Please don’t make the same mistake that I did. Buying a home is a fantastic experience, one that can sometimes become emotional (because of your significant other). Do not buy a home unless you have the mindset of an investor!
I will quickly walk you through how we purchased our three homes, all with different mindsets. You can see that having the proper real estate mindset (beginner, intermediate, advanced) is vital to long-term success.
House #1 October 2008. We built and bought our first home in Arizona circa 2008. It is a beautiful home, and we are still proud owners. But, man, has it been a complete nightmare. We bought entirely out of emotion and a questionable future outlook.
TAP Your Home Equity
First, we paid too much for the home because we bought it at the top of the real estate market in 2008. Second, I knew nothing about leverage, loans, negotiation, etc. Instead of using some form of down payment assistance, I put 20% down on the home. The home promptly lost its value, taking our entire down payment with the decrease in equity.
The house was way too big for a starter family. A real estate investor always thinks about the future in realistic terms. At nine years in the Marine Corps, realistically, I would move at least three more times, so renting would be a given.
Most renters want a smaller home. Sure, the outliers wish for a huge place, but in general, a smaller home (1600 square feet) will be better than a bigger home (2300 square feet). We built a house at 2300 square feet. We priced the home out of reach of the military rental market in a small military town—nice!
However, we were able to turn it around after many years. After reading multiple books on effective use of debt, leverage, and investing (mainly books like “Unfair Advantage”), we were able to perform a cash-out refinance.
We extracted $80,000 cash from the home, finished paying off all our debt, and invested $50,000 into our dividend portfolio. This was a life-changing moment in our house, and I can thank reading books for giving me the confidence to pull it off without fear.
Do I Need Lots of Money to Start Investing?
Even better, our house mortgage increased from $1,500 to $1,670 after the refinance. However, we now rent the property for $2,000, which gives us a minimal profit after property management fees. Essentially, someone else is buying for our additional $80,000 loan—that’s why understanding money is essential to long-term success.
House #2 June 2017. House number two will be much shorter because we learned so much from our first home, which we bought nine years earlier. Right from the start, we knew that this home was going to be a rental eventually.
We bought a starter-sized home at 1600 square feet. The home was a starter home in a friendly community close to beaches and the military base in Florida. It had a nice little front yard, a gated backyard for animals, and a great two-car garage.
The mortgage was super low in comparison to the military housing allowance. Our first mortgage was $1,050/month, and my military housing allowance was $1,500/month. So we ensured we were not pricing out our military clients.
Good Debt vs. Bad Debt
Personally, my wife and I HATE (with a capital H) living in neighborhoods. We want land, acreage, gardens, and freedom. However, we removed the emotion from buying this home and purchased it with the rental market in mind. Needless to say, this home has given us very few issues and has been an extremely positive experience for us.
We bought the home in 2017 for $180,000, and Zillow now quotes it at $260,000. We will wait a few more years and then harvest the home equity to invest in another property—the velocity of money. The mortgage is closer to $1,200/month because of the cost increases in insurance and taxes; however, the home can rent for $1,700/month. Can you see the difference a mindset makes in buying a home?
Home #3 March 2020. Yes, we closed on this home right at the pandemic’s start and the lowest day of the stock market (March 23, 2020). This home was a 100% emotional purchase, but we would think like investors and come out much better than we came into the situation.
The home is right down the street from home number two, but not in a neighborhood. It sits on three lush acres of land but is still close to the base and white sand beaches. Plus, the home is huge at 2500 square feet.
Become Insanely Productive During the Magic Hours
As we walked through the property, we were impressed by the two huge master suites attached to the home. We felt that we could rent those rooms out if we needed. We bought the house for $340,000 (now worth $460,000), which is a lot in our part of Florida.
We moved into the home, and we knew we didn’t need these two master suites right away. We were coming from a 1600 square foot home, and we loved the size of the land, not necessarily the inside square footage. We decided to rent out both master suites.
The first mortgage was $1,700/month, and we rented the rooms for $800 each for a total of $1,600. We almost achieved Mortgage Zero. We were damn near living for free in a massive home on three beautiful acres. Life was too good to be true.
Then, my wife was able to perform a refinance (I was in Japan) and get the mortgage down to $1,500/month. We were now Mortgage Positive. We were making money from our primary residence. Yes, this is why I wrote the article “The Magic of House Hacking.”
The power of reading. Reading gives us confidence by letting us gain experiences from the authors we read. Experience is a great builder of confidence, and the more you read, the more information, knowledge, and intelligence you gain.
Don’t Gamble Your Retirement Away 2
In the following article, I will lay out ten real estate and mindset books you should read before buying a home. As clearly as I can, I am telling you that you will want to think like an investor when buying a property.
Every improvement, modification, size, decision, adjustment, cash allocation, etc., needs to be run through the lens of a real estate investor. I highly recommend that you and your significant other read these books because buying property can create issues between couples—if not of the same mindset.
Conclusion. My wife and I have learned so much about real estate by owning properties for 14 years. Learn from our early mistakes and make choices that make sense in the long run. Try to remove as much emotion as possible when making these decisions.
20 Creative Ways to Make Money From Home
If you have to make an emotional decision (as we did with house number three), make the numbers work, consider sacrificing something in the short term, and know EXACTLY why you are making this decision.
If you can clearly articulate why you are making a decision, how it will positively or negatively affect you in the short and long term, and how to mitigate any issues, you are on your way to making great choices.
Again, read as much as you can before you buy any home. It is great to have multiple properties, a considerable dividend portfolio, and a budding business. In short, it’s great to be rich and have the home of your dreams. You don’t want to be house rich and cash poor because of bad decision-making.
Thanks for reading. I love talking about real estate and other investments. Please follow me on Twitter and my Facebook Page. Enjoy and Happy Investing.
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