only save on the utility bill, but also usually include some form of tax incentive as well. Heck, you might get $2,000 on getting a heat pump water heater alone!

Consider installing solar panels if applicable. Energysage.com states that the average home in 2024 will save $50,000 over the life of the system! I know someone who installed these a while back and pays next to nothing on their electric bill. On top of that they have an electric vehicle! This is a double win for their wallet, and an even bigger overall win for the environment!

In general, housing is the biggest fixed cost for any given American. This is an area that solos might have a slight advantage, given the circumstance. Convincing a family of 5 to move into a tri-plex might be a little more challenging than convincing the Savvy Solo with no dependents. 🤪

I mean, we might not be able to crush it like the DINKs out there, but we still have tons of options! The best part? We can choose to or not to make any of these moves (pun fully intended 😁) without permission! If we can mitigate the biggest fixed cost in the budget, chances are high we don’t need to worry about overspending in other areas.

As always, the goal here is to bring more value in your life. If living in a certain neighborhood and/or in a large house is the most important thing, then go for it! If some of these ideas intrigue you, feel free to start small and work your way up to the bigger moves.

Hit me up with any wins on housing costs! No matter how big or small, we should celebrate each step towards financial independence!

Stay classy Solos!