Thriving on Minimum Wage

[kathryn d]

Is it realistic to be able to buy a property on minimum wage, and not live at home while doing it? Of course it is.
What you need to do is to live as cheaply as possible, and save as much as you can.

Rent a place with 3 bedrooms and den if possible.Take in boarders and charge them each a specific rent, and not split the bills. If they want meals included, add $50-$75 a week more.

Example:
Rent is $600 week.
You collect $250 (or $325 including food) from each

This will cover utilies,cable & internet package.
If you keep the property fully rented, you live for free (and eat for free)
In exchange, you clean the common areas, and provide toilet paper.
You take the smallest room...den.

If you earn $18 hr x 38 hrs week, you will be able to save $35,568 (less taxes) a year.

Do this until you have enough for a downpayment. Move to your house, and rent out rooms. Pay off mortgage as fast as possible.

Then you can decide if you want to continue with boarders, or buy an IP.

 

[Aaron_C]

...and who's going to lend you money to buy a property on minimum wage?

 

[kathryn d]

...and who's going to lend you money to buy a property on minimum wage?

I'm sure if you had 20 % deposit, there are lenders?

I know in Canada there are..and it is harder here to qualify.

 

[AlmostBob]

Aaron, you're a broker and you can't find a lender for someone on minimum wage?
indictment of lenders, brokers, or the whole shebang?
How do FHB manage?
How do divorcees manage?
the first one won't be the mcmansion, not everyone expects a mcmansion first up.
there are plenty who did buy, are buying, & will buy on basic wage
there are plenty who don't, fewer of those plenty who can't, just too busy with tv car holiday et al

hardly an indictment of brokers, have had them bend over backwards for me as a fhb, divorcee, and for us as minimum wage earners,
lenders & cohorts majorly suck

 

[Aaron_C]

Aaron, you're a broker and you can't find a lender for someone on minimum wage?
indictment of lenders, brokers, or the whole shebang?

Depends on what your minimum wage is. 20 hours? 40 hours? 60 hours? Living at home and investing? Buying to live in? How much to borrow?

 

[jaycee]

Aaron, you're a broker and you can't find a lender for someone on minimum wage?
indictment of lenders, brokers, or the whole shebang?

How do FHB manage?
How do divorcees manage?
the first one won't be the mcmansion, not everyone expects a mcmansion first up.
there are plenty who did buy, are buying, & will buy on basic wage

Sure all possible, but if you examine your numbers literally, I think you will find that the amount of income available to save will take a long time to get a sufficient deposit in the first place.

Many FHB's buy as a couple not as a single as per your example, and/or save a deposit by doing extra work and saving extra, many whilst living at home with the blessing of mum & dad.

Now, in your example, some renting a $600 property, in the city (where we do have to remember the great overwhelming majority live), that would make it a $600k property.... not bad

Firstly, someone earning $600 odd / week would have to get accepted by a landlord such as yourself, would you rent a $600/wk property to someone earning$600/week ?

Suppose someone does...

They collect, $250/week from boarders, and pay the other $350 themselves... leaving them with $250/week from which they need to pay personal needs & all the utilities for the whole household....

how much would really be left for saving ?
how long would it take to save a deposit ?

There's ways of course, just querying the numbers suggested

A number of people on low incomes that I knew that got ahead.. many did it together, many saved hard whilst living at mum & dad's and bought when they moved out and some of these got boarders, though usually only 1 per house. Most of them also weren't afraid of a bit of hard work and overtime or a parttime job in addition to their fulltime one either. (this is just people I've known, not necessarily representative of all)

 

[weg]

It can be done because I know international students do this sometimes.

Apart from those, I've never met anyone that's done this other than a couple of people years ago who bought a house as single people with a saved deposit from living at home, then had a friend move in to help pay the mortgage (a no brainer and easy if you have a 2 or 3 b/room house and you're single, and no LL to deal with).

But llike jaycee I have a problem with your figures. Not many share houses here where I am can command $250 for a 600K @ $600 pw house, when there's 4 to a house.

At best if I were to get $200 from each but paid for electricity, water and internet, I'd hardly be on a winner. Might as well get cheap share acommodation and save hard, without the problems of a lease/cleaning for everyone/collecting rent/putting up with vacancies.

I'd also work at getting my income right up. Not hard when your starting point is $18 ph.

 

[Jamie M]

Rent a place with 3 bedrooms and den if possible.Take in boarders and charge them each a specific rent, and not split the bills. If they want meals included, add $50-$75 a week more.

Or stay at home and mooch off the folks

Some lenders will accept a letter from the applicants parents declaring that they don't pay rent/board.

If they're purchasing an IP, the future rent will also be added to their borrowing capacity.

This can work particularly well for young investors who are starting out.

Cheers

Jamie

 

[Corey Batt]

Well this just crashed and burned.

As mentioned, the ability to save on such a small wage requires a large numbers of years to attain a deposit and in an upwards market you could potentially be constantly outgrown through CG.

Meanwhile you'd have difficulty borrowing to buy.

A good friend of mine is a soon to be FHB, on 2X minimum wage. It still is a very strong effort to be progressive and expand beyond a minimum deposit be stuck under the repayments.

 

[wylie]

I don't have any problem with the idea of buying a place and renting to friends, but the going rate for a room only is between $120 and $170 in Brisbane (at least when I was looking last year). Most rooms when I was checking this out were about $150 with the higher end of that often including an ensuite bathroom or at least two bathrooms available.

$150 is about average for a nice clean room. Our son bought for $292K and got a friend in at $150 to help him meet the mortgage, so it can work, but he would never have been able to borrow to buy anything much more than what he did.

The only reason he was able to get that much was that there were tenants in and the bank took the rent into consideration, even though it was made clear that he was buying to live in it and he was getting FHOG and not paying stamp duty.

So had he wanted to buy something with enough rooms to be able to rent more than one room, he would have been paying $400K or more to be fairly local, and that would still have been a three bed unit or two or three bed house, and at $400K locally it would have been pretty daggy, if you could find one. The only way to get four bedrooms is to move out much further, and we looked at this option, but he said none of his friends wanted to live further out, and he didn't want to get strangers in to live with him.

So, had the bank agreed to lend him more (highly doubtful) the only way he could have done it was to get in random strangers.

I also wonder about charging extra $75 for food. In that scenario, does the owner collect all the money, go shopping and just plonk it all in the fridge and everybody cooks for themselves? I really cannot see that working well with a bunch of strangers.

Anyway, I'm not knocking the idea, but it is not as straightforward is suggested.

 

[Spades]

Is it realistic to be able to buy a property on minimum wage, and not live at home while doing it? Of course it is.
What you need to do is to live as cheaply as possible, and save as much as you can.

This part i agree with kathryn.

4yrs ago,I was renting a place @$180 per week and with some OT my annual income was $45k before tax.I managed to save $12k in a year and with FHB grant,i bought a cheap 1 bedder @ $150k.Sure not my preferred place to live but it's a start and repayments are cheaper than the rent i was paying.

I approached a broker at first but decided to approach the lender he suggested at the time myself.So bank offered $190k lend but i was looking to not go that amount if could help it,as i wanted to save for the next prop(i'm still looking).I'll also add,i work casual employment though i work permanent hours.

My wage has increased to $65k before tax as of last year,same lender has offered $210k lend with current mortgage.I'm limited on what i can buy but it's doable.

Below a what i said in the scrooge or are you a TA thread.

To save my deposit on ppor,i gave up smoking,bought cheap wine and ate no takeaways.
My ppor is mostly furnished with hard garbage furniture,handouts from friends and stuff off ebay.
Extra Stuff i find off the street makes up for what i buy off ebay + profit or towards everyday living expenses.As i drive for a living,i see something on the street with value,i can't help myself,it's like finding $50 on the street(serial hoarder).
Clothes?I buy off ebay or op shops(this is one area i have to update,but i hate shopping)
Food,i cook myself as i prefer to know what i'm eating being turned into a health nut in the last 2yrs.
I'm single and my wants and needs aren't great.
Scrooge or TA?I have everything i want,i suppose wants and needs are different to the next person or there lifestyle and or responsibilities.

I did this @40 after a messy breakup.Funny thing is the breakup was the motivation,before that,i had no savings and money was just wasted.

Cheers Spades.

 

[Corey Batt]

This part i agree with kathryn.

4yrs ago,I was renting a place @$180 per week and with some OT my annual income was $45k before tax.I managed to save $12k in a year and with FHB grant,i bought a cheap 1 bedder @ $150k.Sure not my preferred place to live but it's a start and repayments are cheaper than the rent i was paying.

I approached a broker at first but decided to approach the lender he suggested at the time myself.So bank offered $190k lend but i was looking to not go that amount if could help it,as i wanted to save for the next prop(i'm still looking).I'll also add,i work casual employment though i work permanent hours.

My wage has increased to $65k before tax as of last year,same lender has offered $210k lend with current mortgage.I'm limited on what i can buy but it's doable.

Below a what i said in the scrooge or are you a TA thread.



I did this @40 after a messy breakup.Funny thing is the breakup was the motivation,before that,i had no savings and money was just wasted.

Cheers Spades.

Good work, but the problem is that whilst 45k is indeed not a lot of money, it is still $15,000 over the minimum wage, essentially what you managed to save over that entire year. Without those extra funds the bank would also look upon you (even) more poorly.

 

[kathryn d]

I want you to consider the figures I posted.
If you have the rent and required bond, there is going to some landlord that is willing to rent to you.


Rent is $600 week
http://www.gumtree.com.au/s-ad/dunlop/house/four-bed-room-house-in-dunlop-for-540-only/354425209
(this is a 4 bedroom house, in the ACT, close to unis etc)

You have 3 boarders at $250 week each ($325 food included)
So each week you collect $750 rent & $225 grocery money.
Renting to strangers is fine. It happens all the time.Short term boarders will pay more.

Excess rent would $150 week ($600 min a month, will would cover all utilities, cable/internet/phone)
Enough food could be purchased for $225 week.
Even if food was not included, the head tenant could still each very well on $25-$40 a week.

The head tenant in this case is working 38 hrs a week @ $18 hr. (is that minimum wage?) $684 x 52=$35,568 (less taxes) would be amount saved each year.

In my case senerio, I stated it would be owner occupied if he/she purchased a property.

The head tenant would purchase the food (if included). Preparing a stew,casserole,soup,chili,curry dish each evening for consumption the next day is reasonable. Have some fruit, juice,bread,rolls available for breakfast.
Lunches could be an assortment of tuna,roast chicken/pork/beef ,eggs,salad foods for wraps/sandwiches.

You're saying if someone walked in with $50-$70K (1.5-3 yrs savings) they couldn't qualify to buy something?

http://www.gumtree.com.au/s-ad/fisher/property-for-sale/3-bedroom-unit-in-fisher/356149465
3 bedroom unit in ACT for sale $378K ($436 week IO on $378k, it would be less because there would be a downpayment)

Now if you don't like that example, lets use 4 friends who want to buy a property.
We will take the same figures as above.
Rent is $600 week / 4 people =$150 week each (including all bills will be $200 week each)
Food is $225 week/4 people=$56 week each
These are serious wannabe investors, so miscellaneous spending will be $25 week each.

At the end of year one, EACH will have $684-$281= $403 week x 52= $20,956 less taxes.
After 1 year they could buy a house together. Depending on the individuals, they could continue to finance more rentals.

Minimum wage isn't the problem, it is lack of self discipline.

Having a social life doesn't need to cost a lot of money.
Potlucks, game night,camping with friends.
Not everyone thinks bar hopping is fun.

 

[jaycee]

I want you to consider the figures I posted.
If you have the rent and required bond, there is going to some landlord that is willing to rent to you.


Rent is $600 week
http://www.gumtree.com.au/s-ad/dunlop/house/four-bed-room-house-in-dunlop-for-540-only/354425209
(this is a 4 bedroom house, in the ACT, close to unis etc)

You have 3 boarders at $250 week each ($325 food included)
So each week you collect $750 rent & $225 grocery money.
Renting to strangers is fine. It happens all the time.Short term boarders will pay more.

Excess rent would $150 week ($600 min a month, will would cover all utilities, cable/internet/phone)
Enough food could be purchased for $225 week.
Even if food was not included, the head tenant could still each very well on $25-$40 a week.

The head tenant in this case is working 38 hrs a week @ $18 hr. (is that minimum wage?) $684 x 52=$35,568 (less taxes) would be amount saved each year.

In my case senerio, I stated it would be owner occupied if he/she purchased a property.

The head tenant would purchase the food (if included). Preparing a stew,casserole,soup,chili,curry dish each evening for consumption the next day is reasonable. Have some fruit, juice,bread,rolls available for breakfast.
Lunches could be an assortment of tuna,roast chicken/pork/beef ,eggs,salad foods for wraps/sandwiches.

You're saying if someone walked in with $50-$70K (1.5-3 yrs savings) they couldn't qualify to buy something?

http://www.gumtree.com.au/s-ad/fisher/property-for-sale/3-bedroom-unit-in-fisher/356149465
3 bedroom unit in ACT for sale $378K ($436 week IO on $378k, it would be less because there would be a downpayment)

Now if you don't like that example, lets use 4 friends who want to buy a property.
We will take the same figures as above.
Rent is $600 week / 4 people =$150 week each (including all bills will be $200 week each)
Food is $225 week/4 people=$56 week each
These are serious wannabe investors, so miscellaneous spending will be $25 week each.

At the end of year one, EACH will have $684-$281= $403 week x 52= $20,956 less taxes.
After 1 year they could buy a house together. Depending on the individuals, they could continue to finance more rentals.

Minimum wage isn't the problem, it is lack of self discipline.

Having a social life doesn't need to cost a lot of money.
Potlucks, game night,camping with friends.
Not everyone thinks bar hopping is fun.

Kathryn,

You dismissed something I queried =, but I don't think it is insignificant.

You suggfest applying to rent a porepoty wiht no other people for $600/week, whilst your wasgte is only $600 /w eek

That is 100% of the wage

I know what I would say and what a lot of other people would say to an application that tells me DANGER ! And make me ask myself, Do I really think the person can;t afford to pay the rent ! I might suggest, that a lot of landlords would say no. What am I going to d when they are short ?!

So that takes out of the picture, the majority of properties

I KNOW low income people can do things, but I'm not sure this technique in the detail you provided is as definite a way to do it as you propose

You also forgot to take tax out the gross wage this hypothetical person earns also, when trying to present detailed figures like you have, I believe you need to, this will reduce the income earned by the person by another 15-20odd%.....

 

[Corey Batt]

Kathryn's version of thriving on minimum wage:

*Get paid 20% above what the actual minimum wage is. Minimum wage is $15.51 or $589.30 per week.

* rent a property for more than you earn a week. (After tax is $528.77)

* manage to get accepted for the property etc. Find three boarders who will pay $250 a week when they can rent a private property themselves for that price, with more privacy and autonomy. I'll ignore the food bit (no long term arrangement would have strangers doling over money for a stranger to cook them basic meals in this situation, unless its a hippy commune. But they don't have money.

*Then buy a property worth $378k, which no bank would lend to a person on $30k a year.

*Buy property as a group instead, on minimum wage with a 25% stake in a property with 'friends'. Doesn't sound like 'thriving' to me. Sounds like a headache of problems when buyouts need to happen, reno possibilities. Ruling by committee? Kathryn really likes her socialist paradise!

I understand Kathryn that you are trying to take part in a discourse about lower income individuals bettering themselves financially, but you have to work with the system which is in place. Figures don't stack up unfortunately.

 

[kathryn d]

Jaycee,
I would expect the head tenant to be honest with the landlord.
He/she would inform the LL they are taking in boarders.

If the problem is not having enought buffer, the head tenant could pay up front 4-6 months rent up front.
How do they get this?
They start out by renting a cheap room, possibly with friends at $100-$150 week. They could stay at a hostel.(@$27 night/$189 week at Canberra YHA).

After deductions, a person would clear $600-$189 rent- $50 food= $361 week.
It may take them 6 months to save $9386
That should be sufficent.

I am not the person who came up with this idea.
It was in one of the first wealth building books I ever read.."Wealth without Risk, for Canadians"
I just apply the same principles a bit farther.

These principles work equally well for someone wanting to live free while attending uni. In that case it could be the parents who are willing to co-sign the rental application.

 

[AlmostBob]

Of course its impossible

I wasn't a stay at home dad
Kathryn didn't leave a basic wage job at 14.48/hour
we arent retired,
arent living on rent,
arent travelling,
arent doing whatever we want in 12 months of summer
we don't have 40ip incomes
we don't buy distressed properties, renovate revalue and make 225%
Kathryn isnt shopping for the next one, she wants to let a year go by without buying another IP (no she doesnt)
we don't think outside the box

the thought that you can't, the only reason you can't

 

[kathryn d]

Kathryn's version of thriving on minimum wage:

*Get paid 20% above what the actual minimum wage is. Minimum wage is $15.51 or $589.30 per week.

* rent a property for more than you earn a week. (After tax is $528.77)

* manage to get accepted for the property etc. Find three boarders who will pay $250 a week when they can rent a private property themselves for that price, with more privacy and autonomy. I'll ignore the food bit (no long term arrangement would have strangers doling over money for a stranger to cook them basic meals in this situation, unless its a hippy commune. But they don't have money.

*Then buy a property worth $378k, which no bank would lend to a person on $30k a year.

*Buy property as a group instead, on minimum wage with a 25% stake in a property with 'friends'. Doesn't sound like 'thriving' to me. Sounds like a headache of problems when buyouts need to happen, reno possibilities. Ruling by committee? Kathryn really likes her socialist paradise!

I understand Kathryn that you are trying to take part in a discourse about lower income individuals bettering themselves financially, but you have to work with the system which is in place. Figures don't stack up unfortunately.

I am not a socialist at all.
I try to show people there is hope, if they are willing to apply themsleves.
They can take a job in the Outback (where we are now). They can work for $18 an hour in a Roadhouse, and have their meals and accommodations provided for free, if they don't want to go the boarder route.

Do you think most investors do not scrimp in the beginning?
If they decide to live on their own, how much will they be thriving then?

In 2008 we stayed at a place in Glen Huntley,Victoria, where they offered this same exact type of accommodation.Except they charged us $300 week, make our own breakfast with kitchen priveleges.We were very happy to pay this. We shared a room. There were 7 other people staying there. (they also had a converted granny flat)Some students, backpackers, workers etc. They paid someone to come in each day to prepare the meals.

 

[jaycee]

Of course its impossible

I wasn't a stay at home dad
Kathryn didn't leave a basic wage job at 14.48/hour
we arent retired,
arent living on rent,
arent travelling,
arent doing whatever we want in 12 months of summer
we don't have 40ip incomes
Kathryn isnt shopping for the next one, she wants to let a year go by without buying another IP (no she doesnt)

the thought that you can't, the only reason you can't

who said anythin is impossible ? Oh, that's right you did

All that was said was the figures presented, made the example touted, not as accurate and possibly not likely to succeed.

As mentioned, minimum wage quoted was 20% hiugher than minimum wage actually is.

No taxation was taken out of this minimum wagein the calucations...., despite the actual big difference this makes to available money form which to save.

So there's a bout 30% (PLUS ?) of the income gone......

We know people can do this sort of stuff, we have seen people who are on low incomes doing well by being smart & doing the best with what they have based on available options.

This is not the first time we've heard of anything like things and hence reacting in surprise - truly.. really.... I've heard this stuff before and I'm there's not much I have heard that many others other haven't either...

It's not "us" against you, we're just pointing out things that look obviously inaccurate and could actually affect the chances of such a strategy succeeding.

Anyway, it's the low income earners who don't know they can do anything that need convincing not us......

 

[kathryn d]

Anyway, it's the low income earners who don't know they can do anything that need convincing not us

I'm hoping some "guests" to SS will actually read this thread, and give them hope, and know it is possible.
Easy?..depends on who you ask

I give this same advice to the Americans (on other blogs) that they should be snatching up a cheap foreclosed home.