Much earlier in my career, I sold a house in Los Gatos where there had been tenants for 30 years. When the owner decided to sell the house, of course he gave them plenty of notice, but it was hard. It had been their home for 3 decades.
In those 3 decades they could have bought a house with all the rent they’d paid. No, they couldn’t have bought that house, but they could have purchased something. And after 30 years, they would have equity and either be able to enjoy a home rent free, or they could have sold it and cashed out.
It’s not easy to buy a home here: prices are high, saving the down payment is a huge hurdle, and the competition even for those who have the cash and the means is steep. But if you choose to stop renting, at some point you’ll have equity, and if you hold the house long enough and steadfastly work to pay it off, you should own the home free and clear after 30 years, maybe less.
Tips for how to stop renting & start owning
One of the biggest shifts needed is expectations and the willingness to live in what you can afford to buy. You can almost always afford to rent something nicer than what you can purchase. For some, this is intolerable! Yes, when you buy, it’s often a step down in terms of your surroundings. Sometimes when buyers get stuck, this is the heart of the problem.
Once you’ve gotten expectations in line with what is possible, the next big challenge is putting together the down payment. It’s not easy, but people do it and not all of them have stock options or RSUs.
The down payment will require most people to do serious saving, possibly working more, or scoping out programs to help. Think “frugal mode”.
Here are a few things that have worked for my clients (or others I’ve heard about):
- Some of my single clients have moved back home with mom and dad (at reduced or no rent) to power save for their down payment.
- Some buyers take jobs where housing is part of the compensation, such as working on a cruise ship for a couple of years, and saving everything.
- Instead of renting an apartment for yourself, rent a room in a house instead (with house mates). Instead of spending $2,000 per month or more for a 1 bedroom apartment, you may spend half that much on a room.
- If you have a low or moderate income, research the various home buyer assistance programs, such as those in the city of San Jose.
- Take a second job and devote all of it to the housing fund.
- Are there family members who might want to help in some way? It could be by gift, low interest loan, or equity share?
- If you buy a house or condo or townhome that did not sell right away, and you don’t have multiple offers, you can probably buy something with a smaller down payment, such as 5% or 10% down. This requires more strategic thinking and being able to look past cosmetic issues that may have kept other buyers away.
- Once in awhile, there are opportunities with short sales or foreclosures, but these can be risky, particularly if there is hidden deferred maintenance.
I do not recommend the “lease to own” or “rent to own” arrangements since either the seller are likely to be unhappy when it’s over. (There’s a long time between when the price and terms are agreed upon and when the deal is completed. If the property value rises quickly, say 20% in that time, the seller will be mad. If it goes down in value, the buyer will be upset – or will walk away, costing a significant amount of money!)
If you want to stop renting and position yourself to buy, it’s a good idea to start strategizing well in advance. Talk with a trusted lender or Realtor to see what kinds of things you want to be doing to increase your odds of success later.
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