HOUSE / REAL ESTATE.

“For every house is built by someone, but God is the builder of everything.” Hebrews 3:4

90% of the world’s millionaires were created by investing in real estate.

Buying your primary residence can be a great start.

Click on the links below to learn more about these significant wealth-building tools.

Are You in the Market for a Home?

Questions to Consider

#1. Buying vs Renting?

(Timing plays a huge factor. How long do you plan to stay at this residence?)

  • More than 5 years

    • Buying may be a better option as you might be able to recoup the closing and moving costs and weather any volatility the real estate market may face.

  • Less than 3 years

    • Then renting might be the better option.

  • In between (~ 4-5 years)

    • Buying may be okay but do your research so you don’t get stuck in a house you owe more on than what it is worth, say if the economy were to go down for some reason.

#2. Are You Ready to Buy?

  • Are you out of debt?

  • Do you have an emergency fund of at least 3-6 months?

    • Check out the Make a Plan and/or Savings pages for tips to know what is a sufficient emergency fund amount for you.

  • Do you have a good strong down payment?

    • (20% is preferable to avoid PMI but could be less if a first-time home buyer, however, you’ll have to pay PMI. You might be able to refinance later to get rid of PMI, but that may not be smart in an economy with rising interest rates. Do your homework on what will be best for you.)

#3. What is the Purpose of the Home/Real Estate?

  • If you're buying for money reasons

    • Put more time into researching to get the best deal.

  • If you’re buying memories

    • Do not try to time the market and buy what fits your needs and budget best.

Own Your Home - Don’t Let It Own You

Other Tips to Consider When Buying Real Estate

  • Location is most important as this is something you cannot (or is much harder to) change.

  • Plan/budget for about 1% of the home’s value per year for upkeep and repairs.

  • DO NOT forgo inspections. No matter what! You don’t want your dream home to become your nightmare. At a bare minimum, ask for a pass/fail inspection.

  • Ask yourself what is the smallest amount you can pay for a house that will meet your needs so you can focus on investing toward your financial freedom. (This is a F.I.R.E. Community tip.)

  • Stick with fixed-rate mortgages, but IF you choose an adjustable-rate mortgage (ARM), then plan to pay off your entire mortgage within the teaser timeframe (When the interest rate is fixed/non-adjusting. Usually within the first 5 years.)

  • Aim to keep mortgage payments under 25% of your gross income. This should include principal, interest, taxes, insurance, and any HOA fees. Some also suggest including utilities in this as well as that will help afford you the ability to invest more.

    Bonus Tip: Remember to review your home insurance policy every few years and update it if needed. Home values fluctuate, and sometimes they can fluctuate rapidly. (This is very important in high inflationary times.)

House Hacking

This is a popular tool used by the F.I.R.E. Community.

House Hacking is when you buy a residence (a duplex, other multi-living unit, or even a house), and you live in part and rent out part.

This income can help you pay the mortgage, allowing you to save and invest more or pay down the mortgage faster.

This can be a great way to gain financial freedom more quickly.

Note: Do your research as not all places allow multi-family living.

Where to invest money to save for investing in real estate? 

Dave Ramsey, says to put part of your money in Money Market accounts and part in No Commission-No Load fund (this one you could lose money on when you need it but could also make a lot more). If looking to buy in under 5 years, use money market accounts, if longer than 5 years use No Commissions-No Load funds. 

Paying Off Your House vs. Investing

First, you need to understand your mortgage interest rate and potential investment gains. You should also understand your comfort and risk tolerance level.

Option 1: Focus on investing. Some say that having the ability to pay off a mortgage, is just as good as having a paid-off mortgage. This means you have enough money in investments that you could pay off your mortgage if needed. For this option to be worth it, your investments should make higher returns than you would be paying in interest on your mortgage. Prioritizing investing lets you take advantage of the higher gains your dollars can make by being invested in the market, and this could help you pay off your mortgage faster. This means you only pay the regular monthly payments to your mortgage, and the extra money you would have paid to your mortgage would get invested instead. Then, later in life, you could sell some of your investments to pay off your mortgage.

Option 2: Focus on paying off your primary residence. Investments can be volatile, and no one knows exactly what the markets will do. Having your primary residence paid in full can help ensure you will not become homeless if the bottom falls out of everything. On average, a recession happens every 6-8 years. Usually, a time of recession is when job loss is higher, and you will not want to be forced to cash in assets when the values are down. This can make paying off your primary residence appealing. It can give you peace of mind knowing you could better handle any downturns in the economy.

(Age will also play a factor in this as the older you are (say 50’s or more), the more you will want to prioritize paying off your mortgage, even if it is a low-interest loan.)

Mortgages on investment properties can be seen differently. If they are cash-flowing investment properties, then some might consider this good debt and will be okay holding a mortgage on these. This is because they want to maximize any return on investments they receive. (If looking at investment properties, be sure to learn how to set them up correctly in LLCs or business accounts, so your primary residence will not be affected by any unforeseen circumstances.)

Both of these can be good options depending on your money strategy and risk tolerance. I suggest choosing the option that will help you sleep better at night as stress is not good for anyone’s health.

3 Mistakes 1st Time Homebuyers Make

by Meet Kevin

  1. Putting 20% down

    • Kevin feels this will delay your wealth-building journey, and that a 3-5% down payment would be better for your first home purchase.

      • If you wait till you have 20% down, then your housing needs could change making it harder to get to the point of buying a house, like for instance, you now have a family and children, so the size of your housing needs has become bigger leading to a needing a bigger down payment. Kevin says that buying a house early can get your foot in the door of real estate so you can start letting compound interest work for you.

  2. Being afraid of PMI (Private mortgage insurance)

    • You are not stuck with PMI forever. Yes, you can avoid paying PMI when you put 20% down, but Kevin suggest going ahead and buying the house with 3-5% down to get your foot in the door of real estate, and then refinancing later to get rid of PMI. This can usually be done in just a few years, however, you may need to weigh the pros and cons with the current interest rates.

  3. Waiting for your dream home

    • This also can delay your wealth-building journey. Kevin suggests getting into real estate earlier rather than later, so again, you can get compound interest on your side.

Passive Wealth vs Passive Income

Some suggest focusing more on passive wealth rather than passive income. 

  • Passive income (like dividend income) is something you are taxed on the year you receive it, and most try to delay their taxes as much as they can until retired in order to pay the lowest tax amount now.

  • Focus on passive wealth (like stocks or real estate) instead as this is something that appreciates in value over time, but you are not taxed on it until you sell that asset.  There could also be some tax breaks with real estate that could be worth looking into. 

They also suggest that real estate investments should be prioritized before stocks. Be sure you’ve done your homework on how to get good real estate deals.