A recent report published by the National Association of Realtors reveals that the housing shortage and affordability crisis in the United States would be alleviated if there were enough homes available for buyers at all income levels. Currently, 51% of US households have an income of $75,000 or less, meaning they can only afford homes priced at $250,000 or less. Data shows that of the 1.1 million homes listed for sale, only 25% are listed in this price range. To balance the market, the report says there must be 319,460 additional listings priced below $250,000.
The top five cities with significant affordable housing shortages are El Paso, Texas; Boise, Idaho; Spokane, Washington; Cape Coral, Florida; and Lakeland, Florida. Conversely, Youngstown, Ohio-Pennsylvania is a region where buyers with an income of $75,000 can purchase 72% of listings, beating the target balanced market rate of 66%.
The report also highlights that black Americans are furthest behind in breaking even, with two-thirds earning $75,000 or less and only being able to afford 22% of real estate listings. Whereas for white Americans in the same income bracket, 48% can afford to buy 22% of ads. Overall, the report underscores the need for more affordable housing options to address the affordability crisis across all income brackets and racial and ethnic groups.
7 personal finance tips to start your real estate portfolio
Given the data, it’s pretty clear that many potential investors will need to add some extra income somewhere to get in the game. Whether you’re a first-time investor looking to enter the real estate market or planning to expand your , here are some personal finance tips to help you reach your goals faster.
1. Start a side business
We know that owning real estate will help you grow your financial nest egg. But how can you get there if you are in the middle income bracket? Well, earning extra income will help you save faster for a down payment. That way, you’re not just relying on your full-time job. Plus, it can help you gain access to more expensive listings.
The easiest way to choose is based on your passion or talent. Offering dog walking, tutoring, or selling household items are simple gigs to get you started. It offers flexibility as you can set your own hours and go at your own pace. You can occupy yourself as much as you want, even make it a full-fledged business. The most important step is to start.
2. Automate your savings
A simple way to track your savings goals is to create a dedicated savings account. For example, if you need to save up to $50,000 for a down payment, having a separate savings account will make it easier for you to track your progress.
Once you have opened a savings account, you can automate your savings by making regular transfers (bimonthly or monthly, for example) from your checking account to your savings account. money saving apps such as Acorns, Current, and Stash can help you reach your goal faster. Additionally, you can use a high-yield savings account, such as one that offers 5% interest, which gives you an extra boost to your savings.
3. Invest your money in stocks
If you don’t need the money for a few years, you can consider investing it in the stock market. This way, your hard-earned money can benefit from compound interest. The longer your time horizon, the more time you have to ride the stock market wave. That said, investing your money always involves risk, so be sure to assess your risk tolerance before buying any funds.
Note that this is also not a get-rich-quick scenario. Equities should be used alongside your real estate portfolio for diversification purposes.
4. Apply for government programs
Also, depending on the state you live in, there may be government programs that help first-time home buyers with a variety of real estate costs, such as closing costs, down payments, and interest rates. reduced.
For example, Ohio Housing Finance Agency Lenders (Ohio), SONYMA lenders (New York), TDHCA Lenders (Texas), and Nevada Division of Housing Lenders (Nevada) have different types of loans and programs you can apply for. To find out what is available to you, see the list here.
5. Move to another city/state
As you know, each housing market differs and can be considerably more or less expensive than the other. You may consider moving or investing out of state. If you move, it could reduce your cost of living and your tax bills. It also means that you will be eligible for that state’s homeownership programs after living there for a period of time. If you choose to invest out of state, note that you may find it harder to access programs like this, if at all.
6. Consider a partner
If buying a property is out of reach right now, you can turn to other people and form partnerships. Whether it’s your loved one, family member, friend or business partner, it gives you the opportunity to leverage their expertise, funds and/or capabilities . Of course, it’s wise to choose someone reliable and willing to follow the terms of your arrangement.
By joining forces, you can accelerate your path to an investment.
7. Boost Your Credit Score
When a seller has accepted your offer, you must obtain a mortgage from your lender. Having a good credit score is important because it directly affects your interest rate.
First, get a copy of your credit report and credit score. They are available from agencies such as Equifax, Experian and TransUnion. Credit score ranges from 300 to 850: 800 to 850 is excellent, 740 to 799 is very good, and 670 to 739 is good. 580 to 669 is considered fair, while 300 to 579 is poor. You’ll want to maintain a higher score in order to get the best mortgage interest rate possible.
You can improve your score by having a low credit utilization rate, paying your credit card bills in full and on time, and limiting the number of credit inquiries. Be sure to review your report and if you find any errors (this happens more often than you might think), be sure to report it to the credit bureau and ask for it to be corrected.
Lay the financial foundations
Although lower income earners face greater barriers to entering the housing market, there are creative ways to get your foot in the door. Of course, it won’t happen overnight, but if you establish the basic habits and follow these seven personal finance tips, you’ll be well on your way to achieving your real estate goals.
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Note by BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.