Before buying your first house in this strong real estate market, here are some important things to know.
Further, I started Financial Samurai in 2009, and this site is now one of the largest independently owned personal finance sites in the world.
to build long term wealth. For most people, real estate will be their best way to financial freedom. Real estate acts as a forced savings account. Further, real estate prices tend to rise at least as fast as inflation.
The Most Important Thing To Know Before Buying Your First House
The most important thing to know before buying your first house is how much better owning feels than renting. It is night and day. You feel like you can finally establish roots and live more. As a renter, you feel temporary. As a homeowner, you feel like you below.
Another thing I wish someone told me before buying a house is how amazing it feels to get the keys to your first property. It’s an indescribable feeling that’s comparable to getting into your top choice school or getting a message from a person you like saying “yes” they’d like to meet up.
If I knew how awesome it is to own property , I would have tried to buy even earlier than 2003. My biggest regret was not buying a double balcony, 1,200 sqft, 2/2 condo in Manhattan with a view of the Chrysler Building and a park back in 2001 for $780,000. It would be worth over $2M today.
Owning Versus Renting Is No Debate
The debate about renting or owning your primary residence is nonsense IMO if you plan to stay put for at least five years. If you are renting, you are SHORT real estate and inflation. Inflation is too powerful a force to combat. Compare rents 10 years ago versus today. Compare prices today versus 20 years ago. Can you imagine shorting the stock market over the past nine years?
Of course not. The return on rent is always negative 100% each month. Therefore, you best at least get neutral inflation by owning your primary residence using my 30/30/3 rule for home buying.
Owning multiple properties as a landlord is a different question. That’s when you are truly going long property. For example, I owned two SF rentals before selling one in 2017 to simply life once I became a father. For three years, all I could find were a group of 4-5 tech bro guys to rent to. They threw parties, trashed the house, and often paid rent late. Further, I sold my rental property for 30X annual gross rent, which is an incredibly high valuation.
Once you own your primary residence, you can start focusing on everything else in life because chances are, your most expensive purchase is out of the way!
More Important Things To Know Before Buying Your First House
Here are other things you should know about before buying your first house. The last thing you want to feel is buyers remorse after spending so much money.
- Your property tax rate and what it’s used for because the government loves to raise taxes
- That everything is fixable, it just costs time and money
- Having a good handyman and contractor is priceless, just like a good auto mechanic
- Don’t extrapolate price appreciation because there are cycles
- Take more risks when you’re young by buying as young as you can
- Money is made on the purchase, not on the sale, so negotiate hard
- Negotiate your commission fees because everything is negotiable
- There is always another great property to buy if you miss out on the current one
- As you build home equity, you can eventually move on to buying your “forever home.“
Your first house is always going to be very special. Just make sure you can afford to buy and maintain the property. If you can live in your first house for at least five years, you will probably turn out fine.
Before you buy your first property, here are 10 warning signs to look out for as well. A lot of first-time homebuyers are skipping the inspection to win a bidding war. Therefore, I suggest you diligently expect the home when you first look at it and once you get into contract.
Reinvesting The Proceeds Wisely
After selling one of my rental properties, I used $550,000 of my proceeds and invested it in the heartland of America via real estate crowdfunding. The net rental yields are 10%+ in places like Austin, Houston, Omaha, and Salt Lake City vs. 2.5% in SF.
Further, I now feel a huge relief to no longer have to manage physical real estate anymore and pay $23,000+ a year in property tax. Fundrise is my favorite real estate crowdfunding platform. They are the creator of diversified private eREITs for retail investors to gain exposure to the market.
I really think the rise of real estate crowdfunding is going to accelerate the arbitrage and investment flow in lower valuation real estate around the country. Due to technology, there's no need to live in expensive places like San Francisco, New York, LA, and Seattle anymore.
Once you've bought your primary residence, the only way to truly be long real estate is by buying more real estate. After all, you need to live somewhere. I'm bullish on real estate for the next several years post pandemic.
About the Author:
Sam began investing his own money ever since he opened an online brokerage account in 1995. Sam loved investing so much that he decided to make a career out of investing by spending the next 13 years after college working at two of the leading financial service firms in the world. During this time, Sam received his MBA from UC Berkeley with a focus on finance and real estate.
In 2012, Sam was able to retire at the age of 34 largely due to his investments that now generate roughly $200,000 a year in passive income. He spends time playing tennis, hanging out with family, consulting for leading fintech companies and writing online to help others achieve financial freedom.
FinancialSamurai.com was started in 2009 and is one of the most trusted personal finance sites today with over 1.5 million organic pageviews a month. Financial Samurai has been featured in top publications such as the LA Times, The Chicago Tribune, Bloomberg and The Wall Street Journal.