Should You Buy A Home? Hell Yeah You Should!

should-i-buy-a-house

In this guide, I give you all the details of how to buy a house (or multi-unit building) and make a new home in a very competitive real estate market.

I once had the dreaded “Should I buy a home?” question. Then, someone, I knew said to me, “Hell yeah you should!”. And after almost 18 years, its the best decision I ever made. I’ll explain more as you keep reading below.

I’ve been living in the Bay Area and have owned five properties over the last 17 years. I have never rented anything my entire life.

Back in late 1999, I had landed my first IT Support job working in San Francisco. Then shortly after the 2000 New Year, I bought my first town-home when I was 21 years old. It was time to get out of my parents house.

Before you proceed further let’s get one thing straight. This guide is not about amassing a massive portfolio of real estate; it’s really about accumulating just one property, so you have a base of security. Then after some time, you could consider taking on another property if you have the financials to do so.

Over time, the big advantage of owning a property is that you’ll end up keeping more money in your pocket by not throwing it away on rent. How much money is up to you and the opportunities that await you in life.

Let’s Begin!

Residential Real Estate Financing 101

Residential real estate purchases are easy to finance, and most people can qualify for many of the first-time home buyer programs that are available out there. These programs will sometimes allow up to 100% funding for a property or require a small down payment of just 3.5%. I bought my first property with only $4,000 dollars!

Residential real estate can be a town-home, condo, single family home, or a multiplex. To qualify for residential financing a multiplex (also known as a multi-unit home) can be up to 4 separate units. Living in one of those units is mandatory to qualify for first time home buyer financing.

A building with five or more units would be considered a commercial real estate apartment building and does not qualify for first-time home buyer loan programs.

Quick Note: Commercial real estate buildings require a significant down payment of 30% or more of the purchase price to get a loan. But sometimes creative deals can be made to negotiate a smaller down payment.

So as you can see, if you’re interested in having roommates or renting out other units in your new property to help pay your mortgage, it’s entirely doable with first time home buyer financing.

Even in a big expensive city. Just make sure you do the required research for any limitations on funding based on purchase price or the town you’re looking for. I have an article dedicated just for financing which can explain more to you. Check for the link in the bottom section.

Some Reasons Not To Buy A Home

A lot of times we think we’re not quite ready to buy something, so we rent instead. If your job or source of income is steady and your credit is good enough to get a mortgage. Then I’d say you’ve got a great start!

But even if the finances line up for you, there still may be some reasons in your mind for not buying something.

Here’s a link to an article on CNN Money that talks about some more reasons not to buy a home, it’s worth taking the time to read it.

This is a big decision, so you should have a rational mind thinking it through before you decide to buy or not buy a new home. I share more reasons with you below.

Some more reasons not to buy a home might be:

  • It’s too hard to qualify for a mortgage with reasonable terms (15 or a 30-year loan with a fixed interest rate).
  • You suspect the market is at the top of a housing bubble.
  • It’s only short-term housing, less than three years.
  • You don’t want to deal with home repairs and don’t have the money to pay a professional.
  • Your source of income may not be stable, or you’re marriage may be on the rocks.

As you can see, there are probably a million more reasons you can think of for why you should not do it. Again… only focus on the reasons that are rational and not emotional.

The biggest reason I hear from people for not buying a real estate property is that they can’t possibly afford it. Read on to find out how I conquered that reason for not buying a home.

How To Afford Buying In An Expensive City

Buying a home in an unaffordable city such as San Francisco, San Jose, Oakland, New York, Seattle, Portland, Chicago, Los Angeles, or anywhere else for that matter requires a buy strategy.

When you’re ready to purchase a property the best strategy I can recommend is this:

1) Buy a single family home, condo, town-home, or multi-family property with little to no money down. Try and find a deal or spend no more than the list price.

2) Consider being a live-in landlord and renting out bedrooms. Or rent out the separate units if you buy a multi-unit.

3) Use this extra money to offset your mortgage payment by 25 or 50%. Make sure your mortgage payment is a fixed payment and can’t increase ever.

Unless prices hit the top of the market and you think they could fall. It’s better to take action as soon as possible. Especially if you can afford the current rents in the city where your living.

Quick Tip: It’s not always easy timing the ups and downs of the real estate market. If you follow the trends for a while, you’ll gain some confidence from it. Just track the sold prices in your local newspaper or a Real Estate website such as Zillow.

Over time the mortgage payment stays the same but the rents that your roommates or tenants pay can keep going up. That will offset your mortgage payment by even more and eventually possibly exceed the entire monthly payment altogether.

I’ve been in my current home for about 12 years now. My roommates easily pay more than 50% of the payment.

If your mortgage gets paid off one day, it’s all extra money in your pocket. If you ever get tired of having roommates, you always have the option to live by yourself.

Remember! Having roommates is not a forever thing. Have the vision for using them to help you buy your new home sooner than later.

Benefits of Owning Property and Being a Landlord

Where can one start with all the benefits? I could offer you at least 100 or more, but honestly, the benefits are going to be a bit different for each person, depending on their goals in life.

For the monetary benefits, you’ll need to consult a tax/finance professional. With that said, I’ll focus on some general ones that apply to just about everyone.

Here they are

1) You are protected against rent increases, and you get to write off all of your finance charges on your taxes. You can’t do that with your rental payments to the landlord.

2) One of the biggest perks comes in your retirement years. You’ll own your place free and clear with NO rent payments.

3) You also get all of the emotional perks that go along with owning a home. Think about how proud your family will be of you for securing them with a home you can pass down to them.

4) You don’t have to deal with a landlord telling you how to fix up or decorate your place. Although, you may have to deal with a few restrictions if you move into a community with a homeowners’ association (AKA, H.O.A.).

5) If you have a family that does not want to move out in the middle of a school year, that is a big perk. No landlord can force you to move.

6) More tax write-offs! If you are renting out any part of the building, you might be able to write off depreciation, repairs, insurance costs, and a lot of other stuff!

With all of these deductions, you might be putting yourself in a much lower tax bracket. Sometimes it might even be the same tax rate that a billionaire is in.

It’s crazy how that works out depending on how your CPA evaluates the numbers and calculates all your tax obligations at the end of the year.

Talk about power!

That is one of the biggest advantages rich people use for minimizing taxes. The power of writing off their real estate investments against there other income.

Steps to Buy a Home

I’ll be posting my future articles in this sections to show you the complete process. So please check back soon.

Final Thoughts

Owning a home and being a landlord is one of the best decisions I’ve ever made. It’s allowed me to live and stay in the SF Bay Area which is one of the most expensive areas of the country right now.

Every local real estate market has its own strategy for buying and selling. Being knowledgeable in what to look for is your best bet to protect yourself against rent increases or having a landlord tell you to move.

Check out all my Real Estate articles to learn all you can.

Cheers!