Data Shows That Only 25% of Median Earners Can Afford Housing—Here’s How to Make Up the Difference

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A recent report published by the National Association of Realtors reveals that the housing shortage and affordability crisis in the U.S. would be alleviated if there were sufficient homes available for buyers at all income levels. Currently, 51% of American households have an income of $75,000 or less, meaning they can only afford houses that are priced at $250,000 or lower. Data shows that of the 1.1 million homes listed for sale, only 25% are listed within that price range. To balance the market, the report indicates that there needs to be an additional 319,460 listings priced under $250,000. 

The top five cities that have large supply shortages of affordable homes include El Paso, Texas; Boise, Idaho; Spokane, Washington; Cape Coral, Florida; and Lakeland, Florida. Conversely, Youngstown, Ohio-Pennsylvania is a region where buyers with an income of $75,000 can purchase 72% of the listings, exceeding the balanced market target rate of 66%.

The report also highlights that black Americans are the most behind on reaching equilibrium, with two-thirds earning $75,000 or less and can only afford 22% of the home listings. Whereas for white Americans in the same income bracket, 48% can afford to buy 22% of the listings. Overall, the report stresses the need for more affordable housing options to tackle the affordability crisis across all income brackets and racial and ethnic groups.

7 Personal Finance Tips to Kickstart Your Real Estate Portfolio 

Given the data, it’s pretty clear that many prospective investors will need to add additional income from somewhere to get in the game. Whether you’re a novice investor looking to enter the real estate market or you’re planning to add to your real estate portfolio, here are some personal finance tips to help you reach your goals faster.

1. Start a side hustle

We know that owning real estate will help you grow your financial nest egg. But how can you get there if you’re in the median income bracket? Well, earning additional income will help you save for a down payment faster. That way, you aren’t relying solely on your full-time job. Plus, it can help you access higher-priced listings. 

The easiest way to choose is basing it on your passion or talent. Offering dog walking services, tutoring, or selling household items are simple gigs to get you started. It provides flexibility as you can set your own hours and go at your own pace. You can take a side hustle as far as you’d like, even potentially turning it into a full-fledged business. The most important step is getting started.

2. Automate your savings 

A simple way to keep track of your savings goals is to create a dedicated savings account. For example, if you need to save up to $50,000 for a down payment, then having a separate savings account will make it easier for you to monitor your progress. 

Once you have opened a savings account, you can automate your savings by making regular transfers (such as bi-weekly or monthly) from your checking account to your savings account. Money savings apps such as Acorns, Current, and Stash can help you reach your goal faster. Also, you can use a high-yield savings account, such as one that offers 5% interest, giving you an added boost to your savings. 

3. Invest your money in stocks

If you don’t need the money for a few years, you can consider investing it in the stock market. This way, your hard-earned money can benefit from compound interest. The longer your time horizon, the more time you have to ride the wave of the stock market. That said, there are always risks involved when investing your money, so be sure to assess your risk tolerance before you buy any funds. 

Note that this isn’t a get-rich-quick scenario, either. Stocks should be used as an addition to your real estate portfolio for diversification.

4. Apply for government programs

Furthermore, depending on what state you live in, there may be government programs that help first-time homebuyers with a variety of real estate costs, such as closing costs, down payments, and reduced interest rates. 

For example, Ohio Housing Finance Agency lenders (Ohio), SONYMA lenders (New York), TDHCA lenders (Texas), and Nevada Housing Division lenders (Nevada) have different types of loans and programs that you can apply for. To find out what’s available to you, check out the listing here. 

5. Move to a different city/state 

As you know, every housing market differs and can be drastically more or less expensive than the other. You may consider moving or investing out-of-state. If you move, this could reduce your cost of living and tax bills. It also means you’ll be eligible for that state’s homebuyer programs after you’ve lived there for a certain amount of time. If you choose to invest out of state, note that you’ll have a harder time getting access to programs like that, if at all.

6. Consider a partner

If buying a property is out of reach at the moment, you can look to other people and form partnerships. Whether it’s your significant other, family member, friend, or business partner, this gives you the ability to leverage their expertise, funds, and/or abilities. Of course, it’s wise to choose someone reliable and willing to follow the terms of your arrangement. 

By joining forces, you can fast-track your way to getting in on an investment. 

7. Boost your credit score

When a seller has accepted your offer, you’ll need to secure a mortgage with your lender. Having a good credit score is important because it directly affects your interest rate.

First, obtain a copy of your credit report and credit score. They are available through agencies such as Equifax, Experian, and TransUnion. The credit score ranges from 300 to 850: 800 to 850 is excellent, 740 to 799 is very good, and 670 to 739 is good. 580 to 669 is considered fair, while 300 to 579 is poor. You’ll want to maintain a higher score so that you can get the best mortgage interest rate possible. 

You can improve your score by having a low credit utilization ratio, paying your credit card bills in full and on time, and limiting the number of times you apply for credit. Be sure to review your report, and if you find any errors (it happens more often than you think), be sure to report it back to the credit bureau and ask to have it corrected.

Laying the financial foundation

Although income earners in the lower brackets face higher barriers to entry into the housing market, there are creative ways to get your foot in the door. Of course, it won’t happen overnight, but if you build the foundational habits and follow these seven personal finance tips, you’ll be on your way to achieving your real estate goals.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.