Living Rent Free! - Choosing House Location and Size

So you are interested in purchasing a home and renting out rooms, to offset the mortgage, here are some thoughts to get you started!

Picking a Location
Not all locations are created equal for renting out rooms. The two most important things to you need to know about an area are: is there demand for room rentals and what are the prices. You can get a quick idea of both of these by using Craigslist, look in the "Housing wanted" category, are there lots of people seeking rooms who have not found one yet? Next, look at the "Rooms/shared" categories this will give you an indication of price and amount of available rentals. Often time there a lot of postings but don't worry many of them are duplicates. Browse around; get a feel for the prices and types of rentals available. I always find it preferable to ask slightly less money per month but charge first, last months, rent and a one month security deposits. It also allows you to be more slightly more selective picking the roommates.

Picking House Size/ Configuration

Certain house configuration lend themselves to being ideal room rentals. Given the choice a 3BR/2BA or a 4BR/2BA are preferable, and if you luck enough to find a 4BR/3BA it is a very nice layout. As the owner of the house, I prefer to have my own bathroom, but this is really up to you! Any more than 3 people sharing a bathroom will become bothersome so keep that in mind when considering a 4BR/1BA or even 3BR/1BA home.

Other Factors to Consider

Some other factors that make a home more desirable for room rentals are:

• Adequate off-street parking
• Washer and dryer in-house
• Private bathroom for each bedroom
• Full kitchen
• Access to public transportation
• Adequate jobs in the area
• Universities in the area
• Community recreation included- pool, walking trails, gym, or tennis courts

Living Rent Free! - Introduction

Wouldn't living rent free be nice?  And I'm not talking about living with your parents, I am talking about living in your own house for free. Many people in their twenties and beyond currently share rental properties with 2, 3, or even 4 other roommates. Why not continue this lifestyle but own the house and collect rent?

I will give a very simple example for how this works. You have a 3 bedroom house, the mortgage is $1000 per month and your rent out 2 bedrooms for $500 each. That is $1000 per month, now you are living for free! Well almost, there is a lot more responsibilities.

I will be doing a series blogs on this topic; explaining the pros and cons and laying out a step-by-step plan.

Power of the Mind

I am big believer in the power of the mind. If you think about something enough it will eventually come true, within reason of course.

A funny example of this happened the other day while shopping at Trader Joe's. I was holding a glass bottle of unsweetened ice tea to read the labels, and I began imagining dropping the bottle, maybe because I had opened toed shoes on, I'm not really sure why I had this image in my mind. But sure enough a second later "boom" I dropped the bottle and it shattered everywhere, whoops! I guess the mind is a powerful thing.

I have personally utilized the power of believing in many other, more serious aspects of my life, from sports to academics to work, and even to personal finance. Whether you want to save more money, improve your investment and finance knowledge, or make more money the first step is believing you can!

Greatest Predictors of Net Worth

Lot of studies and statistical models have been performed on a number of predictors for personal and household net worth. Most of these studies have shown education, annual salary, and IQ have a high correlation to to net worth. I am not interested in writing about the already studied and easily sampled data points. I want to examine a couple more "heuristic" indicators of net worth.

1. From personal experience I find the greatest indicator of net worth to be the net worth of those in your social circle and those you spend the most time with
2. I find also there is an inverse relationship between daily television watching hours and net worth. The more TV watched per day, the lower a persons net worth. Think about this one and let me know if you think this is true!

Actions:

1. Surround yourself with like-minded people with similar goals.
2. Watch less TV!

Retirement Accounts: Did you know you can choose to pay your taxes now or later?

I am planning a series of blogs about the two primary "flavors" of retirement accounts. I will break this down into two types: Roth and Traditional (Tax Deferred).

• Roth Accounts- you contribute to these with post-tax money, but the earnings are not only tax-deferred, they are TAX-EXEMPT. This is a very powerful feature meaning if you put $4000 into an IRA in 2011 and in 2025 you retire, the account is now worth $25,000 and you will owe NO TAXES on $21,000 you earned.
• Examples: Roth IRA, Roth 401K, Roth 457(b), and Roth 403(b)
• Traditional Accounts- you contribute to these with pretax money, and the earnings are tax-deferred. These plans offer a way to reduce your current taxable income. For example if I make $60,000 and contribute $15,000 to a 401K my taxable income is now $45,000. Which if I am single, my income between $45,000 and $60,000 were being taxed at 25% versus 15% for income between $8,351and $33,950. The bottom-line is this reduces my current tax liability and if I making more money now than in retirement, this is advantageous.
• Examples: Regular IRA, 401K, 457(b), and 403(b) 

This gives a short background about the types of retirement accounts in the United State today, the next blog I want to delve into some strategy on how to use the most effective combination of both Roth and Regular accounts and why.

Commonly use terminology defined:

• Contributions are the money that you put into the account initially
• Once in the account the contributions are referred to as the basis
• Post-tax means you pay taxes on the money before it goes into the account. 
• Tax deductible/pretax means you do not pay taxes on the money on the way into the account
• Tax-deferred means you do not pay tax on earnings as they accrue. 

Saving Money on Coffee - Buying Quality

Today I want to share a quick tip for saving money on a daily basis. Coffee out at Starbucks is roughly $2 with a latte running about $4. Figure 300 days per year  you have either spent $600 or $1200 per year! Brewing your own coffee costs roughly $8 for beans every 2 weeks, that is about $200 per year.

• Limit your coffee purchases and save money!

There are two cheap and effective ways to enjoy coffee in your own home. I enjoy using the manual pour-over method or brewing espresso with a Gaggia espresso machine. The best pour over device can be had for under $30. A high quality used/refurbished Espresso Machine can be had for under $300, both of theses devices should last at least 20 years, if properly cared for. I find the best value for coffee beans to be from Trader Joe's Brand. Even if you purchase a quality the espresso machine, you will make back your investment in one year!

In terms of time, I find stopping for coffee before work or making my own to be about the same in terms of time. So, I feel there is no time-savings by stopping for coffee versus driving directly to work.

The overarching lesson here: it is worth it to spend money on quality goods that will save money in the long-run!

Getting Started

I am getting started blogging, so I will start by describing the first action item, to get to six figures by thirty.

To have a net worth (Total Assets - Total Liabilities) over one hundred thousand by thirty, one has to live well below their means.  This boils down to saving more money than you spend each month.

My first action item for everyone is to get a mint.com account.  Utilize this to get a handle on your spending, what is your positive (or negative cash flow each month). This exercise can be very eye opening for many to see where their money is going.