“Housing poor” is a common phrase used to describe people who waste too much money on housing, leaving them with too little to spend on everything else. But it can also refer to those who get too little housing for their money.
And now, with interest rates on home loans rising faster than they have in decades, it is becoming more and more expensive to own a home in the United States.
As an economist, one of my goals is to make you “home rich”, making sure you end up with the home you really want at the price you can really afford.
Here are some ways to lower your housing costs:
1. Cabin with parents
Young Americans are increasingly aware that fucking is a way to make money. In fact, a handful are now living with their parents.
This is a dramatic change from the situation in 1960, when only 29% of young people camped with mom, dad or both. The counterpart of this change in living conditions is that many older Americans live with their children and, possibly, their grandchildren.
Of course, cohabiting with your parents probably won’t result in a proportional dollar expense sharing, but if your parents or grandparents really seek your company, the lifestyle can be seen as you paying your fair share of rent and they paying for your business.
The net payment is therefore what you can actually pay for the pension.
2. Rent your house
You can do it part time. Airbnb and similar online companies have made this very easy.
A cousin of mine lives near the beach in Los Angeles. As house prices and property taxes soared, imputed rent—or the sum of property taxes, homeowner’s insurance, maintenance, and forfeited after-tax interest—became unaffordable.
One option was to sell and find cheaper housing in the suburbs. The other was to turn his garage into a studio and rent his house on Airbnb. She chose the latter route, and within five years earned enough income to significantly improve her studio as well as the home.
Airbnb rents being very high in her region, she can rent her accommodation for the year and collect the same financial gain as if she had a full-time roommate. But this arrangement gives him a lot more privacy and allows him to rent to larger families who don’t want an unknown roommate while on vacation.
There are 42 states, plus the District of Columbia, with income taxes. States that do not tax income are Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming.
If you live directly on the Massachusetts-New Hampshire border, you can, in theory, walk across the street and save 5% of your paycheck, which you would otherwise have waived in Massachusetts income tax.
Things are of course more complicated. Land values in New Hampshire may be higher given the state tax advantage. And amenities, like the school system, may be better in Massachusetts. But who knows? You can be childless and happy living in a five-story apartment with no yard.
Another consideration in deciding which home in which state is estate tax. In addition to DC, 11 states levy estate taxes: Connecticut, Hawaii, Illinois, Maine, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont, and Washington.
Five other states, Iowa, Kentucky, Nebraska, New Jersey and Pennsylvania, tax estates. And one state – Maryland – taxes both estates and inheritances.
If you have significant wealth that you are likely to bequeath, be careful not to spend your golden years in states with estate taxes.
If it’s not practical to share or rent your home, consider moving to a less expensive home that still meets your needs.
Americans have big houses. In fact, the majority of newly built homes have three or more bedrooms. Having lots of bedrooms when raising kids makes sense. But after they have left the nest? It’s a prescription for overspending on housing.
Yes, keeping a home gives you a built-in safety net – a store of value that you can eventually trade for entry into a long-term care facility. But every year you pay too much imputed rent is a year you wasted money.
You don’t have to pay for something you don’t need to mitigate a specific future financial risk. There are other ways to meet long-term care needs. One is to purchase long term care insurance. A second is simply to hold financial assets, including real estate, but indirectly in the form of real estate investment trusts (REITs).
A third is to arrange for your children to look after you if you need help short of qualified nurses. It can be a quid pro quo.
For example, you could downsize and then use the freed-up capital to provide your children with a down payment to buy their own home. In exchange, you can make it clear that you expect them to take care of you if you need help on the road.
Laurence J. Kotlikoff is a professor of economics and author of “Money Magic: An Economist’s Secrets to More Money, Less Risk, and a Better Life.” He got his doctorate. in Economics from Harvard University. His columns have appeared in The New York Times, WSJ, Bloomberg and Financial Times. In 2014, The Economist named him one of the 25 most influential economists in the world. Follow Laurence on Twitter @Kotlikoff.