Why you should buy a home as early as possible.

[biophase]

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.

 

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

[MJ DeMarco]

For the average person, real estate as a residence is the best thing you can do.

It is a great hedge against inflation. First your home almost always appreciates in a mid- and long-term horizon. Second, you're mortgage is denominated in cheaper dollars which always, ALWAYS inflate.

I'm not an active RE investor, however, some of my "easiest" money wins came from selling my primary homes after 2 years and taking $250K tax-free. A $250k tax free gain is the same as earning $400K and paying taxes on it.

The smartest thing anyone can do is buy a primary residence for 2 years, sell it and take gains tax free, and repeat. (This is based on US tax law) Upgrade along the way.

By the time a 21 year old is my age, the will have millions... of course, those millions will be inflated and not worth as much, but still, far ahead of the average salary slave.

Location, also cannot be understated. My city is full of millionaires, even if they only own 1,200 square foot craftsmen houses ... owning real estate in a desirable location, is 100% responsible.

 

[biophase]

But what about all the people who bought a home and got F*cked because of it?

Yes this may happen. I bought a place in Chicago in 2005 and sold it for $20,000 cheaper than what I paid for it in 2022.

Not all real estate goes up.

What if I don't want to settle down in my 20s?

This is a choice that many people make. And then in their 30s and 40s they cannot afford to purchase anything and they do not have any savings.

This is the main reason I made this post because in my lifetime with my friends it is now 20 years later after they made that same statement and I can see the wealth difference between the haves and the have nots.

I like the idea and you know what your talking about, yet I feel like your somewhat biased towards real estate and it's greatness.

I am not biased towards real estate. I am biased towards investing when young however, the reason I suggest real estate is because it is a twofold asset.

One is that you get to live in it and two is that it is an investment and savings vehicle.

It is much harder to tell somebody young to invest in stocks/funds when they have to purchase shares and still have to pay rent, I tell them that real estate will accomplish those two things with one payment.

Ok I guess I am biased towards real estate in that way.

 

[biophase]

Bro get out of here with the "oh dream big but make sure to be ready to settle for less" mentality.

We just recently had a massive thread about how this is toxic and helping noone.

It's not dreaming big but settle for less. It's about protecting your downside. Businesses come and go. Their success may last 5, 10 or 20 years. You just don't know.

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.

 

[MJ DeMarco]

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

As an American, you have the power to clear $250K tax free every 2 years.

Think about that.

The government will NOT tax you! When does that ever happen?

If there was ever a lazy Slowlane strategy this is it:

If you move 10 times in 20 years with an average $100K gain, that's $1M tax free. You'd have to earn $1.5M to net the same amount. If you put those gains into the stock market and earn 8% annually, in 20 years you'll have around $1.3M, for simply DOING NOTHING other than moving every 2 years.

Yes, this is Slowlane, but it is still a powerful weapon for wealth creation, especially if you fail at 100 businesses.

Also, as you level-up in home, the amount of the gain tends to also correlate with the cost of the home. My tax-free RE gains were bigger the more expensive the house.

 

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

[BizyDad]

This is one of "those threads".

Housing doesn't only go up $100k/yr for 20 years. Sell your house every 2 years? In what universe is that "the right move" for a slowlaner who lacks expertise in real estate?

If you live in a crappy area, I'd argue it is better to move to an area with more opportunity and rent there than it is to buy a house right now in your crappy area. There's a reason your real estate is more affordable. Move.

My dad bought a condo in a decent area of eastern PA in 1990 for $120k. It's worth $180k now. Maybe $200. Nice quiet neighborhood. His place is very well maintained. That's 33 years appreciation. He loves it, but I outpaced that appreciation on my home in 2021 alone. My house is only 350 sq ft bigger. And my neighborhood is noticeably worse than his. That's the difference between eastern PA and Phoenix AZ. When I first moved to Phoenix I was priced out of the market. I bought at the bottom of the last crash. Today my house is worth more than twice what my Dad's is.

Interest rates, at least in the US, are going to go up. Looking at the falling home sales figures, it is just a matter of time before prices start to come down. Telling people to buy a house now feels a bit like saying that in '07. The writing is on the wall and those who bought in '07 didn't recover from their decision for 10ish years.

Kinda like how people are already giving their overpriced cars back to the dealers (or getting repoed) rather than pay their inflated loan/lease amounts.

Even if I'm wrong, even if a crash isn't coming, it doesn't look like any surge in pricing is coming anytime soon. So it doesn't actually hurt you to wait another year or two and see which way the wind is blowing. And a lot of places it is cheaper to rent than own right now. There's nothing wrong with keeping your powder dry.

My point is this...

There is good advice here that is generally true. Generally.

But like anything, or everything in life, you have to be smart enough to take a look at the specific factors of your life and decide if this advice is truly good advice for you specifically.

 

[JAJT]

My wife and I bought our home in 2008 for $260k at the age of 23-24. Youngest people we knew with a home and neither of us were making killer money.

With just some of the equity we built up over the years, we bought an investment property duplex in 2019 for coincidentally the same $260k.

Our primary home today is worth about $6-700k and our investment property has exploded to over $400k in just a few years. There's a pretty easy way to turn our primary home into a duplex as well so if we ever sold, we could explode the value by turning it into a turn-key vacant investment property.

My kids are only 11 and 13 right now, but I sleep pretty well knowing that when it comes time for them to want a home - I can use my equity/investment to assist them with the down-payment so they can get a home at a young age instead of having to work until 40 like many of my friends have had to. Some of my friends and family still can't afford a home (or rent, for that matter) despite some of them making significantly more than me!

I've started a few businesses over the years that didn't really go anywhere and I've had okay paying jobs my entire life but real estate has absolutely meant the difference between a struggling situation and a pretty optimistic situation for me and my family.

 

[biophase]

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.

This is hard thing for younger people to swallow. When I bought my first house in 1999, I thought, man in 2029 and the house will be all paid off, that is a long long time. But reality was that in 2004 I sold it and moved.

You can always sell your place or pay it off faster. There's a high chance you won't be in the house for 25 years. Just take it one month at a time.

Here's another perspective. Imagine you purchased this home in 2007 for $125k. Your payment would be $594. Today in 2023, you would be paying $600 to live in this exact home. Would you be happy with that purchase?

There's probably going to be someone posting in 2030, telling you that you got lucky and bought when the prices were low.

 

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

[Andy Black]

Interesting article that relates to this discussion...

The End of Homeownership - Macleans.ca

For generations, middle-class Canadians have been sold on the promise of homeownership. The promise was always flawed. Today it’s simply broken.

macleans.ca

Curious what any Canadians think...

excerpt...

View attachment 49514

excerpt...

View attachment 49515

I haven't read the article, just your comments.

I fear this is how it is in Ireland too. My stepson, nieces, and nephews may never get to own a home. Saving for a deposit is like trying to catch a target accelerating away from them.

House prices are still going up even when the European Central Bank has hiked interest rates. Apparently the mortgage interest for many has gone from 1% last year to 5% this year, yet house prices still go up because of lack of supply.

Rents are also high due to lack of supply, and are marching upwards too as mortgage interest payments for the landlords go up.

I lived in London about 25 years ago.
Over a short period of 5 years I was priced out of the market in London because I wanted the "freedom of being a renter" and I wanted to continue to live in the trendier areas. A friend who'd already bought practically pleaded with me to buy, saying that every year I waited I was losing out on thousands and how I was going to get priced out.

When I finally took property seriously I bought back home in the North of England. I rented out to my brother, then bought a few more little properties.

Those purchases were some of the best decisions I made as they went up in value and allowed me to cash out and get into the Irish market 10 years ago - just after the crash after the "Celtic Tiger" increase, and before the current increases. Our family home has increased in value and our mortgage payments on a 4 bed home are less than the current rent for a one bed studio. We're also fortunate enough to nearly own another property outright.

Yes, you have to do your due diligence and buy the right house in the right place for your own circumstances, but get on the ladder as soon as you can.

You want time and inflation working with you to eat into your debt (mortgage), and to increase the value of your property. You also want the security of not getting evicted by landlords who have to sell and/or raise rents.

And as others have said, living in a *home* you own is completely different than renting a property. We're thinking of paying €10k to get a little back garden done up to look nicer. We'd never do that in a rental, but it's practically a no brainer as a home owner since it will increase the value of the house by more than €10k when done.

It may feel like you're "settling down" and no longer free to move around. I get that for youngsters it feels too complicated and too grown up. It's not.

 

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

[Subsonic]

This is something I've thought about in the past and I agree with you. For someone following the typical 9-5, buying a home is one of the surest ways of building wealth over time. A home is not only a forced savings vehicle but it is also a great hedge against inflation. And if you buy right you will even see some real appreciation.

2 points:
1. (a bit of a tangent) In regards to people pursuing the fastlane, I don't think most succeed in the end. Not saying we shouldn't pursue the fastlane (I am) but it's a difficult pursuit and as with most difficult pursuits, most naturally won't succeed. For the majority that don't make it, their opportunity cost is the slowlane wealth that they could have built over time (a paid off home) if they had focused their time and resources there instead. I think as long as you're comfortable with the risks and opportunity costs involved in pursuing the fastlane then it's all good.

2. If you are in the camp of someone who is successfully running a fastlane business, then I would agree with the general spirit of what you are saying. I would only modify it and say don't limit what you buy to a home that you live in - be open to buying commercial RE, etc. as well. I personally know a family whose grandparents successfully ran a business and invested in different types of RE over time. They are now set in a multigenerational way and while their home purchase did well, it was really all the commercial stuff that they bought which really established them. Businesses ebb and flow, and their original business is no longer very profitable at all. If they did not have the foresight to invest their profits wisely when they were making good profits, they would be in a very different position today. I think this is why I like your advice telling successful fastlaners to buy property instead of spending it... because the good times might not last forever.

Bro get out of here with the "oh dream big but make sure to be ready to settle for less" mentality.

We just recently had a massive thread about how this is toxic and helping noone.

 

[biophase]

The people who made there investment in real estate very early are reaping the reward. The people who didn't get to buy in are being left in the dust, that is what we are seeing today.

How does a young millennial even have a chance? A six figure salary doesn't even cut it anymore with inflation so high

You can still find a way. Everyone always thinks that they are too late. If you are making six figures, you should be able to get something.

I bought my first home for $230k on a $65k salary at 8.25% interest. It was a 1.5 hour commute from my work.

It wasn't a great home. It had shag carpet in all the rooms.

 

[MitchC]

I bought a home and that was one of the main reasons I was able to quit my job and pursue my business full time.

It’s almost the opposite of what you would expect, you would think that commitment would tie me down, but it didn’t, it gave me the stability and safety to take that risk.

Plus, good luck getting a mortgage as a business owner, much easier with a stable job.

And I wish I did it sooner, I was saving money to the point I wanted to pay cash as I’d never had debt before, what an idiot. I would have saved so much more money and have a much nicer house if I bought earlier.

I have a mate who bought 2 homes straight out of school, did nothing else just worked a job, and he’s probably worth more than me and doing better than me and I had the headache of starting a business, all he did was buy a couple homes.

Buying a house is probably the best financial decision I’ve made.

The equity in the home after just 2 years offsets every single stupid investment in stocks and crypto I made.

And it’s more than the gains I ever had at the top of the crypto and stock cycle.

Also for those trying to time the market and waiting for a dip like we did, we were idiots, don’t wait, if we learned one thing from Covid it’s this, politicians will never ever let house prices drop and will do everything they can to ensure that doesn’t happen.

 

[biophase]

My fiancé is from Singapore and I’m currently on the fence as to whether we should buy there or in the US first - because Singapore will cost a lot more upfront.

I’m 27 now and am definitely starting to see the effect that the lifestyle of traveling and renting places is having on my net worth. Your post definitely hit home for me there.

It’s really the current interest rates in the US that are pushing me towards Singapore. The main problem on the Singapore side is the legal situation with renting it out if we go with an HDB property. We’d have to wait 5 years or do it under the table - which many people do ‍

The one thing about interest rates, is that you hope you can refinance when the rates drop.

I know this is a big if. But if you can afford the higher payments, you can get the house you want now. Maybe refi in 5 years when rates drop.

It's an interesting gamble.

Let's say the house you want is $1M at today's rates. But if rates dropped to 3% it would be $1.3M. Would you rather purchase today at 7% or for $300k more for 3%? If you assume you never refi and make payments for 30 years. Which is the better route?

If you assume you can refi 5-10 years down the line, which is the better route?

Alot of math to do there, but high interest rates isn't necessarily bad for you. You could get a much better price and home than you would during a bidding war.

 

[biophase]

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.

That is just ridiculous. How did you come up with this number? So if you have $300k and inflation is 5%, you are ok with losing $15,000 a year in buying power? I have no words for your perspective. I mean I could see you saving $50k, but $300k or $500k?

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

This sentence is so ironic. You are waiting for an unseen opportunity and you are literally not seeing it.

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.

When you save money you aren't keeping up with inflation. You're blind spot is that you think savings combats inflation when it is the exact opposite.

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.

The fact that you worry so much about health insurance at a young age is troubling.

 

[MJ DeMarco]

What are my blind spots with this?

The best RE investment you can make has nothing to do with real estate, but to GTFO of NJ, quite possibly the worst state in the union to build wealth.

 

[Antifragile]

Interesting article that relates to this discussion...

The End of Homeownership - Macleans.ca

For generations, middle-class Canadians have been sold on the promise of homeownership. The promise was always flawed. Today it’s simply broken.

macleans.ca

Curious what any Canadians think...

excerpt...

View attachment 49514

excerpt...

View attachment 49515

I am clearly biased as a developer. So far I’ve tried to stay out of the thread for this reason.

With that in mind, I’ll do my best to remain neutral.

Real Estate is like any other asset, priced based on demand vs supply. When you see population moving into some area and dwelling units not being built, prices go up.

The second driver of prices in RE is cost of borrowing. Interest rate matters because your total payments (debt service) change dramatically with the smallest of changes in the borrowing rates. In a declining rate universe, prices tend to soar (investors and owner occupiers both buy buy buy).

Third, replacement cost. Most people are completely unaware that in markets where you see highest prices, replacement cost of each next building is substantially more than the one before. Ironically (for today) I am not speaking about inflation! No. This is because we have certain environmental, safety, energy modelling, building code, seismic and so on… improvements. They truly all are improvements. Think that a new building will probably survive a local area 1-200 year earthquake event, but the older buildings may not. Think that in North America it’s a requirement to have two exit stairs on multi-unit buildings, when in most of the world one is sufficient. Why does this matter? In case of a fire, you are safer, more than one way to exit buildings … all quite obvious. Energy modelling later saves on energy and so on. All improvements, as I said, but they all COST more. Even with no inflation (I mean ZERO) in Canada, we are prescribed targets on say energy (here called Step Code) and we are upgrading building code in December. Without inflation, cost of construction will continue going up significantly over the foreseeable future.

Worse yet, we have an acute labour shortage. Yesterday at dinner we were just talking with a banker who said that “Capacity for Toronto is 26,000 units, demand is for 60,000 units per year. Even if every single project in the pipeline was approved today, they can’t be built”.

Oh it gets worse too… with higher interest rates, cost of buildings are higher to construct. Municipal fees are higher too, each year. Meaning: government charges more taxes! Across Canada.

Again, most people think “greedy developer” they aren’t thinking “government taxes are paid by me because developer adds it to cost“.

Is it any wonder prices have been going up over decades?


That’s not to say prices can’t go down. Not only they can, they do! Market corrects and plenty of people today are left holding the bag for buying units in the post covid rock bottom interest rates (in Canada).

Why? Because unlike the USA, where you lock your rate for 30 years, our rates are only locked for 1-5 years, and that assumes buyers locked in their rate (versus getting a variable prime + % rate). This means that by 2026 ALL mortgages that were taken on in 2021 will have been renewed at new rates. Today, these rates are massively higher.

Contrary to the main message of the thread, this is one example of a bad decision… it sounds like it…

Or maybe not. It’s actually a little more nuanced than that. Prices did drop, a lot. In some cases I’ve seen 30% lower… only by today, it seems most prices are back up again. Why? Supply vs demand. We’ve had record setting immigration and population growth. And our supply is a fraction of existing demand.


Draw your own conclusions, as I said, I am biased and want to stay neutral.


I will say this, I think rental rates will continue to climb…


edit: here is one developer showing a cost breakdown as part of marking their sales in Victoria BC

 

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

[David4431]

Bro get out of here with the "oh dream big but make sure to be ready to settle for less" mentality.

We just recently had a massive thread about how this is toxic and helping noone.

Business is hard and most people will fail. This is a fact. If you never succeed in building a successful business and spend years trying to do so, you will likely be worse off financially. This shouldn't be controversial. Why is acknowledging the opportunity cost of building a business somehow a "settle for less" mentality or toxic? Opportunity costs are still very real costs that need to be paid. I think most entrepreneurs recognize and accept this cost so I'm not sure why you have a problem with it. When I point this out, I'm honestly not trying to say "settle for less". For me, pointing out the fact that business will eat most people alive is like saying the sky is blue. And I'm cool with this. Business requires risk taking which means that if you fail then it is possible that you will be POORER as a result and a slowlaner who just did a 9-5 and bought a home will be wealthier than you in the end. Someone pointing out the truth of this honestly shouldn't distress you if you're serious about building a business. Business is hard and there is a price to pay if you want to play. I am happy to pay this price to play and you should be too if you are serious about this.

And for context, I run an ecommerce business so I know how ferocious competing in business can be.

 

[MitchC]

It also has to do with the options I have in my country.

When I reach 35 soon, I can get decent resale public housing in the range of 400-500k.
Alternatively, I can opt for dirt cheap newly launched public housing below 200k for unmarried singles. I can rent out after living for 5 years and get 2k monthly rental. Insane yield and impossible to lose money. The downside is that the construction waiting period takes around four years. Public housing here has decent quality and good neighborhoods.

Most of my peers opt for private apartments that cost around 1.5M these days, taking up a significant mortgage liability. The rates could not be fixed for 30 years, five years max fixed rate here, because the banks here could not hedge the risk away.

There is also no tax benefit here. Property tax is not high, but REITS that collect dividends are taxed at zero (zero dividend tax). So the only power of home ownership comes from leverage if you choose to use it. In the right direction, you make money; in the wrong direction, you are screwed.

Like @Antifragile I've been trying to refrain from replying to your posts even though they are the stupidest posts I've ever read but you got me here I can't help it anymore.

Have a think how much money you've lost by waiting.

You wouldn't even be thinking about buying public housing if you'd just bought a house at 25 instead of 35.

The problem with your posts is you think you have some special insight that everyone here doesn't. All these smart people are saying something and you are arguing the exact opposite.

I was the same.

I literally wrote a post about it above and said how stupid I was.

I literally saved the 300k you said would be needed in case of emergency.

What the F*ck was I thinking? What emergency?

And more importantly what opportunity?

What opportunity could someone possibly present me that involves me needing 300k, that doesn't end in me losing that 300k?

Having money in the bank like that is just sitting there asking to be played with lost and spent.

Also, mortgage or rent, it's the same thing. Mortgage payments are often less.

Anyone here saying they don't want 30 years in mortgage payments, have a think of the alternative, you wanna rent for 30 years instead?

What if I move? You won't. And if you do, so what? sell the house, rent it out, it's easier than breaking a lease.

 

[JasonR]

I certainly wished I bought Real Estate earlier! I lived abroad for 5 years so wasn't interested in real estate at the time...then COVID happened.

The first home I bought was a vacation home, and I wouldn't have moved on it (or even known about the mountain town I was buying in) without @biophase

I bought the condo, which I thought was pricey at the time, because I wanted to be up here in the summers - I wasn't thinking about the money so much. I paid $660k. About 8-9 months later a townhome I had been eyeing for years came up for sale. I bought that (for way more than my previous townhome, so I was a bit nervous). I put the original condo on the market, and it sold in a weekend for $200k more than I paid for it. So Biophase pretty much is the reason I made the easiest $200k I've ever earned. I 1031ed into the new property.

Since then, I've bought four more properties. I don't see real estate "crashing" any time soon with how much money was printed and how much demand their is for housing. It appears builders haven't built enough homes since the 2008 crash for the current (and growing) demand. Interesting times.

I bought my primary home a couple months ago even though interest rates are high. I know rates will eventually go down, and I'll likely pay off the home pretty aggressively, anyway. I thought if I didn't buy something now, I'd definitely regret it in 2-3 years.

 

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

[MJ DeMarco]

Mortgage Rates Hit 7.09%, Highest in More Than 20 Years

Interest rates have hit housing hard: Would-be buyers are locked out, and would-be sellers are staying put.

www.wsj.com

Sellers don't want to sell who have locked in low rates (I have 2.25% mortgage and it'd be stupid to sell) constraining supply and buyers are locked out due to high rates (constraining demand) -- so it feels like a net wash where elevated real estate prices are here to stay.

 

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

[P3HSB]

The people who made there investment in real estate very early are reaping the reward. The people who didn't get to buy in are being left in the dust, that is what we are seeing today.

How does a young millennial even have a chance? A six figure salary doesn't even cut it anymore with inflation so high

 

[biophase]

Your an example of somebody who play your cards right and got in early

Todays market number look like this for a very modest home. And that is without Reno. So yes shag carpet lol

$500-650k home -> 6-7% interest -> Monthly cost est $4000+

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.

 

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

[MitchC]

The problem with stocks compared to real estate is there’s no leverage

Someone with 15k saved can buy a house for 150k and earn 8% a year on 150k in appreciation

Someone with 15k in stocks is making 8% on that 15k

“The real estate market doesn’t go up all the time” neither do stocks this is just over simplified

“You have to pay the mortgage” yeah well you’d have to pay rent either way too

2 other advantages

You won’t be tempted to trade or worry or panic like you would in stocks. You can’t check your home price daily. You can’t panic sell your home.

2, as you pay down the mortgage the payments become lower, meanwhile rent generally goes up.

 

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

[MJ DeMarco]

Three years ago I was thinking I should "wait" for lower prices and higher interest rates instead of taking a stab at something at or near the zenith of the housing frenzy.

In the areas I was looking at, prices have not gone down, only up. The frenzy is gone, but the high prices are not.

Had I waited things out, it likely would have cost me on order of $1M-$2M, either in higher interest costs or higher prices. Now that's $1-$2M I don't need to make, and this under that premise that my current home hasn't gone up in price.

More important to me, my real estate is a fixed, tangible asset. There's a reason why I own millions in real estate indirectly via REITS (even though many of them have suffered this year) -- I'll take the losses for the peace of mind of having my money behind hard assets.

As some know, I'm pretty pessimistic on the US economic situation and the US Dollar.

No matter what happens there, I own assets that will always have tremendous value, not matter how they are denominated.

I will buy my first property in the foreseeable future, as my business model is hardly capital-intensive and I can ideally use my savings for a down payment. After some comparisons between self-use, renting, house hacking, etc., I came to the following conclusion:

I'll take out a loan for the remaining amount and just buy a small apartment. I will in turn rent these out, so I will be happy if, after all deductions, the whole thing remains a zero-sum game because the tenant pays all my costs, including the loan. I still live in my rented apartment. As a result, I see the following advantages in my position:

1. I build equity because someone else is paying me back my loan
2. I have some sort of backup after X years since the apartment will eventually be mine (once the loan is paid off)
No matter how hard I F*ck with the business model, at some point it will be mine and I will use it to cover the largest item of all the fixed costs that one can have, since from this point on I no longer have to pay rent.
3. If I can't find a tenant for a long time, I can move into the apartment myself and pay back the loan for X months until I find a new tenant or I live there myself for a longer period of time

If I don't do that AND my Fastlane business fails for X years in a row, I'll actually be left with nothing - at least from a purely financial perspective. That is a fact and I thank you for addressing it in your post. If I do it AND my Fastlane business only works to a certain extent, then in addition to a business that works far away from my time, I also have a paid-off apartment, which in turn is reflected in my overall assets.

You're describing "house hacking" which is quite common.

When life's largest expense is taken care of, it really levers up the freedom.

So owning a place, free-and-clear, is a big gamechanger for your freedom, especially if you're more of the FIRE type.

 

[David4431]

This is something I've thought about in the past and I agree with you. For someone following the typical 9-5, buying a home is one of the surest ways of building wealth over time. A home is not only a forced savings vehicle but it is also a great hedge against inflation. And if you buy right you will even see some real appreciation.

2 points:
1. (a bit of a tangent) In regards to people pursuing the fastlane, I don't think most succeed in the end. Not saying we shouldn't pursue the fastlane (I am) but it's a difficult pursuit and as with most difficult pursuits, most naturally won't succeed. For the majority that don't make it, their opportunity cost is the slowlane wealth that they could have built over time (a paid off home) if they had focused their time and resources there instead. I think as long as you're comfortable with the risks and opportunity costs involved in pursuing the fastlane then it's all good.

2. If you are in the camp of someone who is successfully running a fastlane business, then I would agree with the general spirit of what you are saying. I would only modify it and say don't limit what you buy to a home that you live in - be open to buying commercial RE, etc. as well. I personally know a family whose grandparents successfully ran a business and invested in different types of RE over time. They are now set in a multigenerational way and while their home purchase did well, it was really all the commercial stuff that they bought which really established them. Businesses ebb and flow, and their original business is no longer very profitable at all. If they did not have the foresight to invest their profits wisely when they were making good profits, they would be in a very different position today. I think this is why I like your advice telling successful fastlaners to buy property instead of spending it... because the good times might not last forever.

 

[Subsonic]

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.

But what about all the people who bought a home and got F*cked because of it?

What if I don't want to settle down in my 20s?


I like the idea and you know what your talking about, yet I feel like your somewhat biased towards real estate and it's greatness.

 

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

[biophase]

I'm 27 and paying £900 rent p/m while earning approximately 70k in the UK with a wife and child. I have 15k saved, which is enough for a deposit here, but I want to keep cash liquid for an upcoming venture and to get something fastlane of the ground. The fact is I have a family and I'm not getting any younger, so my deadline is 29-30 years old: if i'm not doing anything fastlane/extremely high earning by that age, I'll bite the bullet on a mortgage - something that feels like nightmare fuel and scares the heck out of me with my current financial horsepower.

This would be tough call for me. I understand you wanting to start your business right away. You have a 3 year deadline and would buy a house at that point.

But I can also see you buying a house now. Then saving the money up again and doing your business from 30-33 years old.

The largest risk is if homes appreciate in the next 3 years to the point where you can't afford it.

The only other comment I have is that you haven't factored in the enjoyment or stability you and your family may feel owning a home rather than renting for the next 3 years.

Can you do us a favor, link us a home that you would purchase today. And we can revisit it in 3 years and see how the market is in 2026.

 

[MJ DeMarco]

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.

You're entire post is from the perspective of a poor person living in fear. It is not grounded in reality. Someone who doesn't have any cash reserves shouldn't be buying a house anyway.

 

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

[MJ DeMarco]

Here's a fact: If you buy a house and plan to live in it for the rest of your life, it doesn't matter what happens to prices. And by no means does this mean you can't travel and go on a month long cruise.

Afterall, isn't this what Buffet and Munger like to preach? That they've lived in the same damn house for 9,000 years? I wonder if they are fretting over the price they paid for their house last century.

 

[socaldude]

I became a Mexican citizen a few years ago with the intention of buying a property.

I guess growing up and living in California I've grown tired and frustrated (it's really bad). The high cost of living, the $25k/year dead-end jobs, depression, the homeless, crime and government.

Interestingly I ran my credit score in Mexico at the "Buro de Credito" which is owned by Trans Union and my score was 750. That was just me taking out a department score credit card and just stashing it away. I can walk into Santander and they'll give me a mortgage.

If you buy a condo in a growing city like Monterey. You are going to do good.

 

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