Fortunately for me, I live in a part of the country where housing prices and cost of living is actually quite reasonable. But I know that for the majority of the population, rent alone is sucking them dry.
Check out this listing, which shows rent by city across the United States. As you can see, rent has increase exponentially since 2014, and it’s only increasing. Rent for me generally cost 30-35% of my take-home pay. But I know numbers closer to the 50-60% range, or even higher, are quite practical for many.
I once heard a man say, “I have two paychecks each month. One goes to rent, the other goes to my student loans.” Nobody should have to live like that.
Fresh out of college, I moved around to a few different cities for internships and various other jobs. Before I moved somewhere new, I had a system. I’d sit down with my laptop, look up potential rooms on Craigslist, call around, ask for pictures, speak with a few of the other tenants or roommates, and when satisfied, would sign a contract. Pretty simple, right?
One day, I was laying on my bed and dreaming to myself, “What if I could live wherever I want, and never had to pay rent? Man. I’d save so much money.” Suddenly, I shot straight up in bed as I had a profound self-realization. “Wait — Why can’t I live rent free? There’s nothing stopping me.”
Most of the people that I had rented from were single guys, just like me, who had purchased a home and then rented out the extra bedrooms to supplement their income. At the time, I didn’t have the means to purchase a house myself, but I made it a goal that within 12 months, I would do the same thing and be living rent free. I know that your financial means may not be such as mine was and able to purchase a home within the next year. But even if you can’t, here are still a number of ways that you can live rent free.
Rent an apartment, then sublet it
The idea to this one is really fairly simple. You sign a contract on an apartment. It’s now “yours”. Let’s say your rent is $1200/month. Now you turn right around, and rent it to someone else for $1400/month. You make an instant $200 for doing nothing. Even if this isn’t an apartment that you personally would rent yourself, you can go out shopping for apartments with this as your sole purpose. Keep in mind that not all landlords or property management companies allow this. In fact, many don’t. If you have this as your sole purpose, be sure to read rental contracts very closely. If there’s nothing specifically written in the contract about subletting, then you’re golden.
This works best if you have a landlord who isn’t overly-involved in your rental unit. These are the kind of landlords that leave you alone pretty much 24/7, as long as they receive their rent check each month. This works best if you find yourself in an area that is either 1) rent controlled, and rent never increases, or 2) you just got a really incredible deal on your apartment where you know you can rent it to someone for more than you’re currently paying. I’ve seen this work particularly well in college towns or near a University where the turnover rate is higher due to student living.
If you’re having troubles finding a good deal, you might check out some of your friends who are interested in moving. You may be able to take over their lease, without the rental terms increasing.
The main attraction to this is that rent is always increasing. During the recession of 2007, home prices took a nose-dive. Want to know what stayed constant? Rent. Landlords were raking it in. Just because the housing market is collapsing is no reason to reduce a tenant’s rent.
Purchase a home, rent out the extra bedrooms
For those of you who live in cities with a higher cost of living, such as New York or Los Angeles, this probably doesn’t apply to you. Purchasing a house in a large metropolitan area is virtually impossible unless you’re independently wealthy.
Find a house at a good price, and purchase it. If it’s going to be used solely as a rental property for the next few years, don’t get too picky on the specifics. You don’t need a house with fancy features, huge walk-in closets, or granite countertops. Say you buy a 4-bedroom home, and your mortgage comes out to $1000/month. Take that price and divide it by the number of rooms in your, minus one (Mortgage – (bedrooms – 1)).That’s because you don’t want to pay rent, so divide the mortgage by the three roommates that will rent the other rooms. $1000/3 tenants = $333.00/month per tenant. But don’t just stop there. Tack on $100 or so to the price so that you’re not only living rent free, you’re also making money. Tack on another $50-60/tenant for utilities. You can now rent the rooms to a couple of your buddies for $450-500 a month. They get a good deal, but you get a great deal.
This is what I did with my first house purchase. I rented the rooms to a couple of guys. Some were friends, others were random guys that we found on Craigslist who were looking for a room. The best part of it all was that I was the landlord and made the rules. I got to park in the garage, while my roommates were scraping ice off their cars in the winter. I got to have a clean, private bathroom while my roommates all shared the other. That may sound cruel, but when you’re the landlord, you get to decide how you live.
AirBnb Your Extra Rooms
Similar to renting out extra bedrooms in your home to permanent tenants, you might consider listing your extra rooms on AirBnb if you live in an area of the world where many people travel. Not only can this cover your monthly mortgage, but you can actually make extra money above and beyond.
One thing to keep in mind is that rental income is taxable income. If you’re not careful, you can be burned by the IRS come tax time. As a general rule of thumb, it’s a good idea to set aside 30% of your earnings for taxes. If you don’t use it all, great! You’ll have a nice little nest egg waiting for you. And if you do use it all for taxes, no skin off your back.
Also be sure to always have renter’s insurance to cover any damages or other mishaps that might happen with a rental property.
Live at home, with a friend, or barter for free rent
While this isn’t the most glamorous of solutions compared to the others, it’s still free rent. Living at home isn’t ideal necessarily, but you’ll be saving boatloads in rent each month. That rent can be put towards investments, paying off debt, or a down payment on a nice home so you can rent out the bedrooms, as mentioned above.
If you have a skill that’s marketable, you may be able to barter for free rent as well. When my parents were first married and in college, they lived in the basement of an older lady. In exchange for free rent, they agreed to do all the yard work, since she was no longer able.
It’s easier than you think
The bottom line is you have to have some place to stay. If you’re smart enough about it, you can do that for free or extremely cheap. Don’t worry about keeping up with the Jones’ and having a “sick pad”. Get something that’s not only within your means, but below your means. You’ll sleep easier knowing that you finances are more fluid for unexpected life surprises.