Can buying a house actually make you rich?
I have been doing a hell of a lot of thinking lately. Thinking about what I want for the next 10 years of my life. If you aren’t familiar with my blog, you probably won’t know that I basically regret all of the horrible financial decisions that I made in my 20’s. I was able to overcome the financial struggles I found myself in as a result of lack of financial education and horrible financial decisions, but now that things are better, I have to be extra careful moving forward. Towards the end of the struggle, I wrote a super long blog post detailing why I didn’t want to purchase a house because of the enormous amount of debt that comes along with it. You can read the post that started it all: Why I don’t want to buy a house.
For me, my idea of financial freedom is the ability to spend every day exactly the way I want to spend it. Being with the people that I love and traveling the world. I don’t want to spend 30 years paying for anything even if it is a house, I don’t need fancy cars or designer things. I think that I have a little bit of a phobia of debt actually. And for the longest time, I saw a house purchase as one of the biggest mistakes I could make. I was looking at any and every way to get out of having a mortgage and not rent either. Basically, I wanted something that was completely unrealistic for me because of how bad I screwed up in my early 20’s.
Don’t get me wrong, purchasing a house with all cash is still something that is doable for very many people. If you save your money and make wise financial choices, you can have a home completely debt free. That is what I wanted, but it just can’t happen for me. Not right now.
I started writing a MONEY SERIES sharing everything I’ve been learning about building wealth, becoming rich, early retirement, budgeting, credit repair, etc. Please check that series out if you want to learn a ton of awesome stuff about making kick ass decisions with money. And instead of moping around and being depressed about the fact that I won’t be avoiding debt any time soon, I decided to make a change in my life and to figure out how to get what I want. I am a stay at home mom, but I don’t want my husband to go to work until he is 65 years old. I really want us to be able to live a happy life where we are thriving.
We have been renting our home for 6 years. I still can’t believe that it has been so long. After the first year, our landlord never came back with a new lease to sign. He trusted us and apparently, we were such good tenants that he didn’t feel the need to have us sign a new lease. This means that whenever we do decide to move, we have the freedom to do so whenever. This also means that if the landlord decides to sell the home at any time, he would be able to do so and we would have to find a new place to live before we are ready.
When my husband and I started our money saving journey I went to him and I was like babe I’m so worried that now that we are actually being responsible and trying to do the right thing, he could put the house up for sale and it would ruin all of our financial plans. My husband laughed and said “are you kidding me”? Why would he ever sell this place he makes tons of money off us every month and we are great tenants”. And then I thought omg! He DOES make money off of us. SO that’s when I started googling like a mad person. And what I discovered changed everything.
I found out that our landlord purchased our home in 2011 for only $80,000! The estimated monthly mortgage for that is only about $300-400/month. Well we pay $950 per month in rent. That probably makes about $500-650 per month on us in completely passive income! He doesn’t have to work for this money, we send him a check every single month and it’s done. This was mind blowing to me. Not only that, but 8 years later in 2019, the current value of the house is now at around $150,000. The value of the home has gone up $70,000 while we were living here. Say WHAT? That is just insane to me. So then I started looking on YouTube and found that there are tons of people who invest in real estate rental properties and make great money off of their tenants. Some make enough extra money to pay their entire mortgage at their Primary Residence and some make plenty more than that.
Good debt vs Bad debt
In the midst of all of my research, I also learned about good debt vs bad debt and this is something that everyone should know. Good debt is debt that generates an income. A rental property is an investment and you will have a mortgage payment, but if you rent the property out and generate cashflow from it, it is good debt.
Student loan debt, credit card debt, and other debts that don’t can’t generate an income are considered bad debt. So, before you start being like me and worrying about getting into debt by buying a house, take that into consideration.
In addition to creating cashflow for you every month. Having multiple properties can look good in your overall investment portfolio. You might have heard that the average millionaire has 7 streams of income, well real estate is a very common way that millionaires generate an income without having to do much work at all. It’s very interesting when I look at the bigger picture of it all.
Maybe purchasing a home isn’t necessarily a bad thing. It would be an asset for me that would hopefully appreciate over time if my husband and I put work into it. Eventually we could use some of the equity from that house to purchase a rental property and start our passive income journey. Maybe I was just super closed minded in the beginning and needed to do research. I still think having a home completely debt free is an awesome idea, but it might not be the only way for me to get to be where I want to be in life.