Welcome to part four of a very candid series I’ve written on how me and my husband were able to get married and buy a house in the same month – without significant financial help – and with money still in the bank. I’m sharing this with the world in hopes that others can take a page out of our book and also pursue this path if they choose to do so. This week I’m sharing how you can purchase a home that allows for cash-flow potential, including what to look for and other factors to consider.
Carson and I began actively looking for homes on September 11th. We put in an offer for our home (and had it accepted) on September 12th. We had our home inspection on September 18th. We got married September 19th. We closed on our home October 23rd. While I certainly don’t recommend putting two very stressful life events so close together, I am very thankful that we were not only able to find our dream home, but that we were able to afford it!
As many readers are aware,
purchasing a home in present-day is incredibly difficult, especially when comparing it to the experience that previous generations had.
Regardless of where you live, the cost of living is high while wages are low. Carson and I were both sick of throwing most of our paychecks away on rent. We were also both sick of the apartment lifestyle and wanted a single-family home. However, we didn’t want the daunting responsibility of a mortgage that would be tough to pay off each month.
Sounds impossible, huh? It mostly would be unless you are willing to cash flow your home in some way. The two most common ways to do this include either having a long-term rental (having a roommate or tenant), or to have a short-term rental (e.g. listing your home or a portion of your home on a site such as Airbnb or VRBO). Carson and I decided that using part of our home as a short-term rental (STR) was the option that best fit our needs, and we now list our basement apartment on Airbnb! So far, it has helped us significantly cut back on our monthly expenses and helps make our home slightly more affordable! For those of you interested in doing something similar, I’ve put together pointers and helpful things to keep in mind throughout the process.
Know your Financing Options:
First things first! Are you purchasing a home with someone else? Is this person your spouse? Do you qualify for a first-time homebuyer’s loan, and if so, is that a smart financing option for you? How much of a mortgage can you really afford per month? Before anything else, it’s important to meet with a trusted financial advisor that can help you answer these questions.
SHort-Term vs Long-Term Rentals:
Once you’ve decided you’d like to cash-flow your home, you’ll need to decide how you’d like to do that! There are a lot of factors that play into this, and it may ultimately come down to the space you have available. Carson and I had the option to decide whether we wanted a full-time tenant or if we wanted to go the short-term route. Full-time tenants are typically on a lease meaning you essentially have guaranteed income without the hassle of having to clean up after anyone. Using your space as a STR allows you the potential to earn more money and have more control over the space (you can choose when to allow people to book). However, there is a lot more upkeep, such as having to clean the space in between guests and having to be readily available to answer questions and address concerns. You’ll also have to decide whether you want to hire professional cleaners to do the job or if you’ll want to do it yourself. So far, Carson and I have been cleaning our Airbnb ourselves to save money on cleaning fees, however that means we have to block off the day before and after a booking in order to have time to do so.
Find a Realtor that Understands your Needs:
We were blessed with a realtor that not only understands the ins and outs of hosting short-term rentals, he actually lists a portion of his own home on Airbnb! While this may not be an option for you, it’s still important to share your goals and expectations with whomever you choose as your realtor. It will help them vet out listings that may not be practical for your needs, and they may also be able to help you understand the legal ramifications associated with STR’s in your area.
Find a Home that Meets Your Needs:
This step may come before or after the previous depending on the homes available in your area within your budget. For example, if you know off the bat that you want a STR and don’t want any interaction with guests, you’ll want to look for a home that has (or has the potential for) a separate space or entrance. If you’re looking for more interaction with STR guests or are considering opening your home to a roommate, that need may not be as important. It’s good to at least have an idea of what you’re looking for before the house-hunting process begins so you aren’t as overwhelmed with options!
Familiarize Yourself with Local Laws and Regulations:
When Carson and I were starting to look for a home in the Denver area, we knew that the City of Denver had some of the country’s strictest laws when it came to STR’s. Other nearby cities required costly permits in order to get your STR up and running. Being familiar with current legislation regarding STR’s in your area is important in order to avoid potentially serious issues later on. We purchased our home in a city just outside of Denver, and one of the factors leading to that decision was their rules regarding STR’s (or lack thereof).
Factor in Setup Costs:
When determining what your purchasing power is for a home, it’s also important to factor in any costs associated with getting an STR set up. For example, Carson and I wanted a STR that was completely separate from our main house, no exceptions. The house we bought only had a sliding pocket door separating the main house from the STR, so we hired a framer to come in and install a real, locking door for added safety. Other setup costs to consider include plumbing, electricity, and insulation as well as cosmetic costs like paint, hardware, and furniture. There is also a lot of upfront costs associated with getting a STR set up, which I get more into in Part Five of this series. These costs add up quickly, so it’s crucial to plan ahead, especially if you are trying to get your STR up and running as quickly as possible.
Don’t Put ALL your Eggs in The Cash Flow Basket:
As we began our search for the perfect home slash STR, there were two things I made Carson promise me. The first was that we wouldn’t put ourselves in a situation where we would HAVE to earn additional income in order to afford our mortgage. The second was that we would still prioritize our comfort over simply purchasing real estate that was ideal for cash flowing. Neither of us had ever been an Airbnb host before and weren’t totally sure if it was something we would enjoy doing. The economy could tank, which would consequently lead to less folks traveling and needing places to stay. We could face unexpected circumstances that could cause us to no longer have time or energy to manage guests in our home. Ultimately, if you are purchasing a home, you want it to be a space that will provide years of joy and memories. Your personal comfort – both financially and physiologically – should be what really matters.