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