I am borderline Hose Rich, Cash Poor

How do you know if you are house rich, cash poor? Here is one simple guideline. If you have to spend more than 25%-30% in housing you are House Rich, Cash Poor.

Here is my situation. I am borderline House Rich, Cash Poor.

I pay $710 for a 3 1/2 apartment ( one bedroom, one dining room, one living room, and one bathroom) in a neighborhood called “Le Plateau.” Living in this neighborhood is one of my biggest splurges in life. I like it so much. There is a lot of life and activities around. I get more than a house, I get a lifestyle.

The thing is that my average income is about $2,000 a month. Since my rent is $710, my housing expense is 35.5%.

In my case, this is not a big deal. I am very frugal, I hardly ever buy new clothes ( I am happy wearing a shirt for 10 years or more), I don’t eat out much, and when I do, I go to low-budget restaurants and I don’t have any debts. So, I don’t feel the pinch of paying more than 1/3 of my income in housing.

Don’t be seduced by the idea of being a homeowner

If you have kids and/or lots of debt, then paying more than 1/3 of your income in housing may be too much.

Many people get entangled in the House Rich, Cash Poor situation when they decide to buy a house.

There is a misconception out there that we should buy as much house as the bank is willing to finance. This is a trap. You will be House Rich, Cash Poor and you will pay the consequences with a lot of deprivation in your life.

Only buy the house you can afford, and don’t think there is a stigma on not being a house owner. In fact, I think it is dumb to put all your money in one asset class, or as many of our grandmothers tell us, don’t put all your eggs in one basket.

Advantages of home renting vs. homeowning

1. As a renter, you don’t have any responsibilities other than to pay your rent. Is the toilet not working properly? Call the landlord. He will fix it.
2. Renters can move with ease. The maximum penalty for breaking a lease is 3 months of rent, but most people can sublease to someone else.
3. Do you have a new member of the family? rent a bigger place? Did you break up with your boy/girlfriend? get a smaller place. Did you find a job in a different part of town? just move.
4. Your money is not tied up in a property. You can invest it in the stock market and see it grow at a faster rate than real estate prices.

How to solve the House Rich, Cash Poor problem

1. You can get a roommate. If you get a roommate, your housing expenses drop right away.
2. Look for ways to earn more money. I don’t like this idea. We become slaves of our consumption, we work more to spend more. Bad idea. But it’s an idea nevertheless.
3. Rent the guest room or the basement through Airbnb. I have been an Airbnb host for many years and I can attest that it’s a nice way to make extra cash.  If you have any questions about this send me a message.
4. Never become a homeowner, It’s bad business. Just rent the size that you can afford. If you can not afford much, then be someone’s roommate until your situation improves.

Related Posts

1. Mortgage down payment, how much do you need
2. Interest rates: Variable rate or fixed rate?
3. Should you buy a house? How much can you afford?

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