Last episode, we went through what it would look like to properly plan for buying or renting based on an annual income of $48k; let’s look at scenario #2.
This scenario assumes that you are a newlywed couple, say 30 years old, in a 12% tax bracket. Let’s assume you are making $60,620 and have one exemption.
So your gross income is about $5,052 per month. You can anticipate taxes being about $550 and FICA and State Insurance Taxes being $386, assuming no contribution to retirement in pre-tax deductions but $1,000 in post-tax deductions; this leaves monthly take-home pay of $3,115. This is about 62% of your gross income that you get to keep.
So based on the same percentage of income scenario used before of 30% of your take-home pay going toward a mortgage or rent, this would put you at $934.50 per month. Again, this is typically not enough to rent a one-bedroom apartment in many places, so what do you do?
The difference in this scenario from the first is that now you have a spouse to consider, so house-hacking from a standpoint of renting out additional rooms may be out of the question.
In this scenario, I would look into properties with an ADU or additional dwelling unit. Instead of just finding a long-term renter, though, I would consider a vacation rental or Airbnb platform in order to do a short-term rental. This will allow you to prevent getting stuck with a long-term renter who may not be a good fit, and this decision will also maximize the return on your rental.
I have a friend with an ADU that he built on his property before building their dream home. That ADU is on Airbnb and covers 100% of the monthly costs of their new dream home.
Now, this may not be the scenario depending on the cost of living in the area you live in, but finding creative options to reduce your monthly expenses gives you breathing room and a margin in your finances.
So let’s say you purchase a $375,000 home on a conventional mortgage with 20% down. Looking at the monthly mortgage to include principal, interest, property taxes, and homeowners insurance, this property would cost you $1,633 per month. Of course, this is about $700 more than the 30% take-home pay we discussed. So let’s say you rent that ADU on Airbnb for $115 per night. Let’s assume you have it rented for half of the month or 15 nights per month. This would give you an income from that ADU of $1,725 per month.
So this option then covers the entirety of your mortgage and gives you the freedom to put that portion of your income into savings, investing, or giving.
The average household U.S. Income is $60,620
CTA: So my call to action is to consider how your scenario relates to this married couple. Are there ways for you to reduce your living expenses based on the property you currently own or do you need to consider finding a property that best suits a scenario to reduce your living expenses without having roommates invade your space?
The average household U.S. Income is $60,620 (http://worldpopulationreview.com/states/median-household-income-by-state/)
- Assumptions
- 12% tax bracket, married and 31 years old (https://www.bankrate.com/finance/taxes/tax-brackets.aspx)
- 25% housing
- 10% donation/giving
- 15% retirement
- Add assumptions
- Exemptions @ 1
- 0% to retirement before match
