Something I often hear is that you need a lot of money to get involved with real estate. And yes that is true if you are talking about certain types of commercial real estate or multi-family homes. I like to think of real estate as more of a mindset than a physical entity. Your goal in life is to keep your real estate expenses, for yourself, as low as possible. I believe the standard industry guideline is that real estate should be roughly 40% of your salary. This can be tricky because what does that mean for utilities and other bills? Are they included in this number? Trying to make decisions based on an abstract guideline is going to present many issues. My common guidance is that you want to pay as little as possible for your monthly housing costs.
Going along with this belief system early in life will serve you well. “Getting involved” in real estate doesn’t start when you buy your first home, it starts well before that. If you can adjust your mindset to paying at little as possible for your housing, eventually you will own more homes than everyone else. I will walk through all the ages and how real estate plays an important factor in the building of your wealth.
1) Adolescence (Age 14-18) – These are great years because everything is provided to you. The most important thing you can do is learn as much about real estate as you can. Also, you need to understand what an asset is and what a liability is. Knowing the difference between the two will serve you well in the future.
2) Young Adult (Age 18-25) – This is where the rubber meets the road. You are out on your own and you can do whatever you want. You need to save lots of money during this time and avoid debt. Housing is always going to be your most expensive bill, so how you choose to live now will affect your life for a long time. You need to find a way to pay 20% (of your salary) or less for your housing. This can be by renting a room from someone, living at home with parents, or having roommates. Whatever it is, this time is crucial to your overall success in life. Your friends might have nice condos and huge single-family homes, but you have to keep an eye on the future. If someone you date doesn’t like your digs, then that person was not meant for you. The hardest part of this time in life is peer pressure and resisting the urge to keep up with the Joneses.
3) Adult (25-35) – Now it is finally time to buy a home. Good work on saving up a nice down payment. Now it is time to spend all of your savings on your down payment, correct? No way. We have a better way. Even before you think about using your VA loan, consider getting an FHA loan for 3% down. This way you can do an FHA loan, then use your VA loan to buy 2-3 small homes. When we do find an FHA loan, are we going to buy a huge single-family home? No. We are going to buy a small starter home that would be perfect for renting when we are done with it. Also, we are planning to have roommates in our new home as well. There is also a chance we can find a multi-family home that we can house hack. In the end, we should own a home and still be paying 20% or less of our income.
4) Mature Adult (35-45) – Remember that down payment that we saved in our 20s? Yep, we still have it. It is invested in stocks and we have no plan to use it. We now have our FHA loan house and we are moving to our next home. We will buy another small home, this time with no money down using the VA loan. We can stay there for 2 years and then buy another VA loan home without a down payment. We now own 3 homes and still have a huge lump sum of money. Now we have some serious options.
5) Rich Adult (45+) – Honestly you did everything correctly. You can use your nice nest egg and all your rental income to buy the house of your dreams. Now is the time. I would even go a step further and buy the house of my dreams, but make sure it had the potential to produce income as well. Whether that is an RV hookup, an extra master suite, a room over a garage, a finished basement or attic, a detached in-law suite, or land that contained trees for selling. This is the time to get what we want but also think of it as a business. You have been doing so well, you may as well continue the streak.
You did very well on your real estate journey. You will notice by now that most people who were living large early in life aren’t doing so now. You really did not do anything that crazy or ridiculous, you just kept to the motto of “keeping housing costs as low as possible”. By living a little below your means and always keeping an eye on the future, you came out on top and easily became a millionaire.
If you were lucky enough to have parents who did some of the legwork for you, you are even better off. If your parents left you a couple of rental homes, you would be even further ahead. Noting about real estate is that hard, it really just takes patience and humility. Trust me, you will see your friends buying huge homes in small cities and small homes in huge cities. They will be paying upwards of 50% of their income on housing. They will also have car payments, boats, etc. You have to stick to what you know is right. In the end, you will be able to have anything you want, all paid for with passive income from your rental properties. I know all this is possible because my wife and I are living this way now. We just don’t have a need for boats and expensive stuff. We just love the feeling of having a bank full of money, security for our kids and grandkids, and no “money” stress. We can now focus on our relationship. It’s a good life, brought to you by Real Estate!
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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.
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