The more I watch HGTV, the more I believe the housing industry created it to get people to spend money on their homes.
Owning a home can be the most expensive experience of your life if you let it. Unfortunately, many people have destroyed any chance of building wealth by focusing their wallets on their homes.
Welcome back to The Pros & Cons of Homeownership series (Part #1), where we tell the truth about what it means to be a homeowner.
You Can’t Get Rich By Acting Rich
The fastest way to destroy wealth. Every step of buying, owning, renting, and selling a home has major pitfalls that can lead to losing money.
Purchasing a home. The emotions you feel when you purchase your first home are surreal. If you are buying as a couple, you will have twice as many feelings to handle.
The housing and banking industries want you to purchase the most expensive home your income allows.
However, the numbers they quote aren’t necessarily the best fit for your budget. My wife and I overpaid for our first home in 2008, and we paid the price over 15 years.
As I watch HGTV, I see young couples spending $600,000+ on their first homes. These numbers are absolutely crazy and can lead to wealth destruction for 20 to 30 years.
Bonds for Life: I’m Buying 30-Year Bonds Over 4%
It’s important to remember that your budget may survive the cost of a large home. However, as your kids leave the house, you may not be in a financial position to assist them throughout life.
If ensuring your kids get a great jump start when leaving home (by paying for college, buying a car, or assisting with the wedding), factor that into your home-buying decision.
Owning a home. I first started watching HGTV in 2008, and mainly House Hunters. Today, they cater to the home renovation market even more than first-time home buyers.
The housing industry wants you to renovate your home every few years. They want you to get a pool, ride a lawn mower, use solar panels, and buy automated vacuum cleaners.
Roth IRAs vs. HSAs
You can spend an unlimited amount of money inside and outside your home. Many have become “house rich, cash poor” by keeping up with the Joneses across the street.
Ramti Sethi says it best when he describes money dials in “I Will Teach You To Be Rich.” If home improvements are high on your fantasy list, then by all means, turn up that money dial.
However, you would need to turn down other money dials that don’t hold the same weight as home improvements. This can be travel, cars, jewelry, or fine dining.
Pumpkin Spice & Royalties 2
The problem arises when people want the best house on the block, two expensive cars, a boat, and travel to Dubai every summer. It’s simply too much for the average household.
Make an annual budget (in addition to your home maintenance budget) for home improvements. For example, you may give yourself $10,000 a year for home improvements.
Most wealth destruction happens over the years of owning a home; it’s a slow burn. You must control yourself when it comes to your home, and only go to Home Depot once a month (that’s a joke).
Renting a home. Many people think renting your home will be lucrative or go into property rentals for passive income.
How to Thrive in a Long-Distance Relationship
Renting a home can cause more harm than good if you don’t manage your expectations. Unless you are a general contractor or have friends in the construction industry, you won’t profit much from renting in the early years.
The only thing we regular folks have to get us ahead in the rental market is time. Over time, our mortgage payments will seem lower versus current prices.
Rent prices will increase, and slowly, we will earn $400 to $600 in passive income from our home—this may take 4 to 8 years.
HGTV makes it seem everyone can get below-market deals, fix their home, and rent above market. In reality, this is rarely the case.
Fruits of the DGI Tree
The best thing we can do is buy in our 20s or 30s, stay in the home for ten years, and rent it as we move to our next home. Do this a few times to buy wealth, not destroy it.
Selling a home. Many people destroy their chance to build wealth when they sell their homes. They don’t know about tax laws or a 1031 exchange.
Many people use the cash from their sales to buy a bigger, more fabulous home. This isn’t bad; it just does not make you any wealthier.
Your home can be your retirement plan, but you can’t be emotional about these decisions. For example, you can sell your home and buy a duplex.
You can rent one side out for the cost of the entire mortgage and live rent-free (it’s called house hacking). You could also use a 1031 exchange to avoid taxes on the transaction.
The Magic of Compounding
Why do you want to be wealthy? You cannot accumulate wealth without a plan. If you want to be a homeowner so you can be an adult, then that’s fine.
However, suppose you want to use your home as a wealth-creation vehicle. In that case, you must understand the nuances of the housing market, interest rates, rent prices, and renovation returns (return on investment).
Without a solid plan for your wealthy future, you can quickly get lost in an ocean on marble countertops, hardwood floors, and leather couches.
I bought and kept three homes over my 20+ year career in the military. Along the way, I had many friends who had sold their homes before going to their new duty station.
Is Budget a Bad Word?
Each friend regrets not owning that home today. They didn’t have a plan and took the $40,000 to $60,000 available when moving.
Do you want your kids to own a home? As my friends sold their homes, they did not consider the long-term costs to their children.
Kids today will have a monumental time trying to buy a home in 10 to 20 years. In fact, most of them will never even attempt to purchase a home as they feel homeownership is strictly for the rich.
I own a house for each of my two kids and one for my wife and me. Owning multiple homes has not been fun or lucrative, but I sleep easy knowing my kids will have it good.
Retire Rich, Retire Comfortable with a Business 4
If owning the best house on the block is your top priority, please enjoy your time. If you want to build generational wealth, owning a home can be a big step in the right direction.
Conclusion. The housing industry wants you to spend every dime on your home. They want you in a big house with a massive pool and a Tesla solar roof.
If you don’t have a solid plan for your financial future, becoming a homeowner can quickly drain all your resources.
How to FALL into Investing 2
Maintaining a home is costly enough before you start doing renovations and upgrades. Give yourself a tight home improvement budget, and stick to it.
If you get a windfall (tax returns, bonus, inheritance), ensure you are investing in dividend stocks, index funds, or a business.
You should not consider your home an investment. It is a place to build memories, but I hope you want your kids to have homes of their own one day.
You are a critical element in their future success. Your success is their success. Good Luck!
- PDF of the Month: Don’t Gamble with Retirement 11 (Free 410-Page PDF)
- Free PDF Downloads: Download FREE PDF LIST here
- Financial Mindset: Become CEO of Yourself 2 (Free 196-Page PDF)
- Retirement Planning: Your Retirement Planning Guide 2 (Free 255-Page PDF)
- Investing: How We Plan to Retire on Dividends 4 (Free 139-Page PDF)
- Cryptocurrencies: Counting on Crypto 2 (Free 159-Page PDF)
- Real Estate: Financial Independence through Real Estate 4 (Free 112-Page PDF)
- Business: Retire Rich, Retire Comfortable with a Business 4 (Free 149-Page PDF)
- Latest DGWR: Don’t Gamble with Retirement 11 (Free 410-Page PDF)
- Everything!: The Biggest Book on Passive Income Ever 3! (book)(Web Edition)(Art Edition)
- Writer’s Comparison: M1 Macbook Air vs. GalaxyBook3 Pro 360
- Read My Books for Free: Free Kindle Books Schedule
- Book Design: Design Tips on YouTube
- Kindle Unlimited: Why I Finally Subscribed Kindle Unlimited (learn more)
- Book Reviews: 505 Takeaways from 101 Books (pdf)
- Writing: The Publishing Chronicles (Part 1, Part 2, Part 3, Part 4, Part 5)
- Best REIT- Fundrise: Fundrise vs. US Treasuries (Join Fundrise)
- Follow us: On our Facebook Page and Join our Facebook Group
- Support the Channel on Cash App: $Kingmarine1981
- For more detailed analysis, join my Youtube: MFI YouTube Channel
PDF of the Month: Don’t Gamble with Retirement 11 (Free 410-Page PDF)
Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. I am an Amazon Affiliate. Please research any investment vehicles that are being considered. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. All Right Reserved Military Family Investing
Leave a Reply