2884: This Is Why I Own a Home by Mr. 1500 with Budgets Are Sexy on Financial Advice

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[00:01:06] This is Optimal Finance Daily.

[00:01:08] This is Why I Own a Home by Mr. 1500 with BudgetsAreSexy.com.

[00:01:15] And I'm your host and personal finance enthusiast, Diana Merriam.

[00:01:19] Now let's get right to today's post and continue optimizing your life.

[00:01:24] This is Why I Own a Home by Mr. 1500 with BudgetsAreSexy.com.

[00:01:34] Recently, J Money wrote an article on why he doesn't like owning a home.

[00:01:38] A naughty dishwasher hose leaked and caused thousands of dollars of damage to the home

[00:01:44] he was renting.

[00:01:45] J Money describes the chaos.

[00:01:47] Walked into the kitchen and saw air or water bubbles on the floor.

[00:01:52] Walked into the far corner of the basement and saw water dripping from the ceiling.

[00:01:57] Looked closer and there was mold on the wooden beams, meaning it's been dripping for a while.

[00:02:04] Mold people come out to inspect and quote a price to our landlord.

[00:02:08] Mold people start work on it and even find more mold under the kitchen floor.

[00:02:13] Those bubbles?

[00:02:14] They were water.

[00:02:15] Cost to fix is now doubled, but that's only for the mold cleanup and restoration.

[00:02:22] To get to the mold, they had to rip up the kitchen floor.

[00:02:25] To get to the kitchen floor, they had to rip up the cabinets.

[00:02:29] To get the cabinets back in and rebuilt, a cabinet person needed to be hired.

[00:02:34] To get the floor fixed, a floor person needed to be hired.

[00:02:37] Then on top of it all, the AC overheated, tacking on another $268.50 to the bill.

[00:02:46] Sounds like a nightmare, right?

[00:02:48] Since Jay was renting, the nightmare mostly belonged to the landlord.

[00:02:53] Jay had to move his family out of the home for a couple of days, but was responsible

[00:02:57] for nothing else.

[00:02:58] Despite Jay's tale of woe, I love owning a home.

[00:03:02] I've owned my primary residence ever since I graduated college, and I'll continue to

[00:03:07] do so until I'm old and gray.

[00:03:10] Why I love owning a home.

[00:03:12] I've always enjoyed home ownership.

[00:03:15] Here's why.

[00:03:16] Number one, I make money from my homes.

[00:03:20] Before I tell you how to profit from home ownership, I'll tell you what not to do.

[00:03:25] The recipe for not making money is this.

[00:03:29] Buy a new home.

[00:03:30] Choose a cookie cutter model in a new subdivision where the home is priced at top dollar by

[00:03:36] a builder who knows how to maximize profit.

[00:03:39] Bonus points?

[00:03:40] Throw more money out the window and build a custom home.

[00:03:44] Don't buy or build a new home, ever.

[00:03:47] I have two strategies that I use to make money from my primary home.

[00:03:52] One, love the ugly duck.

[00:03:55] I buy homes in need of love and fix them up, earning instant sweat equity.

[00:04:01] Of course it's work, but an added bonus is that I get to make the house my own with finishes

[00:04:06] that I enjoy.

[00:04:08] Bye bye vinyl floor, hello slate.

[00:04:11] And two, flirtation with gentrification.

[00:04:15] I buy homes in up and coming places so the gentrification wind is at my back.

[00:04:20] I look for areas that are experiencing an influx of people and have a solid economy.

[00:04:25] If the town is still a little rough, that's okay because it won't be that way forever.

[00:04:30] My current home is the most extreme example of these strategies.

[00:04:34] In 2013, I bought an ugly foreclosure for about $175,000.

[00:04:40] I put a load of work and $100,000 into it.

[00:04:45] At the same time, my town has improved.

[00:04:47] The shuttered turkey processing plant that was recently torn down will soon be fancy condos.

[00:04:54] The pawn shops on Main Street are almost all gone.

[00:04:57] I could easily sell my home for $500,000 today for a profit of about $225,000.

[00:05:05] Number two, owning is cheaper than renting.

[00:05:09] My mortgage, 15 years at 3.25%, property insurance and taxes set me back $1,264 a month

[00:05:19] on my four bedroom, three bathroom home.

[00:05:22] Meanwhile, half of a duplex on my street, which is two bedrooms and one bathroom,

[00:05:27] rents out at $1,400 a month.

[00:05:30] Full disclosure, in addition to the $100,000 and time I spent on improvements,

[00:05:35] I also put 20% down, or $35,200 at the time of purchase.

[00:05:43] After taking these numbers into account,

[00:05:45] I strongly believe that I'll come out ahead over the longterm.

[00:05:48] This brings me to my next point.

[00:05:51] Number three, 11 years to freedom.

[00:05:54] I have 11 years of payments to go on my mortgage.

[00:05:58] After that, the home will cost me only property taxes and insurance,

[00:06:02] which is currently $250 a month.

[00:06:05] Editor's note, end maintenance.

[00:06:07] Why does everyone forget maintenance?

[00:06:10] Number four, stability.

[00:06:13] Moving sucks, enough said.

[00:06:16] Well, that's not quite it.

[00:06:18] I have children and I wanna give them stability.

[00:06:20] I was fortunate to spend my childhood on the same street with the same friends.

[00:06:25] I want my children to have the same experience.

[00:06:28] And number five, learning opportunities, more tools.

[00:06:33] This one is a stretch, but I'm throwing it out there anyway.

[00:06:37] I like to build and fix stuff.

[00:06:39] Coming out of college, I didn't know how to do anything with my hands.

[00:06:42] Now I can set tile, plumb a home, wire a home, replace windows,

[00:06:47] build a custom shower, fix a dishwasher, hang or finish drywall, and build a deck.

[00:06:52] Thanks, YouTube.

[00:06:54] I can take something ugly and make it beautiful.

[00:06:57] Bonus, I get to buy more tools.

[00:07:00] This type of work isn't for everyone,

[00:07:03] but it feels good once you complete a project.

[00:07:06] Also, you save loads of money

[00:07:08] since most of the cost in projects is tied up in labor.

[00:07:12] Not for everyone, but I readily admit that owning a home isn't for everyone.

[00:07:18] If you live in areas like Vancouver, New York City or San Francisco,

[00:07:22] forget owning a home.

[00:07:23] You'll come out far better financially by renting.

[00:07:26] Sign a lease and call it a day.

[00:07:29] If you move frequently, forget home ownership.

[00:07:32] Be in it for the long game.

[00:07:34] And if you absolutely hate taking care of a home, even mowing a lawn,

[00:07:38] go find yourself a nice rental.

[00:07:41] Fixing a broken dishwasher isn't everyone's idea of a fun afternoon.

[00:07:45] However, if you're at the right place in life

[00:07:48] or willing to endure a live-in renovation,

[00:07:51] maybe, just maybe, home ownership is for you.

[00:07:55] It's certainly been worthwhile for me.

[00:08:01] You just listened to the post titled,

[00:08:03] This is Why I Own a Home by Mr1500 with BudgetsAreSexy.com.

[00:08:08] And I'll be right back with my commentary.

[00:08:10] Buy low, sell high.

[00:08:12] Buy low, sell high.

[00:08:14] It's a simple concept, but not necessarily an easy concept.

[00:08:18] Right now, high interest rates have crushed the real estate market.

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[00:09:12] I think buying a home is a very personal decision,

[00:09:16] just like choosing to go to college or have kids.

[00:09:19] I certainly see the appeal of renting,

[00:09:21] but I'm also really glad I bought my home.

[00:09:24] And I was nodding my head as I read through the rationale

[00:09:27] Mr. 1500 laid out here.

[00:09:29] By the time I bought my house, I was so tired of renting.

[00:09:34] When I was in New York City,

[00:09:35] it was typical for my rent to go up $100 each year.

[00:09:39] Pair that with changing roommate dynamics

[00:09:41] and I found myself in the stressful situation

[00:09:44] of finding a new place to live every year or two.

[00:09:47] I also had a number of less than stellar landlords

[00:09:51] during my time renting

[00:09:52] who weren't the best at maintenance and repairs.

[00:09:56] Everyone talks about how they love renting

[00:09:58] because they aren't on the line for maintenance,

[00:10:00] but it's really no fun when your landlord disagrees with you

[00:10:03] on maintenance needs

[00:10:05] or is satisfied with a band-aid solution.

[00:10:08] I think it's worth really questioning

[00:10:10] if buying a house is right for you

[00:10:12] based on where you are in your financial journey.

[00:10:15] In my case, I bought my house as a lifestyle decision

[00:10:18] after I was debt-free

[00:10:19] and investing heavily in retirement vehicles.

[00:10:23] And while I don't look at my primary residence

[00:10:25] as an investment,

[00:10:26] I was house hacking for about two years with a roommate

[00:10:29] who covered 90% of my mortgage

[00:10:32] and I do plan to rent this house out in the future.

[00:10:36] Home ownership has high carrying costs

[00:10:38] and if you need to access the money

[00:10:40] you have locked up in equity in your home,

[00:10:42] you either need to sell the house

[00:10:44] or take out a home equity loan, which creates more risk.

[00:10:47] I recognize the risks of home ownership

[00:10:49] and so really only considered it

[00:10:52] after getting other financial goals out of the way,

[00:10:55] like getting out of consumer debt,

[00:10:57] fully funding retirement vehicles

[00:10:58] and building up a solid emergency fund.

[00:11:02] And that's a wrap for the Monday show.

[00:11:04] Have a great rest of your day

[00:11:06] and I'll be back tomorrow where your optimal life awaits.