Have you sat down to calculate what portion of your before tax salary it takes to pay for your housing costs? It might surprise you as it is extraordinary high if you consider before tax money. Not even earning the money to pay for it means you incur no taxes. Actually living in your owned home means you incur no rental income taxes either. This is a great source of wealth building.
How’s it going everybody this is beat the bush have you ever stopped to think about how much before tax income you actually have to make to afford the place that you’re living in right now when i say i’m earning $60,000 by default what does this mean it means i do not have to earn this money in order to afford the place i’m living in right now now is this sitting
Around the other day thinking about how much it would cost to rent this place out or maybe if i were to rent it out how much someone need to pay me turns out this is about three thousand three hundred dollars so doing some simple math three thousand three hundred dollars over one year this is about $40,000 worth of rent that i would have had to pay if i rented
This place out now i owned this place for and out right and so if i were a renter i might not just spend so much money just to rent a whole place like this all by myself i might do something a lot smaller maybe a studio or maybe a one-bedroom but let’s just go with the numbers like this for now because this is the situation i’m living in i do not have to pay
The rent nor the mortgage so it’s kind of like if someone were to work at some of those big tech companies this is what they have to pay for to afford to rent a whole house for their family or something if you’re renting something like this for $40,000 you’re likely probably gonna be making maybe six figures already doing a programming job an engineering job a
Lawyer doctor or something like that so i’m gonna assume you’re in the federal tax rate of twenty four percent california tax rate of about nine point three percent if you add all this up your marginal tax rate is thirty three point three percent now this means you have to earn $60,000 of before tax income before you can afford to shell out $40,000 in rent now if
I were to move out which is something i do contemplate about then i might be able to rent this out for three thousand three hundred dollars and then i would receive for not doing anything i don’t have to pay mortgage payments or anything i’ll still get $40,000 however this $40,000 i have to pay taxes on after taxes of about thirty three point three percent just
Kind of hand waving here because this is going to be additional income that i’m making aside from my side income so i’m gonna do marginal tax rate i’m gonna park about $26,000 and let’s say okay maybe i don’t want to live here i’m going to rent someplace just just in the same area it makes no sense okay but just bear with me here for $26,000 a year this rounds
Out to be roughly 2200 dollars every single month i can then rent a very very nice luxury one-bedroom for $2,200 now this is gonna be break-even that means i’m gonna have to move out of here and then somehow live somewhere that is a lot smaller and yet i do not gain anything in this whole transaction now this does not necessarily make a lot of sense to move out
Of this place just to live somewhere that’s next door in a lot smaller place what would make sense is let’s say i don’t want to live here anymore maybe i’m gonna move to hong kong maybe i want to move somewhere else then i can take this $2,200 of after-tax money and rent some place out that would make a little bit more sense now also maybe i do not want to be so
Extravagant and rent out someplace for $2,200 if it’s just a regular born bedroom it might cause only $1,700 depending on location so you can see the different amounts i have to roughly pay to get a certain living arrangement if i go out and rent some place like this is gonna cost me about $60,000 of before tax income if i go a rent a one-bedroom it’s gonna cost
Me about $40,000 of before tax income if i go rent out a studio this is like bare minimum maybe a bedroom in something else where it’s shared then it might cost about $20,000 every single year so i can pick and choose right it makes no sense for me to rent out somewhere that’s $60,000 of before tax income some people choose to live the luxurious lifestyle and pay
$40,000 of before tax income that really really does hurt maybe i can live in a one-bedroom in san francisco or something and then you can also rent a bedroom kind of push it really down low all the way to maybe $20,000 a year $25,000 a year so when i say i’m making $60,000 by default it is kind of like that so if someone wants to emulate what i’m doing they go oh
My gosh beat the bush he you know lives in the place all by himself he has his own living room own kitchen a couple of bathrooms and stuff if you wanted to do something like this it makes no sense because you know you would not do this unless you’re in the exact same situation as i am where i essentially bought a lot more home than i actually need sort of leverage
My money by fivefold and in turn kind of doubled my money because whatever i bought it for it’s definitely doubled by now i say it’s about leverage by fivefold because the down payment i paid for was twenty percent so you know that’s one two five and that just had a five-fold leverage increase although i did have to pay an interest rate on that this is the full
Advantage of course of owning your own place you do not need to make these payments i can relax a little bit and quit my job like i did and go away you know forget this i’m not making this money just to keep on turning and you know making the payments making the mortgage payments i’m just gonna pay down pay it down get rid of it and now my burn rate is extremely
Low thirteen thousand fourteen thousand dollars a year so let’s say i make just enough to meet my living requirements of thirteen thousand dollars you can tack on another sixty thousand dollars so i’m living as if i earn seventy three thousand dollars which is pretty darn neat thanks for watching this video i’m sure a lot of people already know that paying down
Your mortgage is really good for your finances this way of looking at things i’m hoping to give you new perspective and give you more enthusiasm in paying it down don’t forget to give me a like on this video press subscribe button and ring that bell icon thanks for watching
Transcribed from video
How Owning a Home is Like Earning $60k a Year by Default By BeatTheBush
