Home News Should you rent or buy a home? Use the ‘BURL’ rule to avoid financial regret, says real estate investor

Should you rent or buy a home? Use the ‘BURL’ rule to avoid financial regret, says real estate investor

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When it comes to maximizing your lifestyle and net worth, the question is, “Should I borrow? Or buy“This is one of the most controversial things. Even if you already own a house or apartment, it’s a good exercise to regularly consider whether living there is the best move.

Borrowing to buy is always gambling. But if you go that route, your goal is to spend your debt to live a better life than if you had to pay cash. The first year after borrowing to buy a house is generally the most dangerous.

In contrast, the rent you pay in return is essentially zero. Yes, instead of paying the rent, you get a place to stay.But there are few chances Build equity.

BURL: Remaining Real Estate Investment Rules to Follow

As Real estate investor, I always recommend using the “BURL” rule. This stands for “buy a utility and rent a luxury” to avoid financial regrets.

Utilities can be defined as absolutely necessary with very little unused space. Luxury is more than you need, with a third empty bedroom, a large terrace, and a backyard with a pool.

BURL helps you understand that the real cost of living in a house you own is not just the money you spend living there. It’s the opportunity cost of not lending it at the market price.

BURL rule case study

What Do Smart Real Estate Investors Do

The other side of BURL

There are about $ 200,000 in properties in the Midwest. can Rent of $ 2,000 per month based on the 100-time monthly rent rule. It’s amazing value for investors, but low absolute rents aren’t very valuable for renters.

If you buy such a home at a baseline with a down payment of $ 40,000, a mortgage of $ 160,000, and an interest rate of 4%, the annual cost of ownership would be:

  • $ 6,400 Mortgage Interest
  • $ 2,400 property tax
  • $ 1,200 insurance
  • $ 3,000 maintenance

= $ 13,000

If you don’t get a 2% risk-free profit with a $ 40,000 down payment, add $ 800 a year as an opportunity cost. It costs $ 24,000 a year to own, while it costs only $ 13,800 to own.

Even if the owner can only charge $ 1,200 per month (for the expected $ 2,000) and result in a $ 200,000 real estate purchase equivalent to 167 times the monthly rent, especially if the property continues to be valued. Ownership is a better value proposition.

If the market price in the area you live in or want to live in is like this, you should buy it instead of renting it, as cash flow can be positive as soon as you rent it someday.

Ultimately, the place we choose to live in is a very personal decision. We all want to live near our friends and family. We also want to live in a nice area with great food, great entertainment and good weather.

But you can’t get it all! But what we can do is choose the best option with the money we have.

Sam Dogen Engaged in banking for 13 years before starting Financial Samurai, His personal finance website. He has been featured in major publications such as The Wall Street Journal, Sydney Herald, Chicago Tribune, and LA Times.Sam’s new book “Buy this instead: how to use the path to wealth and financial freedom” I’m out now.

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