As home values continue to increase alongside rising interest rates, many hopeful homebuyers are faced with new affordability challenges. The good news is, buying a home is still within reach for many people if they are willing to work with some creative solutions.
If you are concerned about whether you can afford to buy real estate, we have 3 creative solutions to affordability problems that might be the right strategy for you.
1. Change your location
One of the most influential factors in the cost of real estate is its location. If you are finding that you cannot afford to buy a home in your current location, broaden your search to include more affordable neighboring communities, or even look at an entirely new state.
The current real estate market has driven many buyers to look outside their location and choose a new adventure.
2. Buy an investment property first
It may be unconventional, but buying an investment property before buying a personal home can be a brilliant financial strategy. While you stay in your rental home, you can rent out the property you purchase and allow your tenants to cover your monthly mortgage costs (sometimes charging more than the monthly payment). You may have more opportunities to qualify for a mortgage for an investment property, as well, with loans that can be given based on the income potential of the property rather than your income.
If you buy an investment property first, you can allow that property to appreciate and give yourself options in the future. A few years down the line, you can either move into the home yourself when the monthly mortgage payment is comfortable for you, you can refinance the property and leverage the equity toward buying your own home, or you can sell the home and re-invest the profit elsewhere.
Another option is buying a duplex firstbeen , living in one side while renting out the other. This strategy, often called house hacking, will allow you to drastically reduce your monthly costs while still owning your own home.
3. Team up with someone else
Sometimes the best way to combat a challenge is to team up with someone else. This can even be true in real estate. Consider whether you have friends, family, or colleagues you might ask to join you in investing. This can work whether you are asking them to invest with you in your own home, knowing you will pay them back at a set date with interest or based on the equity that has been built, or if you are buying an income property together. It might also be the right fit for you if you'd like to live together in the home for a time.
Remember to get every part of your agreement in writing. Open and honest communication is crucial when partnering with friends or family members. Discuss your goals, expectations, and roles in the investment upfront. Clearly define responsibilities, financial contributions, and decision-making processes to preserve your personal relationships and ensure that everyone benefits in the long run.
It's no secret that real estate is not as affordable as it was a few years ago, but that doesn't mean you can't reach your goals. Take some time to think outside the box and get creative about how you can become a homeowner this year.