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Hacking the Homebuyers Market

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Home buying concept | Image by Aleksandr Zubkov/Getty Images

Buying a historical property in rough shape can be an effective method for “hacking” home ownership, according to the stars of the HGTV show Cheap Old Houses.

Last month, the Federal Open Market Committee kept interest rates unchanged for a fifth straight month at 5.25% to 5.50%, an over two-decade high. These elevated rates have translated into higher borrowing costs for consumers.

The average rate on a 30-year fixed mortgage in the United States is 6.79%. While it has pulled back slightly from its highs, it is nowhere near the level it was a few years back. That same term was just 3.05% a little over three years ago.

To put this change in perspective, a $500,000 mortgage at 6.79% would require a monthly payment of $3,256, not including any fees or insurance. Over the life of the loan, the borrower would pay $672,267 in interest.

That same term, but with an interest rate of 3.05%, would result in monthly payments of $2,122, or more than $1,100 lower. The owner would also pay substantially less interest at $263,750. Over the life of the loan, that works out to over $408,000 in savings or more than 60% less interest.

In other words, financing a home is not cheap these days. To make matters worse, as previously reported by The Dallas Express, house prices have skyrocketed since 2020. Buyers need an annual income of $106,000 to comfortably purchase a home in the U.S., up 80% from $59,000 just four years back.

Fortunately, Elizabeth and Ethan Finkelstein, hosts of Cheap Old Houses and owners behind the Instagram account with the same, believe purchasing a cheaper, older property continues to offer attractive relative value.

Choosing a cheaper older house presents several advantages:

  • A cheaper house allows prospective buyers to enter the market sooner and more comfortably. Many of the homes the Finkelstein’s spotlight are under $100,000.
  • You can gradually improve the home over time at your desired pace.
  • Old houses are often underappreciated because of the sweat equity needed to restore them. This means other buyers might undervalue them.
  • Old houses allow owners to add value by performing upgrades and renovations themselves. Not only are new skills acquired, but the work offsets potentially costly labor that you no longer need to hire. Instead of working a side hustle after work, performing renovations on a property you own is an alternative way to boost your wealth.
  • According to the couple, older and cheaper homes are more resilient to market changes and, as a result, have not appreciated as aggressively as the broader housing market in recent years.
  • Locking down a cheaper home requires less reliance on the bank. With interest rates as high as they are, taking on as little financing as possible can provide outsized savings over the long run.

“We love old houses. We grew up in them. To us, a natural solution to this is to take advantage of a house that you can get at a lower price point, come in, fix it up. You’re not only preserving history, but you’re also getting yourself in the door of a market that so many people feel like they can’t access,” Elizabeth told Fox 4 KDFW.

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