What Will it Cost? How to Decide Between Traditional or Alternative Housing
According to TheClose.com’s 2021 data, the median time that houses remain on the market hit its lowest point in 15 years at 31 days. Between the economic impacts of the pandemic and its isolating nature, those looking for their next form of housing have gotten creative with their means of living.
While many are still entering the seller’s market hoping to settle into traditional homes, others are turning to less traditional – even semi-nomadic – housing options to support their needs and get back to life. If you’ve found yourself considering your next place to live, we’ve got some financial considerations for you to make when looking to choose!
Despite industry chatter, down payments on houses are usually less than 20%. Per the National Association of Realtors’ ongoing research, repeat buyers put 17% down, and first-timers only pay 6 – 7%. Regardless of smaller down payments, prospective buyers will still need the funds to afford:
- Preapproval for a mortgage
- Hiring a Realtor
- Home inspection costs
- Monthly mortgage payments (premium + interest)*
- Homeowners Insurance*
- Home warranties*
- Closing costs*
*If selected for the home
Between the availability of houses on the market and the typical work needed to make them fully liveable, you need to consider what big-ticket items and services you need to purchase as necessary tools for continued maintenance. Lawn mowers, snow removal, garbage services, and repair tools can add up to thousands of dollars depending on where you live and what your climate and city require. What’s more, this doesn’t account for taxes, utilities, water, Wi-Fi, cable, or phone bills that will automatically cost you extra monthly or quarterly.
The upsides to traditional housing shouldn’t go unmentioned, especially when discussing long-term finances. When looking to purchase, there’s a lot of flexibility in loans available to buyers. Depending on your financial health and goals moving forward, fixed loans give you a designated number of years to pay back your mortgage with set interest rates and payments. FHA loans are easier to qualify for and serve those with higher debt and lower credit scores. They also come with lower down payment requirements.
What’s more, once your mortgage is paid off, the home is yours! From day one, you can build its equity for potential resale or leasing, or you can settle down and enjoy it as a lifetime project that gives you a home base to return to. This is an especially great option for families looking to pass their property down through the generations.
According to KOA.com, RVs can be financed but aren’t typically leased due to a vehicle’s immediate depreciation. Between purchase and travel, startup costs alone include:
- Monthly financing rates
- 2+ energy sources (propane, lithium batteries, solar)
- Emergency power source
- Properties/camps to stay at
- Grey water and waste removal
- Food & supply provisions for travel
This doesn’t account for any customization or repair that the vehicle may need.
The less you spend on an RV, the less you have to work with in terms of space, convenience, and basic amenities, but it’s worth noting that the lifestyle as a whole generally requires some adjusting.
The pros of converting to RV life include a larger opportunity to pay the vehicle off sooner than a typical mortgage if you choose to finance. They can support remote work, digital nomading, families on the road, and fulfilling travel experiences that you might not receive otherwise. RVs are flexible to your family’s size and lifestyle needs, and they can be owned in conjunction with a house or other property.
As far as housing trends go, van life during the pandemic has skyrocketed as an opportunity to minimize one’s lifestyle, hit the road, and even work as a digital nomad. Often people purchase utility vans or decommissioned school buses to strip and customize to their wants and storage needs, though this can become a lengthy and expensive DIY.
The costs associated with camper vans will often reflect those of an RV, though the most substantial of them can present themselves in the form of remodeling and converting. With the conversion market still relatively niche, you’ll need to buy or rent tools and services for both demolition and reconstruction. The larger your project, the higher your need for specialized design will be, potentially through a CAD software. Smaller conversions might be able to get away with simple additions versus custom plumbing, electrical, and appliance fittings.
An important thing to note, especially when you’re looking to minimize costs, is to be aware of the things that will lower the fuel consumption of your van or bus to increase its lifespan. By converting these types of vehicles, you need to be conscious of the weight you’re adding and its driveability. More weight and/or erratic driving will use more fuel and lower the lifetime of your vehicle.
When done right, van life can come with several advantages. It’s a great way to practice compact traveling and minimalist living. It can be a practical arrangement for those who work remotely and want to travel or for college kids who want to avoid room and board fees while moving around on their breaks. Vans are easy to equip with safety features for solo travelers and can accommodate pets on their adventures as well.
Whether you go the traditional route with a home or apartment or stray to a more alternative option like Airbnb hopping, renting can be a great fit or an expensive move.
Costs to consider – financial or otherwise – include:
- Application fees ranging from $0 to thousands of dollars
- Security deposit (usually equal to one month’s rent)
- First month’s rent
- Last month’s rent (potentially)
- Credit check (possibly included in the application fee)
- Background check
- Proof of pay from an employer
- Signing on for a full year (exception: Airbnb, long-stay hotels, short-term housing)
- Renter’s insurance (landlords usually require a certain amount of coverage)
Additional costs could include water, heat, electricity, Wi-Fi, cable, phone, garbage removal, and snow removal, depending on what’s included in the rent, your needs, and how you can bundle certain expenses.
Renting can be a hit or a miss, especially if you’re staying in a complex where you’re more likely to be affected by other people’s noise and lifestyle. Top floor apartments will usually be more expensive than lower units depending on the view, accessibility, and how sound transfers between levels. What’s more, after the pandemic, rent freezes were dropped, and lease prices are now skyrocketing, which could add hundreds or even thousands of dollars if you re-sign to an unfixed agreement. In many places, people find themselves paying amounts comparable to mortgage rates and have to decide if it’s more worthwhile to settle in one space or have the ability to move around. Digital nomads who are hopping rentals and Airbnbs on a shorter basis will also have to absorb the costs of travel and vehicle wear.
The advantages of renting aren’t to be overlooked, though. If you keep your space in proper condition according to your lease, you’re likely to receive your security deposit back in full when you move out. Landlords are often flexible to contract lengths after you’ve stayed for a year, sometimes allowing for half-year or month-to-month signings (these might cost more in rent). There is certainly greater flexibility here as opposed to homeownership, and the added costs are things you’re likely to find with any living situation. Leaks, breaks, and repairs are the responsibility of the property manager, saving you the time and money needed for tools and servicing. What’s more, Airbnb hoppers can get their travel fill while still having spaces to spread out and ground themselves where they are at.
The Bottom Line
Whichever lifestyle you choose, it’s important to do what’s best for you and your financial future. Some ditch traditional housing to save money, while others have found that alternative housing tends to create just as much of an expense. It’ll be up to you to live within your means, balance short-term and long-term costs, and exist safely to truly enjoy the fruits of your labor!
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