Why you should buy a home as early as possible.

[illmasterj]

I've found getting a nice home to be great motivation. Previously I was very comfortable -- there was no burning need to grow my business or even increase my investment portfolio due to cheap rent and low cost of living.

When I decided to buy a huge house in a nice area for my family, it was massive motivation to change things in my life. My perspective shifted as well. One of the first questions I asked was "how can I own this outright in 2 years?" I'm on track to achieve that, even though there may be better way to allocate capital.

I think it's Grant Cardone who talks about putting every cent you have into another property. He claims he's in a perpetual state of "being broke". This creates the drive he needs to make more money. This sounds like a mindset focused on scarcity instead of abundance, but still, if you know what motivates you it could be a powerful stratech.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[P3HSB]

What city are you in? If you are making six figures that comes out to 50% of your income. $8333 a month income and $4000 expenses. It’s pretty close to the 33% threshold lenders want.

Can you find something a little further out?

What is the rent rate compared to the housing prices?

My monthly payment back then was $1200ish against my $5000 month income, 25%.

By the way, I did not get lucky. When I first got out of college, my starting salary was $30,000 and I could only afford a home that was $60,000. That was all that the banks would lend me at the current interest rate. The only $60,000 homes at that time were in the ghetto.

The houses that I was looking at were around $130,000 and about a 1 hour drive from work. This was in 1995. In 1999 I was finally able to afford my first home.

not pulling in six fig here more like half of that.

in the LA area further out

just to provide some context of the market we are dealing with here. It not pretty

I have many friends that did very well in the past 10 years that are now complaining that housing prices are too high. My response is "Why didn't you buy anything when interest rates were at 3% for 10 years and prices were stagnant?" They can complain all they want, they chose the 20'-30's lifestyle over investing in their future. They couldn't foresee Covid, the price run up, interest rates at 7%. Now in their 40's they want to decide to start saving and investing? If they would have just taken a small chunk, like 1 year's profit to invest in a home...

My neighborhood in Scottsdale is a crazy example. The house I lived in was $500k in 2004. In 2008 it had dropped down to $350k. It remained between $350k and $450k until 2018. So anytime during 2008 to 2018 you could have bought into my neighborhood for $450k at 3%. That is 10 years!!! Today, the house is worth around $1.1M. Try getting into the neighborhood now at 7%. You are paying $7318 a month in 2023 whereas in 2018 you would be paying $1897 a month.

The run up was insane after covid. That really made the separation. Real Estate price look like they never go down due to limited supply. If a Banking crisis can't drop it, I don't know what will. The Feds just continue to print and this is just the way it is.

 

[biophase]

not pulling in six fig here more like half of that.

in the LA area further out

just to provide some context of the market we are dealing with here. It not pretty

View attachment 49410
View attachment 49409




The run up was insane after covid. That really made the separation. Real Estate price look like they never go down due to limited supply. If a Banking crisis can't drop it, I don't know what will. The Feds just continue to print and this is just the way it is.

Yeah it is tough in California. That's how I ended up in Phoenix. When I moved to Orange County in 2004 the prices were already high. Rent wasn't that bad if I remember correctly. I was looking for real estate investments and couldn't find anything even close to cashflowing.

But in Scottsdale AZ, I was able to purchase a 2br condo for $72k.

Sometimes you just can't afford to live where you want. It's hard to live on $50k in LA.

 

[James Klymus]

Thanks @biophase I really enjoy your takes on real estate investing and business.

I was wondering if you had any advice/threads on here for finding and buying a 2-4 unit property. I'm in the Chicago burbs right now, Aurora area to be exact. Aurora consistently has 2-4 units for sale, But they usually will need some work and are not in a good area. I would leverage a FHA loan and owner occupy for the first year at least. I quickly googled Illinois first time home buying programs and it looks like they offer up to $10k for first timers like me.

Also, Do you have any advice for someone who's a 1099 self employed barber like me? Income should be around $100k this year just from cutting hair, But I have heard its tough to get loans as a self employed person vs. someone with a W-2. Plus, I only have one year of tax returns since I quit my job early 2022.

Any advice would be appreciated, And thank you for your contributions to the forum.

 

[biophase]

Would it make sense to take out an FHA loan if I have a good credit score? I've heard that you may be able to get a more competitive loan if you have a better score.

And in my situation, lucky enough to be able to come back from abroad and still live with family, pay low rent, and invest in index funds without worrying about super high rent.

I don't know much about FHA loans. I think the homes have a more stringent requirement? But yes, you want to have a good credit score so you can get the best interest rates. That goes for FHA or any loan you can get.

 

[Mr. Tycoon]

I choose cash in bank over a partial ownership of a title deed. Cash in banks are like soldiers that can get activated in seconds when I call them for actions.

when they should get deployed Your little soldiers would be half dead cos of starvation caused by inflation.

While someone owning a RE\ hard assets are protected against inflation by thick walls - think citadel.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[wanttogofaster]

The whole 25-year debt thing scares the sh*t out of me. Like what if it all goes to pot and I lose a job etc., I'd be chained by debt repayments.

I had that same "fear" 11 years ago when I bought my first house (which I've been renting out for 9+ years). Turns out it now rents for almost 4 times the monthly payment.

I remember my agent telling me back then that it was "the right" time to buy as many as I could. I did buy some more, but not as many as I could, as he told me to.

He did, and last time I talked to him a few months ago he had a net, all hands off as he has a PM, cash flow of more than $20K a month from all his properties (not a single one is a STR due to city regulations).

Having said this, while I agree with the person that said that a 1M property at 7% is a 1.3M property at 3%, I'm still seeing inflated prices coming down quite a bit, even now, in June, which is historically the "best" time to buy real estate.

I've always bought in the fall and winter and am kind of waiting and seeing how things play out in the next few months.

 

[Mr. Tycoon]

If you are not sitting on close to 300-500k cash any major investment to “fight inflation” is not a high priority.

WOW... what a number.

with this amount plenty of individuals would close on a multi million RE deal and get an awesome monthly cash flow

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[Mr. Tycoon]

My view is that unless you are somewhat wealthy, you should be mostly in cash.

If you are not sitting on close to 300-500k cash any major investment to “fight inflation” is not a high priority.

I just don’t see real estate as a high priority that rob away future buffer against unseen events or unseen opportunity.

Most people get into financial trouble because they underestimate the possibility of getting into a shortage of cash. They have a high paying job with high expense once they lose then job everything turns bad real quickly.

We have some many people coming with post that they have no money/time for their own business ideas.

If someone has wages not keeping up with inflation, it is not an issue if you have saved up a huge cash reserve. If someone needs their current month’s income to pay for their current month expense it is a cashflow issue that they got themselves into in the first place.

They blame wages not keeping up, they blame the unfortunate event of losing their job. They refused to have cash reserve ready.

I would rather get even more coverage for life insurance that covers all the illness possible. The more I hustle the more likely the immune system could be weakened due to stress. If you are healthy you can always make the money.

Real estate just put a lot of fear and uncertainty into me. What is the future value of the location? Can I find tenants in the future when I don’t live in it? I just don’t have the answers.

Unbelievable... you go from one extreme to another.

You're worrying so much about just owning a house ! How would you manage \run a business when you will be responsible for your employees to take care of them, and your competitions around the corner ready to kill your business 24\7, and 100 other details to keep in mind just to survive as a business owner. That's tough.

 

[Kevin88660]

I wasn’t going to post anything until this…



How do you view public housing as a good idea while also being on TheFastlaneForum.com ? One of these two doesn’t fit and I don’t get it. There must be off the charts cognitive dissonance going in your head. Like a smoker who posts “smoking is bad for your health”.



Edit: I mean brother, this whole place exists to promote the abundance mindset. I personally ”fight” with politicians on a daily basis to stop meddling and let the market decide. More housing = more supply, prices will fall etc. Meddling creates slums etc. We’ve all seen how well that worked out for the communism party… history has already been there and done that.

The whole notion of subsidized public housing as part of your “life/business model” is absolutely a$$-backwards to free market enterprise. It’s scarcity mentality on steroids.

And promoting it as if it has “insane yield and impossible to lose money” is driving me up the wall here. We don‘t even know each other.

85 percent here in Singapore lives in public housing. The way it operates here is different.

It has also nothing to do with whether I think public housing is a good public policy or not.

 

[JUAREZ]

@biophase ,just wanted to tell you that I really appreciate you sharing your wisdom with us. I always enjoy reading your posts. Can't wait to get to your level. I am currently using that flexibility trick and also your posts on ecom. Currently in a bad spot, but working to improve. Thank you for writing here.

 

[Andy Black]

we will put a big addition on and it will all be a good investment one day when we trade up.

And you get to enjoy living in the big addition to your home before you trade up.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[biophase]

I've been going back and forth on whether to buy a home in my area. I'm curious to hear anyone with experience in higher-cost-of-living areas.

For example, I live in NYC Area (Jersey City, right along the Hudson waterfront). We currently rent and have been debating making the move to purchasing a home. But every time I run the numbers, it seems that if we were to buy something that's about the same as what we live in currently (~750 sf 1Br + Den), the HOA + Interest + Property Taxes add up to be about what we pay in rent. But then we're locked into a higher payment because you have the principal payment that's forced to go into the home, which would otherwise be free to invest in any asset I choose.

I haven't convinced myself yet that it's worth buying in my area. Because the rent is going down the drain, and the HOA + Interest + Property Taxes, which seems to be about the same, is also going down the drain.

Instead of buying in my area, I thinking about following the article below with purchasing cash-flowing real estate in lower-cost-of-living areas and just continuing to rent in a more luxury area. So instead of buying a property here in NYC, purchase the equivalent magnitude of RE exposure in a higher cap area and attempt to make the spread when renting in a lower cap area.

The Real Estate Investing Rule To Follow: Buy Utility, Rent Luxury

If you plan to invest in real estate, there's a key real estate investing rule you should follow. It's called Buy Utility, Rent Luxury or BURL for short. Using the BURL method, you increase your chances of making a higher return on your real estate investment while also maximizing your capital...

www.financialsamurai.com

What are my blind spots with this?

If you are looking at the pure costs, you can most likely deduct your interest and tax payments. So if all things being equal owning will be a little cheaper due to the deductions.

However, as MJ said in a different post, if you are living in an area where renting is way cheaper than owning, then moving would be the best ROI on your money.

As for your strategy in purchasing somewhere else and renting the place that you live. I don’t see how the strategy would help you out in terms of monthly cash flow issues. Unless the cash flow covers your rent.

Also, purchasing real estate in high cash flow areas usually mean that it is a lower appreciation area, which is why it actually still cash flows now.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[RisingStars]

I am currently in the process of deciding for myself, if it would be a smart choice from a financial perspective to buy a home for myself, as I am in the position to do so.
Half way through a book called "Buy or Rent?" but it's from a German author, only available in German language so far sadly.
Some things are also specific to the German market, but he mentioned some english language articles in the list of sources. I will post a few of them at the bottom for anyone who wants to read some counter-arguments.

I contrast this to others I have known who consistently make $75k-$150k per year but never buy a home. They lived the digital nomad life or the lifestyle business life of renting a nice loft in the city. 5-10 years later, their net worth is close to zero and they cannot afford a home any more due to the prices and interest rates.

To be honest I think that's an apples to oranges comparison. These people are living beyond their means. Same as the person who finances a multi-million $ home with a 3-car garage on $75k-$150k a year.

Note in my original post I never said why you should buy real estate as soon as possible and live in it. You can always buy real estate and rent it out.

I really think when it comes down to it is that people in their 20’s do not want to invest. So it is very hard to get them to save a chunk of money and then plop it all down on real estate. They would rather use that chunk of money to go on vacation. Then when they are 30 years old they complain that greedy investors drove the market up and the interest rates are so high and they can’t afford to live in anything nice. Well, tell that to my friend that is making $20,000 a year and living in a $350,000 house with a $350 a month payment.

Ok, if it is not about personal home ownership but rather real estate as an investment, why not use a simple index fund investment strategy (besides the business), starting in your 20's? @fastlane_dad wrote a great thread about that.
Of course you need discipline for that, but you mentioned that the real estate owner also needs that (to safe up the down payment rather than blowing the money).

I get that there are valid arguments for home-ownership but mostly they are of personal nature like having the freedom to remodel the house however you want or to brag at cocktail party's that one is a "RE investor" or "Homeowner" (Never-mind that 80% is owned by the bank).
From a purely financial perspective - especially for the average person with a lackluster of skill, time and investment savvy - real estate is far from the best investment (statistically, over a long time period) from what I've read so far.

One positive aspect of home-ownership is that one is forced to make the mortgage payment. This can be detrimental in some cases, but more often it helps because people don't have to decide on a monthly basis if they 'have money left' to put into their investments. In my opinion, someone who build a business to $75k-$150k should have the smarts/discipline to invest no matter what every month - just like they would with a mortgage.

Especially for those who earn very little (and don't have other investments) a financed house is a huge "cluster risk". There is zero diversification.
That's even more important for entrepreneurs than for example a school teacher.
I am not sure about the US, but in Germany school teachers NEVER lose their job, unless they do something exceptionally bad. They know what they are going to earn for the next 30-40 years, so there are no issues being locked into a mortgage.
But what about someone who started out with his or her Fastlane business just a few years ago? Most likely it's not a multi-national enterprise yet, but either a local business which is heavily depended on the local economy or a small online business which has at least some control-risk involved.

Worst case one has to go back to a job, but a well-paying job is 3 hours away by car and at that time the housing market in ones region is in a crisis.

Lastly, people often forget to add up all the hours they spent on all the stuff that comes with home ownership or being a landlord. How much is 1 hour of ones time worth?
If something breaks in my rented apartment, I call the landlord and they get someone to fix it. I don't spent my Saturdays at the hardware store, buying stuff for the next home-DIY project.
I don't worry about finding a plumber who does not overcharge me.

Some people enjoy that stuff, so it might make more sense for them. BUT - owning rentals is a business which requires skills + time & personal home ownership is arguably not an investment.

Here are some of the (english language) critical sources from the German book I mentioned:

It's Financial Suicide To Own A House - James Altucher

I am sick of me writing about this. Do you ever get sick of yourself? I am sick of me. But every day I see more propaganda about the American Dream of owning the home. I see codewords a $15 trillion dollar industry uses to hypnotize its religious adherents to BELIEVE. Lay down your money, …

jamesaltucher.com

Why I Would Rather Shoot Myself In the Head Than Own a Home - James Altucher

I only had one friend in MySpace when I joined in 2005. “Tom”. In fact, all 100 million people who had joined MySpace had one friend. “Tom”. He welcomed us all to our new cyber home and made us feel as comfortable as possible there. “Tom” is Tom Anderson, a cofounder of the MySpace, the …

jamesaltucher.com

The Wealthy Renter: How to Choose Housing That Will Make You Rich: Avery, Alex: 9781459736467: Amazon.com: Books

The Wealthy Renter: How to Choose Housing That Will Make You Rich [Avery, Alex] on Amazon.com. *FREE* shipping on qualifying offers. The Wealthy Renter: How to Choose Housing That Will Make You Rich

www.amazon.com

Rent vs Owning Your Home: Opportunity Cost and Running Some Numbers

Intro by JL’s Team If you’re wondering if renting vs owning your house is a better choice for financial independence, you’re not alone. A lot of people struggle with this choice. With current interest rates on a 30-year fixed mortgage hovering between 6–7%, it’s more critical than ever to do the...

jlcollinsnh.com

 

[biophase]

To be honest I think that's an apples to oranges comparison. These people are living beyond their means. Same as the person who finances a multi-million $ home with a 3-car garage on $75k-$150k a year.

I can see your point. Generally the more people make the more they spend. If someone that made $75k a year bought the same house that my friend did on a $35k income. They could have saved the additional $40k a year. If they did the same life that my friend did, they could save $400k in 10 years and be well ahead of my friend today.

The purpose of my original post was to highlight the benefits of a fixed mortgage coupled with a down payment assistance plan. To show how someone at the lower income level could have afforded something years ago and is benefiting from it now.

Ok, if it is not about personal home ownership but rather real estate as an investment, why not use a simple index fund investment strategy (besides the business), starting in your 20's? @fastlane_dad wrote a great thread about that.
Of course you need discipline for that, but you mentioned that the real estate owner also needs that (to safe up the down payment rather than blowing the money).

As a pure investment, yes you can do index funds. But in my opinion real estate is a better option if you can afford it. This is just my opinion. I have friends that are 100% in stocks and hold no real estate and they do well. I’m real estate heavy but trying to balance out my portfolio to add more stocks.

My original post was to purchase as a primary residence. I like having the option of converting the primary over into a rental later. The option of converting into a rental was a reply to others who worried about locking in a payment for 30 years.

Especially for those who earn very little (and don't have other investments) a financed house is a huge "cluster risk". There is zero diversification.
That's even more important for entrepreneurs than for example a school teacher.
I am not sure about the US, but in Germany school teachers NEVER lose their job, unless they do something exceptionally bad. They know what they are going to earn for the next 30-40 years, so there are no issues being locked into a mortgage.
But what about someone who started out with his or her Fastlane business just a few years ago? Most likely it's not a multi-national enterprise yet, but either a local business which is heavily depended on the local economy or a small online business which has at least some control-risk involved.

Worst case one has to go back to a job, but a well-paying job is 3 hours away by car and at that time the housing market in ones region is in a crisis.

Lastly, people often forget to add up all the hours they spent on all the stuff that comes with home ownership or being a landlord. How much is 1 hour of ones time worth?
If something breaks in my rented apartment, I call the landlord and they get someone to fix it. I don't spent my Saturdays at the hardware store, buying stuff for the next home-DIY project.
I don't worry about finding a plumber who does not overcharge me.

The Wealthy Renter: How to Choose Housing That Will Make You Rich: Avery, Alex: 9781459736467: Amazon.com: Books

The Wealthy Renter: How to Choose Housing That Will Make You Rich [Avery, Alex] on Amazon.com. *FREE* shipping on qualifying offers. The Wealthy Renter: How to Choose Housing That Will Make You Rich

www.amazon.com

[URL

I purchased the book above and wanted to finish it before I replied. Your argument above sounds like everything from this book.

Honestly listening to the book, I just don’t agree with the author’s premise. There are so many fluff chapters in the book, it’s hard for me to get through it. He is so anti real estate but guess what? He owns and is/was a landlord. Lol

Found this on an interview from 2017.

‘Renting is a beautiful thing’: The case against home ownership

Home ownership is traditionally viewed as the only sensible choice – but that may not be true in today’s housing market. Here’s why

www.theglobeandmail.com

Interviewer: Finally, I have to ask this. Are you a renter?

Book Author: I've been a renter, an owner and a landlord. My wife and I rented for 15 years and now we own. We bought after we had kids.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[biophase]

Woah. What???

@biophase is married with kids?!?!

And here I thought you were some bike riding, dog loving, e-commerce store owning, real estate investing, travelling monk who dated infrequently. Lol.

Lol no, that was a quote from the author of the wealthy renter book. Let me clear it up on my post. Lol

 

[MartinG]

I often wonder why people complicate this question and ponder on right times to buy or debate on the viability of owning an asset as 'fastlane'. Things are never black and white.

Money in asset is always good, as assets nearly always go up over a long period of time. And you can always buy and have someone else in it to pay off your mortgage.

 

[Kak]

I thought this was kind of interesting.

I was of the impression that buying with cash now is a great opportunity to get a good deal before they drop rates and home values go crazy again, but now I'm starting to think the bubble hasn't truly burst.

I've been casually looking around at homes because we need something bigger, and I'm truly in awe at how many multi-million dollar homes there are. Are there really that many "wealthy" people? One after another after another. Hundreds hundreds of homes. I've always been of the impression that most Americans were flat broke.

On the other hand, every home being expensive isn't a new thing to people from a lot of other states and Canadians... and the market stays incredibly expensive.

 

[Sinewave_Sam]

I bought my house in 2014 after just turning 22. I had no intentions of ever renting, and had saved up enough for a large down payment on a small home. I bought my "starter" home for $76,900 in the small town I grew up in. At the time I was making $15/hr and based all of my bills off of that. Mortgage, taxes and insurance was $550.

To this day I'm still living in that 1,100 sq ft home and still loving it. Best investment ever made. I now make over 3 times that amount at my 7-5, and can easily pay my mortgage on what my business is currently bringing in. Sadly I only visit now because of how much I work out of town...

 

[biophase]

In a bit of a situation here, any advice welcome.

Living with ex-gf, we broke up. Boston area rents are insane, was paying $2900/mo here (split) and studios and 1BRs start at $2k and up. Decided today I want to buy and then at some point I thought of the forum, and specifically this thread.

What sort of closing costs might I be looking at for an FHA loan? Probably looking at a $250k-$300k house and trying to keep total payment under $2500/mo, but I'm willing to be house poor for a bit. My back is up against the wall. Income is increasing (currently $120k, I could probably push for $200k this year), but my upfront down payment won't be high, looking at $10k right now.

I've got like a 2 month timeline so I'm looking to do this ASAP.

I've never gotten an FHA loan so I don't know if those closing costs will be different than a normal loan.

With that said, you would be looking at things like title insurance, appraisals, paperwork fees and loan origination fees. My guess is somewhere around $5k-$10k in closing costs. This will all be rolled into the loan.

Looks like your payment for $240k loan at 7% is around $1700.

You will have to find out what your real estate taxes will be, and HOA fees, if any. And don't forget your homeowners insurance. These can easily add up to past $800/mo.

 

[ryanbleau]

I decided to buy first house last year. Been in it for about a year. I wanted to move to Florida but I'm cheap and wasn't going to spend $500k on my first house. Having been a general contractor, hard work doesn't scare me. I bought a shell of a house on some land for less than $75k and put around $30k into the remodel.. Today it's valued at around $300k. The deals are out there for kids that want to put in the work.

 

[Hurks2048]

I know that this may be a controversial topic, but I want to give you a few examples of people that I know that are slowlaners but are actually doing very well vs. some aspiring "fastlaners" that aren't anywhere in the same position. This topic came to mind when another friend was shocked when he learned that one of our mutual friends had a decent net worth despite having a low paying job.

Example 1: I had a friend who we will call Amy who made $7/hr back in 2008. Back then a city in the Phoenix area had a first time homebuyers program. The city would pay up to $50,000 down payment for a home, but the catch was that when she sells the home, the first $50,000 is returned to the city. She qualified for the program due to her low salary.

So she bought a home for $100,000. With a $50k down payment from the city, she got a loan of $50,000 at something like 4.5%. She was able to qualify for a house on a salary of under $15,000 a year!

Today her home is worth $375,000. Her house equity is probably $170kish and she is lucky to have a nice fixed $500 mortgage payment on her current home until its paid off. If she had continued renting, she wouldn't be able to afford anything today!

Example 2: I have another friend who we will call Julie. I have known her since 2008. She has never made more than $35k per year. She bought a house for $88k in 2000. Today her house is almost paid off (she's been making an extra $100 payment per month). Today her house is worth $340k. Her equity is $330k. There is no way she could have saved that amount in 20 years on $35k a year.

These are two examples of people who would have huge issues in surviving today if they had not purchased a home years ago. Rents in their areas are $2500 a month for a home in their area. They would have been priced out a long time ago. But because of their purchase, they are paying $500 and $450 a month in mortgage payments.

I contrast this to others I have known who consistently make $75k-$150k per year but never buy a home. They lived the digital nomad life or the lifestyle business life of renting a nice loft in the city. 5-10 years later, their net worth is close to zero and they cannot afford a home any more due to the prices and interest rates.

I can already hear the naysayers saying, but if you reinvest everything back into your business, that's a much higher ROI. I agree. But this is assuming your business is successful. What I would tell any 20 year old aspiring entrepreneur is that if your business is doing well, invest into a home first, then the rest into your business.

Interesting take Biophase!
Reminds me of what Tim talked about in the 4HWW, where he talked about how the usefulness of money can change depending on what you spend it on, who you spent it with, where etc.

 

[GuestUser4aMPs1]

Well sh!t, I went down the rabbit hole and googled '$50,000 down payment assistance program" and found a bunch. So they are out there. I've never looked for them.

Nuts. So glad these exist....

I'm kicking myself for not taking RE seriously enough over all these years.

 

[biophase]

Mortgage/down payment assistance programs push prices higher. The politicians who create those programs know it - but they already own plenty of real estate, so they are happy with the result.

I never thought of that. I never even knew these were available until today. I thought my friend got in during a special temporary assistance program. But in the city of Avondale I did not see the prices go up even though they had this program for the last 13 years. I had an investment home in the city and managed my friend's investment home there.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[Kevin88660]

I know that this may be a controversial topic, but I want to give you a few examples of people that I know that are slowlaners but are actually doing very well vs. some aspiring "fastlaners" that aren't anywhere in the same position. This topic came to mind when another friend was shocked when he learned that one of our mutual friends had a decent net worth despite having a low paying job.

Example 1: I had a friend who we will call Amy who made $7/hr back in 2008. Back then a city in the Phoenix area had a first time homebuyers program. The city would pay up to $50,000 down payment for a home, but the catch was that when she sells the home, the first $50,000 is returned to the city. She qualified for the program due to her low salary.

So she bought a home for $100,000. With a $50k down payment from the city, she got a loan of $50,000 at something like 4.5%. She was able to qualify for a house on a salary of under $15,000 a year!

Today her home is worth $375,000. Her house equity is probably $170kish and she is lucky to have a nice fixed $500 mortgage payment on her current home until its paid off. If she had continued renting, she wouldn't be able to afford anything today!

Example 2: I have another friend who we will call Julie. I have known her since 2008. She has never made more than $35k per year. She bought a house for $88k in 2000. Today her house is almost paid off (she's been making an extra $100 payment per month). Today her house is worth $340k. Her equity is $330k. There is no way she could have saved that amount in 20 years on $35k a year.

These are two examples of people who would have huge issues in surviving today if they had not purchased a home years ago. Rents in their areas are $2500 a month for a home in their area. They would have been priced out a long time ago. But because of their purchase, they are paying $500 and $450 a month in mortgage payments.

I contrast this to others I have known who consistently make $75k-$150k per year but never buy a home. They lived the digital nomad life or the lifestyle business life of renting a nice loft in the city. 5-10 years later, their net worth is close to zero and they cannot afford a home any more due to the prices and interest rates.

I can already hear the naysayers saying, but if you reinvest everything back into your business, that's a much higher ROI. I agree. But this is assuming your business is successful. What I would tell any 20 year old aspiring entrepreneur is that if your business is doing well, invest into a home first, then the rest into your business.

My personal view is that for someone just leaving school and starting out working, in their early or mid-20s the best investment is cash.

Stack as much as cash as you can, after buying million-dollar term insurance for hospitalization, critical illness and accident. Invest in 10 percent gold and silver bars if you are really paranoid about hyperinflation.

It is rather unorthodox, of course.

You must be very comfortable watching your cash getting eroded by inflation year by year while resisting the temptation of "investing to beat inflation". Not everyone can do that. Most could not.

Only extreme events matters in life. The same is true in personal finance. The business opportunity or once-in-a-lifetime investment that can turn your life around. The sudden cancer diagnosis despite the fact that you do not smoke or drink.

Nobody gets broke due to inflation (If you get paid in a trustworthy major currency). If you talk to people getting broke or miss a great opportunity, it is always a cashflow problem.

Your cash reserve is as important as a national defense for a country. Nations spent billions to keep and train their army during peacetime.

Inflation is the necessary price to pay for future opportunity and protection against a future cashflow crisis that leads to bankruptcy.

If I pay rent, and anytime I don't feel like paying, I pick up my phone and call my friends or parents to squeeze in with them. If I have a mortgage I have no choice.

In chess you are in a favourable position when you have more options. If you found yourself being forced to make only a certain move everytime it is almost on the road to losing the game.

By loving cash I am both hyperoptimistic about the opportunities that are yet to be seen in the future and also hyper paranoid about the threats of the lack of cash that we always see happening to others.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[Kevin88660]

Idk man... there's something super satisfying about not needing to piggyback off of what others have that I am more than capable of having myself. I see my mortgage as two things. 1) a long-term investment that is likely to pay off well and 2) motivation to increase my income. As for preparing for possible catastrophes before developing significant income streams, we have mortgage insurance, life insurance through our 9-5s, we can rent our house if needed, or we can sell and downsize if needed. Only as a last resort will we rely on friends and family, but I'm thinking it would have to be a pretty severe natural disaster or economic crisis for us to do that, and in that case, everyone is going to be shizz outta luck.

I think I didn’t give a good example.

I advocate having a large cash reserve, hence not having the money to pay the rent will not be a scenario.

You don’t like your place. You can change.

You hold the cards. Power and freedom means having the ability to walk away from any “situation”.

Having mortgage is like committing yourself to half a marriage.

But everyone’s situation is different, if I am Hassan and my wife “forces” me to own a home I will just do it to avoid the conflict and hassle. I will drag the maximum loan tenure to have the smallest monthly repayment.

If you are single you still have the option to quit your job, start a business, move back to live with your family to save the cost. Once you have a mortgage you basically killed that option.

I choose cash in bank over a partial ownership of a title deed. Cash in banks are like soldiers that can get activated in seconds when I call them for actions.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[biophase]

Thanks @biophase I really enjoy your takes on real estate investing and business.

I was wondering if you had any advice/threads on here for finding and buying a 2-4 unit property. I'm in the Chicago burbs right now, Aurora area to be exact. Aurora consistently has 2-4 units for sale, But they usually will need some work and are not in a good area. I would leverage a FHA loan and owner occupy for the first year at least. I quickly googled Illinois first time home buying programs and it looks like they offer up to $10k for first timers like me.

Also, Do you have any advice for someone who's a 1099 self employed barber like me? Income should be around $100k this year just from cutting hair, But I have heard its tough to get loans as a self employed person vs. someone with a W-2. Plus, I only have one year of tax returns since I quit my job early 2022.

Any advice would be appreciated, And thank you for your contributions to the forum.

The first thing I would do is talk to a mortgage broker and find out what I need to qualify for a loan. If you need to have 2 years of 1099, then you'd have to wait until 2024. There are probably programs that will take 1 years of 1099 income. But the rates could be higher. Without knowing this, it doesn't make sense to even look.

Then I'd figure out how to qualify for the $10k down payment assistance. Get that lined up. Does a 2-4 unit qualify for the $10k assistance?

Now you are ready to start looking for a property.

 

[Kevin88660]

I don't agree with this, but I don't 100% disagree with it. I mean in your early 20's, you really don't know what you will be doing in the next 6 months, let alone a year later. You probably shouldn't be buying anything at this point. Maybe live with roommates and get to know yourself.

But once you get a little stable, like have a good job, or a business that is consistent and decent, and you are growing a group of friends locally, then I would say, get yourself a home.

Health insurance during this age is relatively cheap, so I agree with that.

I disagree with purchasing 10% in gold or silver. Historically, they have not been very good investments. If you aren't going to invest anything, then don't invest into anything. Imagine you are 23 and have $20k savings. What's the point of putting $2k in gold. It's only worth $3k if gold increases 50%. That's hardly hedging against any inflation.

With real estate you can control a $100k investment with $20k down. That is where the beauty of its leverage comes in.

$20k in gold doubles and becomes $40k
$20k down real estate at $100k doubles and becomes $120k.


I would not be telling my 25 year old friend that saved his cash to spend it on a once in a lifetime opportunity investment. How realistic is this scenario?


I don't understand this statement. We have seen that in the last 3 years, wages have not kept up with inflation. Many people are broke today due to inflation.

Can you clarify this statement? What do you mean by it's a cashflow problem?

My view is that unless you are somewhat wealthy, you should be mostly in cash.

If you are not sitting on close to 300-500k cash any major investment to “fight inflation” is not a high priority.

I just don’t see real estate as a high priority that rob away future buffer against unseen events or unseen opportunity.

Most people get into financial trouble because they underestimate the possibility of getting into a shortage of cash. They have a high paying job with high expense once they lose then job everything turns bad real quickly.

We have some many people coming with post that they have no money/time for their own business ideas.

If someone has wages not keeping up with inflation, it is not an issue if you have saved up a huge cash reserve. If someone needs their current month’s income to pay for their current month expense it is a cashflow issue that they got themselves into in the first place.

They blame wages not keeping up, they blame the unfortunate event of losing their job. They refused to have cash reserve ready.

I would rather get even more coverage for life insurance that covers all the illness possible. The more I hustle the more likely the immune system could be weakened due to stress. If you are healthy you can always make the money.

Real estate just put a lot of fear and uncertainty into me. What is the future value of the location? Can I find tenants in the future when I don’t live in it? I just don’t have the answers.

 

[MJ DeMarco]

Today in 2023, you would be paying $600 to live in this exact home.

Or if decided to "wait", he can now be renting the same home for $2,100 a month and yearly rent increases.

 

[Mr. Tycoon]

So here's a house I'd consider purchasing for 200,000k (it sold for 125K in 2007). Monthly repayments over a 25-year period are roughly 1K/month.

The whole 25-year debt thing scares the sh*t out of me. Like what if it all goes to pot and I lose a job etc., I'd be chained by debt repayments.

But we'll always need a roof over our heads, so that cost will exist regardless of it being a rental or purchased property.

Regarding stability, the rental we have at the moment is long-term and extremely well-furnished and a great built for the price. So it's pretty comfortable, but for sure there is little control over our future here if we get kicked out or something.

Overall, house prices and rent are appreciating in my city. As the population of Birmingham (second largest city after London) is expanding more people are living here but commuting to London. I could get cheaper housing by moving out of town, but that would mean no family or friends and inferior public facilities overall.

Hence my deadline to get a business off the ground in the next year or so. I'd be more comfortable taking on a mortgage with a higher or additional income.

Edit: I've set a reminder for next year to review this house/this post. Let's see.

Go for the house !!

I'm a lettings agent in London, and a small room in house share\HMO is going for £1,100pcm right now in Zone 2.

Your main job should be protection against this silent killer which is inflation. Forget the business, the high inflation would kill the majority of businesses anyway in the next decade.