Cheap, unconventional housing alternatives

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Two years ago, stretching to buy an expensive home seemed like the smartest path to wealth.

Today, you might argue that investing in real estate provides at best a roof over your head. At worst, it’s the route to ruin.

Bob Stroh, director of the University of Florida’s Shimberg Center for Affordable Housing, says, “A white picket fence and a walk-in closet are ingrained in the American psyche. It’s hard to get away from that.”

But some Americans look beyond the conventional house or condominium and 30-year mortgage to find comfort and satisfaction in unconventional homeownership. In the process, they can avoid a big price tag.

So before you commit to spending more than 25 percent of your gross income on a place to live (a conservative estimate of housing affordability), consider the alternatives. If you think creatively, it’s possible to own a home for much less than what many people spend — and like where you live.

Here are some possibilities.

Living full time in a recreational vehicle

In May 2005, Howard and Linda Payne turned 39, sold their four-bedroom colonial, quit their jobs and moved into a fifth wheel. If you’re not familiar with this style of RV housing, it’s like a trailer with a big hitch that rides in a full-size truck bed. Linda Payne preferred it over other recreational vehicles because she says its design is more homelike and spacious. The nicest ones come with a bedroom big enough for a king-size bed, a living room, a generous-size bath and a kitchen with a dishwasher and a washer and dryer.

The Paynes used the money they got from selling their house to buy a brand-new rig with these amenities. A lot of people might not want to take that route, Howard Payne says. “It’s a choker for some people to sell a home and buy a depreciating asset.”

Fifth wheels don’t have motors to go bad and, therefore, don’t depreciate as quickly. Howard Payne says that factored into his thinking when they selected their RV.

Linda Payne says there were other factors as well. “My husband isn’t handy, so we wanted an extended warranty. Buying new got us a seven-year extended warranty. If my husband were good at fixing things, we probably would have considered buying used.”

The outlay

New fifth wheels sell for anywhere from about $25,000 to $75,000, plus you’ll also need a big, powerful truck to pull it — priced new at $30,000 or more. Of course, nothing says you have to buy new. Large used rigs of all sorts — fifth wheels, well-equipped trailers and bus-like RVs in good shape — sell in every part of the country for less than $30,000.

The Paynes, who have a Web site devoted to RVing, have posted their budget online. Howard Payne, who used to make his living as an attorney and accountant, says in 2008 the couple will spend $13,241 to cover their housing basics, including RV park rental, insurance, vehicle and RV maintenance and enough fuel (at $3 per gallon) to get them from wintering in Texas to summering in Utah. This number includes very little for renting RV sites because the Paynes have struck deals with site owners to provide services in exchange for rent. If they were paying the full average lot, rent price of $25 per day, they figure their expenses would rise to $18,516 annually or $1,543 per month.

When comparing this number with the cost of more conventional lifestyles, consider that it includes the equivalent of fuel costs and automotive insurance, which aren’t usually included in housing cost expenses. It doesn’t include the cost of purchasing either the RV or something to pull it with or drag behind it to provide transportation.

Borrowing money to buy an RV will require 20 percent down and cost at least 1 percentage point more in interest than the typical mortgage rate. Terms are for a maximum of 10, possibly 15, years. The interest on the loan will be tax-deductible, just like mortgage interest. If the unit costs $50,000 and you borrow $40,000 for 10 years, the monthly payment will be about $475, assuming a 7.5 percent rate. Plus, if you buy a $30,000 truck to pull it, the payment for that would be $725 per month for a 48-month loan.

Added to our previous estimate, the housing and transportation expenses for this lifestyle could add up to $32,916 annually or $2,743 per month. (Of course, it would be reduced to about $2,000 after four years.)

Howard Payne says that estimate is way too high. The couple lives comfortably on slightly less than $36,000 a year, including everything.