Friday, May 24, 2019

What is today’s “American Dream”?

By Dan McDermott

Has the American Dream evolved over the years from the classic beautiful white house with a picket fence as depicted in a Norman Rockwell painting?  For most Americans this is what they have been working towards their whole life. The pursuit of this dream involved going to college, getting a good job, saving and purchasing a home where they could lay down roots and start a family.  But does this have to be the only way? 

No, there is another path for many American’s and that is the path to financial freedom. 
Financial freedom is defined as owning assets that produce income that exceed your liabilities/living expenses. When a family or individual has collected assets, such as real estate, bonds, or royalties, these assets will produce income for the owner with little to no work to maintain. 

This allows the owner to generate income on a monthly basis that can be used to cover your living expenses and save for the future. When the income produced from these assets exceeds your living expenses you will have total financial freedom. This means you can do what you want whenever you want whether that be spending an afternoon with your children at the park, diving headfirst into a hobby, or just traveling and seeing new places. This, I believe, is the new American Dream and is totally achievable through wise investments in real estate. One successful strategy for first time real estate investors and first-time home buyers is called “House Hacking”. Hacking is an investment strategy that involves purchasing a multi-family property such as a duplex, triplex, or a quad-plex. The purchaser of the property will then live in one of the units and rent out the other units for income. The income generated from the rental units can be used to cover the mortgage payment/expenses on the property or saved for additional investments. 

First time home buyers also have a unique opportunity with a program offered by the Federal Housing Authority (FHA). This program allows borrowers to purchase owner occupied two to four-unit properties with a 3.5% down payment.  This is especially helpful for first time home buyers since there is such a low down payment needed to acquire an income producing asset.  It is not uncommon for borrowers that utilize this FHA loan program to be able to live for “free” in their property with the rental income that is generated from the other units.

This investment strategy has three major benefits. The first major benefit is that the income produced from the property can cover the mortgage and eliminate a housing living expense. The money saved from this housing living expense can be saved and used for another investment property or used for a down payment on your dream home.

Another benefit is that every month the tenants pay down your mortgage increasing the owners’ equity position in the property. The last and most important benefit that house hacking has is that it is one of the only investments where you can put 3.5% down and earn 100% of the income generated from the property. Implementing an investment strategy such as house hacking can be an important first step on the path to financial freedom!

If you have any questions on real estate investing strategies or would like to take your step towards financial freedom please contact Dan McDermott of Better Homes and Gardens Real Estate The Masiello Group at 207-712-3152.

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