As promised last week, I am back and ready to share more about our journey in real estate investment. My wife and I were typical of most Americans – investing primarily in the stock market via 401(k)’s and owning our home. But something didn’t feel right about this approach. The stock market is a very efficient and effective way to invest your money, but should it be the only way? Having maxed out our 401(k)’s, should we just find back-door IRA strategies to double-down? After much thought and consideration, we decided to try our hand at real estate investing. But let’s start with how we landed on real estate investing by sharing our journey in our own home purchases. Owning your own home teaches you a great deal about real estate investing. Are you willing to do some work around the house, maintenance or improvements? Are you financially disciplined enough to pay your mortgage, insurance, taxes, etc. on time and financially literate enough to understand how your real estate financials work? Do you understand what aspects of real estate drive value (location, size of lot/home, condition, etc.)? The answers to these questions will help guide your strategy in real estate investing should you choose to do so.
My Journey In Real Estate Investment
My fascination with real estate started when I bought my first house on my own at age 23. It was a very basic, inexpensive house, but it was all mine! Okay, maybe the bank owned 80%, but it was better than the janky apartment I was living in previously. It served as a place to lay my head, host parties, and gain basic home ownership skills like replacing ceiling fans, landscaping, and ignoring neighbors. I was very proud to have a house that young on my own, and while I made many mistakes in the process, they paid off down the line.
I moved from Wisconsin to Michigan for work, selling my first home to my company (and that story is a whole blog on its own) and buying my second home. Four years later, I moved again, selling home #2 and buying #3 in Colorado. At 29, I was already on my third house – that's not a flex, just a weird path in home ownership. Three years later, I met my lovely wife and got married, and got a job offer with another company. It was good enough for me to start driving 75 miles each way. I somehow kept this up for seven months, through ridiculous traffic, inclement weather, and sleep-deprivation as our son arrived in month three. Realizing this was not sustainable, my wife and I agreed to split the difference on commuting and found a nice home halfway between our workplaces. Thankfully, she found a great job that was now much closer to our new home, while I continued a still-challenging commute.
Fast-forward to 2022, we had invested in a large landscaping project that received HOA approval, but the new HOA board decided to rescind it while claiming we never had approval. We found ourselves at a crossroads - continue fighting the HOA, or pack up for greener pastures. We took our equity from a wild market (60% appreciation over 5 years, or 10% annual appreciation!) and put it towards a funky log cabin home on some acreage... without an HOA! If you're keeping track at home, yes, I've owned 5 homes before turning 40.
Regrets?
Traditional wisdom is not to house-hop, especially not as frequently as I did. The transaction costs alone deter someone from buying and selling homes, regardless of how much equity you've built up through principal payments and appreciation. However, career and personal reasons drove these moves, and moving enabled us to buy better homes that appreciated more and allowed us to have peace of mind. Each move wasn’t necessarily profitable - in fact, I sold my Michigan house for a slight loss as I bought at the beginning of and sold at the end of the Great Recession. And moving is miserable, drowning you in hard labor, stress, and mental exhaustion.
Do I regret these moves? Not in the least. With each house, I gained new experiences, knowledge, and help refined what we are looking for in our next home. As we embark on a much-needed addition and renovation of our current home, we have a much better vision for what we know we will want. Even the bad experiences helped fuel our understanding of what we want to avoid.
Conclusion
We can probably all agree you shouldn't run through homes like hair styles. However, home ownership is still a great way to build long-term wealth - not to mention the freedom and privacy you likely won't get as a renter. As we go through our real estate investment process, it's critical to understand the benefits of home ownership. Owning your house should be the first step in your real estate investment process - how can you believe in having rental properties while renting from someone else? Next week, we will get into our first rental property, and is it a doozy!
Comentários