We talk a lot about money tactics and strategies but today, I'm going to walk through my thought process behind the decision to begin saving for a home purchase.
But first, I want to note that I'm the biggest advocate for renting. If anything in my plan changes, I will 100% be renting for the foreseeable future.
There's the argument that when you're renting you're "throwing money away" and while that's partially true, the convenience that comes with it can outweigh the benefits of building equity in a home.
However, even though I'm a fan of renting, I believe buying a home is the best option for me and my situation and this is why:
In 2020 when I quit my 9-5 and took the leap into entrepreneurship to start Piertree, money was TIGHT. I knew every single monthly expense I had and would check my bank account several times a day to make sure no unexpected expenses (like forgotten subscriptions) came through.
The first of the month was painful because rent was due and at the time, it was about 75% of my budget because all of my other expenses were so low. Being someone who enjoys solving problems, I wanted to figure out how to get rid of my housing payment because it would free up so much monthly cash flow and reduce a majority of my stress.
I thought about working for the apartment complex to get free or reduced-cost housing. That would've been a temporary fix, but then I came across the idea of house hacking.
House hacking is where you buy a property, live in it, and rent out portions of it to help cover the cost of the mortgage.
(The reason that house hacking is effective is because you can put as little as 3.5% down and still use it as an investment property since you're living there at the same time. Traditionally, you would have to put at least 20% down if it were an investment property, so house hacking makes real estate investing more accessible)
There are many ways to go about it, but it's commonly done with duplexes and triplexes so that you can rent out a full unit rather than renting out bedrooms in a single-family home.
So the biggest reason for my initial interest was to reduce my housing costs.
But I also want to travel and it may seem counterintuitive to want to buy a home because you want to travel but with house hacking, it's almost the best thing you can do in my opinion.
Because if you do it right, you're freeing up your housing payment, allowing you to shift that money you would typically spend on housing to travel instead.
So I also defined one of my values - travel - and can now align financial decisions with that.
This thought process is exactly what financial planning looks like when you get into it. It's all about taking your current situation, evaluating where you're at and where you want to be, and making adjustments to get you where you want to be.
But buying a home is still a big decision so I had to validate it more to myself before making a commitment to saving for a down payment.
So another reason is that I like where I live for now – I've been in Kansas City for almost four years, I know the area well, and I now know good real estate agents up here so I can get more detailed information on expected price ranges, good locations, etc.
And finally, I plan to let it serve as the first property in my real estate portfolio.
I'm aiming to buy either a duplex or triplex (depending on the cost) and then plan to live there for one year, maybe renovate things to increase the value, and then move and rent out the unit I was living in so then the property is an asset and cash flow positive.
That money can then be used to save for the next property and the next and the next and I think that's how I'm going to slowly build my real estate portfolio.
Could my goals change over the next year and I don't want to do this anymore? Of course.
But the nice thing about saving towards goals is the flexibility you're creating for yourself in the process.
If I'm aiming to save $10,000 for a down payment, if I decide I no longer want to do that, I have $10,000 that I can reallocate elsewhere. Maybe investments, maybe travel, maybe investing back into my business - the options are endless because I gave myself flexibility.
And that's where I'm at right now.
I'm currently saving towards the down payment, casually looking at properties in the area to get an idea of what's out there for when the time comes, and planning to travel a little bit in the meantime because I'm not going to push off my goals waiting for them to become more cost-effective.
House hacking can be an effective way to reach financial freedom and my goal is to help everyone subscribed to this newsletter reach their financial goals through education and awareness of the different strategies and paths that exist.
When the time comes, I'm planning to document the whole process of looking at properties, going through the home buying process, finding a renter, all of it, to give you an inside look at what it entails so you can decide if house hacking is a good option for you and your situation.
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Disclaimer: Topics or securities discussed in this post are not considered to be financial advice. Please talk to your financial advisor about specific advice regarding your situation.