I’ve read a number of different survival suggestions on economic collapse and housing. Rawles, for example, lives remotely and spends his days farming. Bison pushes trailer living on dirt cheap dirt. While these are certainly decent suggestions in their own right, they’re not for everyone. Me, I live in somewhat rural Maine in an old New England home. Maybe that makes me the anti-survivalist survivalist. Maybe I’m the middle-class, have a mortgage and college loans asparing survivalist wanna be. Maybe, but there are many urban and suburban survivalists that are quite comfortable living right where they are - myself included.
Mortgages come under criticism quite frequently in survival circles. Clearly the survivalists’ goal is to become debt free – particularly mortgage free. Otherwise you always run the risk of losing your home if the economy totally tanks and you’re out of work. But you know what? Taking out a mortgage for most people is the easiest, simplest, and smartest way to begin gaining wealth AND security. You don’t have to take a 30-year loan, or if you do, you can pay extra on the principal. Be dilligent about it and it will go down. Yeah, the economic mushroom cloud might go up, and you might lose your job, and you might lose your house, but those are a lot of mights. What’s the alternative? Rent and pay someone else’s mortgage?
This brings me to the point of my post – an apartment building can be your SHTF housing back up plan! That’s right, it likely won’t have tillable fields or lots of standing hardwood, but say the economy DOES totally tank, you lose your job, and you can’t find another one. You can’t pay rent or the mortgage. Fighting with the landlord and bucking the eviction process might buy you an extra month (more if you’re low income and qualify for free legal assistance even if you’re in the wrong). Ignoring the bank and not paying your mortgage will buy you more than a month, but eventually . . . they will come – and you will go.
Go where, though? Run home to Momma? Retreat to that van on dirt cheap dirt? Live in a cardboard box? These are all options, I suppose, but if you have a family, neither is very appealing. If you own an apartment building, though . . . . you can move into one of the units and let everyone else cover the mortgage. This is an option that gets no air play in SHTF housing survival circles (if there is such a thing). Just make sure the best unit in the building has someone on a month-to-month lease. That way you can boot ‘em if you have to.
“Buy an apartment building?” you say.
“The real estate market sucks!”
This is true - it DOES suck - for most people. The people stuck in mortgages they shouldn’t have taken and can’t afford are in tough shape (though our tax dollars will help bail them out :-S). It’s lousy for people trying to sell a home, and it’s a big reason why the U.S. economy is getting flushed . . . BUT . . . it’s good . . . if you’re looking to buy (and don’t have to sell). Interest rates are still exceptionally low, the market is flooded with inventory, and prices are going down. It’s a buyer’s dream!
If you’re a first time home buyer the deal is particularly sweet. Why? Because, for most lenders, if you’re buying an apartment building with 4-units or less – and you intend to live there – they’ll treat it as a single family for lending purposes. Why does that matter? Because it gives you a much lower, FIXED interest rate, AND in most cases you’ll qualify for first-time home buyer programs, meaning you can get in for little money down. Some programs you can get in with as little as 3.5% down!
So, lets say you find a decent $200,000 4-unit apartment building. 3.5% is only 7 grand! Yeah, I realize it’s “only” 7 grand, but hopefully you’ve been saving some funds, Mom will give you a few g’s just to get you out of the house, you can offload two of the 12 different AR’s you own and suddenly you’re there! Also, the bank will count the building’s rental income as YOUR income when qualifying you for a loan. For someone on a limited salary, this is the perfect way to get into home ownership.
“Seven grand,” you say. “Ya! Ooookay. Ever hear of closing costs!?”
Closing costs? Not in this market, homie. This is a BUYER’S market. This is when you tell the seller THEY are paying ALL the closing costs. Trust me, it’ll work, and if it doesn’t – move on to the next apartment building, and tell them that’s what you’ll do. Apartment buildings are unlike other commercial real estate. People ALWAYS need housing, and when the economy goes sour it’s often good for rental units, because fewer people can afford a home.
No, landlording isn’t for everyone, but for those that do, it can help you build wealth, and when/if you decide to move into a single family home, you can qualify for a single family mortgage again, keep the apartment building, and start making a little money on the side from it. The longer you hold onto it, the more it makes. PLUS you can always retreat their if your job is shipped to India. Hell, when Bob Dole was a kid during the Great Depression, his parents rented out the top of their house for two years, because that’s the only way they could keep it. The lived in their own basement during that time. It’s true, google it and see.
Everyone should prepare for the next Great Depression, but we also must stay mindful that not everyone lost their job during that time. The Dole family thought outside the box to keep their home. Hell, there were even people that were buying stocks during the Great Depression for CRAZY cheap prices – like pennies! After the dust settled these shrewd characters became very, very rich. They did what all shrewd investors do. They do just what everyone else ISN’T doing. When the real estate market was nearing its peak – they were selling. Now they’re searching the market for deals while everyone else is trying to sell.
And unlike sending your money away to a mutual fund only to get monthly statements in return, real estate is REAL. You can see it, touch it, head-butt the building and say, “yup – there it is.” Stocks are more like an enigma, and unlike withdrawals on that 401k, rental income keeps up with inflation. Prices go up? Rent goes up.
- Ranger Man
BTW: here’s a funny SHTF “fashion show” . . . sorta. I found it on Dragon’s blog and it’s from Urban Scout’s blog:
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{ 9 comments }
Great advice on the real estate!
After all the bills and loans are paid (banks keep infation in mind, but still) you’ve been living in a place of your own, and it’s there to stay!
Ranger Man,
I read your blog every day that you publish. I guess you are part of my survival ration. Every little bit helps.
You make an error in your satement that housing is always needed. The closest town to me has been losing population. The tax base has been dwindling. Businesses have closed their doors. Manufacturing has gone away. There is a lot of places for sale. No one to buy.
And as far as renting goes, there are all kinds of places for rent, but no revenue stream to foot the bill. My son checked on the local fire department and they are planning on hiring a guy five years from now. When an older guy retires.
Buying a rental property is not a panacea for residential security. It could be just the opposite. And it is a lot of work. Someone has to take care of all the maintenance of those places.
Keep on writing. Your fearlessness is refreshing.
Michael
mboone@rtccom.net
The advantage of renting over owning is that home prices are falling nationally. if you purchase your home in the past five years is likely you’ll end up in a upside-down mortgage. Meaning you’ll owe more to the bank than you can sell your home. This is a terrible situation since you will be losing money with every mortage payment. I think that housing prices will continue to slide for years to come, so even purchasing one to day, may leave you upside-down.
Real estate is going to take a very long time to recover:
1. Consumers are awash in debt. Consumers spent like a drunken sailor. Those that had lots of equity in their homes, either upsized to a larger home, or used home equity loans to go out and spend (new kitchens, big TVs, new car or suv, etc). This was the new-new economy where home prices only went up and anyone that owned real estate was going to be able to rich rich! Those that had no money down, were also able to get home equity loans when home prices were still rising. Not only did they get to live in a nice home for little money, they also cashed out money to purchase stuff or go on vacations. Now they are simply walking away. Right now a great number of these no-money down folks, are living rent free as they simply stopped paying the mortgage, and let their homes slip into foreclosure. This we the gov’t even let them stay an extra 30 days for free because the enacted “project lifeline” with a 30 day mortorium on foreclosures. I suspect this will increase another 30 days in about 30 days from now. These folks might end up living rent/mortgage free for a year or more!.
2. Banks and other lending institutions are in deep trouble. It will take a very long time to dig out of the hole they made. and during this time, they aren’t going to be willing to loan much money out. especially when they are stuck with millions of properties that are going into foreclosure. No loans, no buyers! And for future loans, banks are going to much more strict on who they loan money too. I think they will demand a mininum downpayment of 20% to 25%, to avoid people from walking away from no-money-down purchases. They will also be demand a lot more employment documentation, and probably want you to remain on the hook for short sales (ie even if you walk away, you still must pay the difference on a short sale).
3. The economy is headed for a long hard recession. Now that the debt party is over, consumers have to pay the bill and start paying down their debt. Debt is like a double edge sword. When everyone was increasing their debt load, they were spending causing the economy to soar above its normal level. Now that the spending spree is over, the economy will tank, as consumers spend far less to pay down there debt. As consumers spend less, unemployment will rise creating a downward spiral.
4. Real estate declines typically last 5 to 7 years (if we look at the last previous real estate declines during the 1990s, 1980′s and earlier). Unlike the past, this current bubble was far bigger than the previous real estate booms. Its likely to last from 10 to 14 years. By that time peak oil (energy crunch) will be in full swing. Plus we have millions of boomers that will be retiring and they will start draining the gov’t of capital with all of the entitlments (Social Security, Medicare, etc) that were promised to them. Taxes will soar, energy prices will soar, and the economy will fall in a severe depression. Real estate will remain depressed indefinately.
That said there is a good possibility that the gov’t will try to inflate its way out of these mess, but I wouldn’t bet owning homes being a smart investment. If the gov’t inflates, taxes (including local and propert taxes) will go up, and energy prices will soar (since most of it is imported). If the gov’t choosing to inflate its way out (I think will know in the next 6 to 12 months), the dollar will tank, and the cost to borrow money will soar. Cash will become toilet paper. I think there is a 50-50 chance that the gov’t will try to inflate it way out. This will likely hasten a severe crisis, as the world drops the US as the reserve currency, and we get cutoff from strategic resources (energy, fertializer, replacment parts, etc)
I think owning a rental property is a terrible proposition. Back in a early nineties a friend of mine, got into the housing rental business. Shortly after aquring a rental property (3 family apartment), the economy tanked. Two of his tenants lost their jobs and stop paying rent. He filled for eviction, but the judge ruled in favor of the tenants and permitted them to live rent free for up to 18 months. During this time, one of the tenants started stripping his apartment. He sold off all of the applicances (that my friend owned), and also ripped out anything that the renter could sell for cash (Kitchen cabinets, copper pipe, faucets, you name it). When desperate times come, people will do desperate things.
Finally relocating to a city or urban region is the worst thing you can do. You are 100% dependant on gov’t services to survive. In bad times, expect violent crime, drug abuse to soar. People will take less care of themselves, unable to eat right or seek proper medical treatment (google “drug resistant strains”).
Taxes will rise as tax revenues decline, forcing you to pay ever greater sums of money, until you have none, or until you lose your job. Then your stuck there. You might as well be in prison, because once you lose your job, and your capital, you stuck there. By relocating to urban locations you put your safety and long term health at risk.
Heres a idea that might be useful to you:
Save up cash, and start looking for an undeveloped property. Preferable a property with lots of trees that can be cut into lumber. The property should be sufficient to grow crops, or raise small livestock (goats, chickens, etc), and where its not prone to flooding or susceptible to other disasters. Now that they housing bubble is crashed you should be able to pick up undeveloped property for a song. Ideally you want to purchase a lot without a loan. If necessary take on a second part time job, or find some way to make extra cash.
2. Buy a chain saw and a lumber mill (used if you can’t afford new stuff). and a low cost shed or conex container (conex container would be better since you can lock it). You will store your tools and equipment in there. During weekends and during vacation time, Start making lumber for your new home, and preping your lot for your new home. What some folks have done is purchased a small used camper or used RV, that they live in while working on their lot.
I would recommend that you build a small home that you can expand later. I think time is running short and you don’t want to be half-way done WTSHTF. Plan on building out-buildings such as a workshop or barn. A property with a large wood lot can serve as low cost home heating fuel. Store any scrap wood (even tree branches) , from your lumber project to for future firewood. If you have a pick up truck, you could even haul back a load of firewood from your lot to heat, back at your home.
“Stocks are more like an enigma, and unlike withdrawals on that 401k, rental income keeps up with inflation.”
I wouldn’t recommend investing money in a 401k or other retirement plan, unless your planning to retire real soon (like in the next five years). 401K are a scam for younger workers because the gov’t keeps on raising the minimum age for withdrawl without penalty. The gov’t loves when younger workers put money into a 401K because the know they are going to collect an extra 10% in taxes from penalties. A lot of 401K plans limit what you can invest in.
FWIW: I don’t save money in retirement funds anymore. I pay the taxes. Federal taxes are still near historic lows with the Bush tax cuts still in affect. Your better off paying the taxes now.
I also don’t have any money in the market now, all of it in either short term treasuries or full FDIC savings account (no money markets because we are discovering that a lot of money in money markets have been invested in real estate). Banks have started blocking large depositors from withdrawing money (this might spread to small depositors). I am not sure how the FDIC will play into this, since the banks may end up just blocking you from withdrawl, but not file it as a loss eligable for an FDIC claim. Another words, your cash is stuck in a state of suspended animation. Its there but you can’t access it. If the gov’t starts inflating, you can’t reallocate it into other investments that are inflation safe.
To be honest I am a shade confused. Can’t afford a retreat or a house so get an apartment complex? For an individualized SHTF that is a good idea since the income from rent is enough for the loan (if all tenants pay which is a big if) but for a broader economic melt down not so much.
Morgages are part of life unless one wants to live in a van down by the river, a trailer or is rich and cheap enough to want a house they can get with cash. Having renters has a lot of benefits but in an economic downturn with a limited income a larger morgage then needed is questionable. In that situation focusing on securing ones job (think .gov not .com) and putting together a good emergency fund ( 2-12 months of normal expenses in liquid, part in cash). Consider renting out a room in the house or a remodeled apt in the garage/ barn.
In that narrow situation of being homeless and having about 7k to work with I would get an acre +/ – somewhere and a used mobile home. Not what I would want (sure the wife will love it) but its got a roof and 4 walls to ride out the economic SHTF rent/ morgage free. Later when u find another job or whatever shop around and get another house.
Your Idea might just work “prices are falling”. But I’d only give it a go for the short term as a money machine. Then sell it rent to own to the tenants maybe…Up keep is murder. Do you really want to be a slum lord?
I can’t / won’t go the apartment route until I get either my old camp straightened or resolved it by getting a new camp spot.
I think financial independence is key to any Preper or survival stratagem.
I cant wait to celebrate my personal Independence day. Dragon
Hey we were just tossing around ideas.
and my slum comment was just me thinking cheap…That said the camp friends or tenants would help others get started and help with some expenses. I’m cross posting this and hope neither of you are getting hot. I like reading both blogs and its good to have more than one source of input.
Peace,Dragon
Getting hot? Negative, Dragon bro. It’d take a hell of a lot more than that to fire me up. Betty the survival babe, though . . . she makes me hot.
2600v24no4
why be a slumloard when you can squat, instead.
welcome to the GREAT DEPRESSION # 2
Great idea. There will always be those that see the glass half empty. And some part of the country may se dwindling population. But. overal, you can’t go wrong with owning real property. For the nay sayers I would recomend: “Secrets of a Millionaire Landlord” by Robert Shemin.
My wife and I sold our paid for house 11 years ago because we “didn’t want to deal with renter”. Too late we realized what a blunder we had made. My advise to young people, forget the single family house and buy a duplex at the very least.