According to the Bureau of Labor Statistics, the average expenditure per consumer unit for 2017 was $60,060, a 4.8% increase from 2016 levels. 2017 data is the latest data as of 2019 since the BLS releases such data with a multi-year lag. Now let's look at what does the average person spend on housing in America. After all, housing consistently is the largest expense.
Out of the $60,060 in average total annual expenditure, the average person in America spends a significant $19,884 a year on housing. In other words, the average person spends 33% of his or her total annual expenditure on a place to live.
Take a look at the BLS data below to see all the categories in more detail.
The Average Spending On Housing Is High
Below is a chart that shows the average expenditures and income of all consumer units from the Bureau of Labor Statistics. Every year, expenditure amounts tend to increase due to inflation.
Although spending $19,884, or 33% of your spending on housing is high, it is within the reasonable spending limit for housing according to economics and banks who lend out mortgages.
Banks generally have a rule that your housing expenses cannot exceed 38% of your gross household income. With the average income at $73,537, the average consumer is within the normal recommended range for housing expenditure. If you are to buy a house, I recommend you follow my 30/30/3 home buying rule so you can comfortably afford a house. The last thing you want to do is get in over your head and not sleep well at night after purchase.
The median home price in America at roughly $420,000 in 2024, as the housing market remains very strong post pandemic. It's good to see the home price-to-income ratio is still quite reasonable at 3.3:1. The general affordable range for housing is up to 5X your annual gross income, depending on interest rates.
Housing In America Is Strong All Over
In some cities around the country, however, the median home price is often 10X or greater the median or average income. This dangerously high ratio usually signals a price bubble because the rents cannot support such high prices. Invest in the best cities to buy real estate instead.
For example, the San Francisco median income is around $100,000 versus $1,800,000 for the median home price = 18X. In Manhattan, the median income is also roughly $100,000, while the median home price is roughly $1,300,000.
Even if you put down 20% – 30%, the homeowner or real estate investor in these expensive parts of the country are cash flow negative for years.
Savvy homebuyers would be wise to stay disciplined when the median home price rises much more than 5X the median income of the city or town. The average person spend on housing will continue to rise thanks to inflation. Hence, everyone should try and own as much real estate as comfortably possible.
The best real estate investing rule is to follow my Buy Utility, Rent Luxury (BURL) strategy. Even though rent might sound high in places like San Francisco, Washington D.C., New York City, and Seattle, rent is actually much cheaper compared to owning.
Leverage enriches people on the way up, but destroys wealth on the way down as we saw during the 2008-20009 global financial crisis. You want to buy property where cap rates are much higher than the current risk-free rate of return.
Invest In Heartland Real Estate
To get rich, it's important to identify long-term trends and invest accordingly. The biggest long term trend I see for investors is investing in the heartland of America.
Thanks to technology, we are telecommuting more. There's no need to go into a physical office given we can video conference with easy. Smart employees are making big city incomes while paying small city prices. Further, there is a strong demographic trend towards lower-cost areas of the country post-pandemic.
Due to extraordinary price rices in major coastal cities, it has become uncompetitive for employers to operate cost effectively when they have to pay their engineers $200,000 – $300,000 on average.
Google announced in 1Q2019 they will be spending $13 billion to expand outside of Silicon Valley, CA into heartland states such as Texas, Oklahoma, and Nevada. Other major companies are following suit. Apple announced in 2021 continued expansion in Texas and other Souther states.
The best way to take advantage of this migration trend is to invest in real estate through the best real estate crowdfunding platforms.
With real estate crowdfunding, you don’t need to risk hundreds of thousands or millions to invest in commercial real estate. Instead, you can invest as little as $1,000 – $5,000 and be much better diversified.
Real estate crowdfunding carefully analyzes all the real estate opportunities before they are allowed onto their platforms. They provide the research and due diligence for investors, and lower the cost of doing business as well.
The Best Real Estate Crowdfunding Platforms Today
1) CrowdStreet is based in Portland and connects accredited investors with a broad range of debt and equity commercial real estate investments. CrowdStreet is great because they focus primarily on 18-hour cities with lower valuations and higher net rental yields. 18-hour cities tend to be faster-growers as well due to demographics.
2) Fundrise, founded in 2012 and available for accredited investors and non-accredited investors. I’ve worked with Fundrise since the beginning, and they’ve consistently impressed me with their innovation. They are pioneers of the eREIT product. For most people, investing in a diversified eREIT is the easiest ways to gain real estate exposure.
Both of these platforms are the oldest and largest real estate crowdfunding platforms today. They have the best marketplaces and the strongest underwriting of deals. Sign up and take a look around as it’s free.
As always, do your own due diligence and only investment in what you understand. I’ve personally got $954,000 invested across 18 different commercial real estate projects around the country. My current internal rate of return is about 10% since 2016.
Both platforms are long-time sponsors of Financial Samurai and Financial Samurai is an investor in the Fundrise Flagship fund.
The older and wealthier you get, the more you want to simplify your passive income streams. Real estate is truly one of the best ways to build wealth over the long run.
About the Author:
Sam started Financial Samurai in 2009 as a way to make sense of the financial crisis. He proceeded to spend the next 13 years after attending The College of William & Mary and UC Berkeley for b-school working at Goldman Sachs and Credit Suisse. He owns properties in San Francisco, Lake Tahoe, and Honolulu and has a total of $810,000 invested in real estate crowdfunding.