RealNews RoundUp
Each week I round-up the best real estate articles and break them down for you in an easy to digest format. Here are the articles I’ve found most interesting over the last couple weeks:
Article: Norada: How Much Debt is Normal: Robert Kiyosaki’s Perspective
The Highlights: Managing debt requires a careful balance, otherwise you can get in over your head quickly! Rather than looking at a dollar amount, you should be looking at your debt-to-income ratio.
This is the percentage of your monthly income that goes toward paying your debt (mortgage, car loan, credit card, student loan, etc.), and it’s also how a loan officer determines your pre-qualification amount when shopping for a home. A DTI higher than 36% is considered high and you should take steps to reduce your debt.
The article also makes an important distinction: Good debt vs. bad debt. Debt can be a tool for building wealth if you use it to acquire income generating assets. Trouble occurs when you get into debt by purchasing things that don’t appreciate in value—like most things purchased on a credit card!
My Take: I love Rober Kiyosaki’s perspective on debt, especially for the ways it encourages an entrepreneur-centric mindset. This article does a good job of breaking down his approach to debt, but it is a perspective that’s quite different from other voices in the financial management field.
I wrote an article breaking down two different approaches to debt here. Check it out!
The main takeaway here: When making decisions about what debt to take on and what to leave behind, focus on risk management. This might mean finding an advisor with more wisdom than you have on your own. If you ever have questions about real estate investing, I’d love to be a resource for you.
Article: Norada: Is it Cheaper to Buy Land and Build a House?
The Highlights: In today’s low inventory environment, it may be more simplistic to buy a lot of land and build a home rather than purchasing an existing one! BUT! Simple doesn’t always mean cheap.
The cost to build a house is typically more expensive than buying an existing home. The average cost to build a new home in the United States in 2023 is $421,000, while the median single-family list price is $415,000.
But, the article lays out some factors that can make building a house more affordable, including…
· Finding a good deal on land: The cost of land varies by location, but the average price of an acre of land in the United States is $12,000.
· Using a design-build contractor: A design-build contractor is a company that handles all aspects of the construction process, from design to completion. This can save you time and money.
· Building a smaller home: Smaller homes are typically less expensive to build than larger homes.
· Choosing less expensive materials: There are a variety of materials that can be used to build a home, and some materials are more expensive than others.
· Doing some of the work yourself: If you are handy, you can save money by doing some of the work on your own, such as painting or landscaping.
My Take: There is good food for thought laid out in this article, and building on an open lot would certainly help solve the inventory issue for lots of homebuyers. BUT! If affordability is ultimately your concern, there is no question that purchasing an existing home is much more affordable—especially if you’re in an established urban or suburban area like the one I work in.
The article lays out the cost of building a new home, but that figure did not include the cost of land. The average cost to build a new single-family home, including the cost of land, is $644,750—well above the average cost of an existing single-family home.
The cost is high, but the time it takes might be even higher. When you consider waiting for permits, working with city to tie in plumbing systems, etc… you may not only be paying a lot but waiting a long time too.
The Article: Keeping Current Matters: What are Accessory Dwelling Units and How Can They Benefit You?
The Highlights: Accessory dwelling units are accessory dwelling units, or ADUs for short, are small, self-contained living spaces that share a single-family lot with a larger, primary dwelling.
An ADU can be located within, attached to, or detached from the main residence. It can be created out of an existing structure (such as a garage) or built new.
The article lays out several perks to these ADUs, including:
· Living close, but separate: ADUs allow loved ones to live together while having separate spaces.
· Aging in Place: Similarly, ADUs allow older people to be close to loved ones who can help them if they need it as they age, offering independence and support.
· Affordable To Build: Since ADUs are often on the smaller side, they’re typically less expensive to build than larger, standalone homes. Building one can also increase your property’s value.
· Generating Additional Income: If you own a home with an ADU or if you build an ADU on your land, it can help generate rental income.
My Take: I LOVE the idea of an ADU! Aside from the social benefits of caring for family members as they age, or as children are launched to independence, it’s a fantastic investment opportunity. If you rent out an ADU on your property, not only will it generate monthly income, but it’s an attractive feature for buyers down the road should you decide to sell. In fact, ADUs can increase a property’s value by up to 30%, depending on size and location.
Additionally, ADUs are often an attractive alternative to more expensive apartments or single-family homes. They’re generally more affordable than traditional rental units and offer a less corporate feel since they’re typically nestled into a single-family neighborhood making them attractive to renters.
Lastly, it’s easier to manage these properties since they’re on your property and require no travel. Many investment properties, especially short-term rentals that do best in vacation towns far from home, require property management companies, adding to the expense and taking away cash from your bottom line. Should something arise that needs attention, it’s easy for you to be the one to handle it—no travel required.