Have you thought about making money in real estate? We all know how it works by now. You have to finish college, find a good job, marry the first person you kiss, buy a house, have kids, and then they repeat.
Screw that! Our generation is different. We want more out of life. We don’t want to be stuck living in the same house or the same job or with the same partner (oops did I just say that?). We don’t want to be stuck paying off a home mortgage until we die.
I think that buying a home is a great move when you have a nice chunk of money saved up, with a stable job, and want to settle down for the long-term with your family. You’re at that stage in life and are ready for what’s next. That’s awesome. I hope to be there one day.
However, buying a property isn’t right for everyone. Today I wanted to look at some real estate horror stories.
Let’s jump into some real estate horror stories.
Story #1: Young punk interested in making money in real estate.
I’m not flawless when it comes to financial mistakes (spending too much money on food). As a 19-year old, I didn’t want to buy a fancy car or to move out. I had my heart set on buying a rental property and building an empire. I got excited from reading about Donald Trump.
So I got the rental property and I thought I was set. Right? Wrong! Many mistakes happened. Such as:
- Dealing with a phantom mortgage. Have you heard of this? It’s when you’re living in the condo but not making mortgage payments because the building isn’t registered yet. This could go anywhere from a month to a few years. Lots of money gone.
- Finding out that I couldn’t rent the unit for a year. Yup. Apparently my agreement came with the clause that I couldn’t rent the unit out for a year. There goes the whole point of a rental property.
- Realizing that plenty of fees come with a rental property. The fees are out of control. From lawyer fees to closing all the way to the monthly utilities. The expenses really add up.
The good news is that I turned a negative into a positive. I ended up living in the unit with a buddy. This led to an amazing summer (another story for another day) and lots of fun experiences. I now have had two great tenants and have learned plenty on rental properties.
The bad news was that I was in over my head and spent way more money than expected.
Story #2: The couple that bought before they even knew each other.
The beginning is an exciting phase. Who doesn’t love the beginning of a new relationship? This couple was having so much together that they decided to move in. Since they felt that renting was throwing money away, they decided to buy a condo together.
What happened? They were in way over their heads. The fees/expenses of owning a place along with other debt became too much. They had to work two jobs each and fought all of the time. This led to them breaking up. They had to quickly sell the unit. They ended up losing tons of money and it set them both back for a few years.
Story #3: All of your friends.
How many of your friends are cash strapped now that they’re proud owners of homes? Many young people aren’t realistic about the expenses and newly found fees that are going to hit you now that you own a place. For example:
- Lots of snow? Time for a snow blower.
- Grass? Time for a lawn mower.
- Extra room? Lots of new furniture.
- New place? Tons of weekend parties.
What are the biggest problems with real estate?
I reached out to my buddy that deals with mortgages and potential home buyers. He works with all sorts of characters and he has seen it all when it comes home ownership. I asked him for his experiences and thoughts on young home buyers.
What are the biggest mistakes that new buyers are making?
- Trying to make a quick buck. People watch these real estate shows on tv and they think that they can make a quick buck from flipping a property. Sure, you can. If you do all of the work yourself, know exactly what you’re doing, and get the best deals on supplies. Most young people are clueless on flipping property and end up in debt because of their poor attempts.
- Quick and irrational decisions. My friend told me that way too many young folks are making quick decisions without much research or planning. This can sometimes lead to financial disaster.
- Low interest rates. The young generation thinks they can take on more. Too many of us are using the low-interest rates as an excuse to buy a property, even if they’re not totally ready yet.
Those are the most common mistakes. I hope that by reading this, you avoid them. Life’s too short to be stuck in insane amounts of debt.
What can you learn from everything in here?
That you have to take care of your own life before you apply for a home mortgage.
What should you take care of?
- Savings. How much money do you really have saved? Grab some financial tools and start stacking up your cash. The general rule is that you shouldn’t spend every penny of your savings on the home purchase. You want some money set aside in case things go wrong and to cover any other expenses that creep up.
- Credit score. Do you have the credit score of a homeless ghost? Did you mess up in the past? It’s all good if you did. You just need to fix this now. A poor credit score will lead to the banks either turning you down or killing you on the interest rate.
- Income. Is your income stable? Is it as high as you would like it to be? Most of us need to work on our incomes first so that we can build our savings and stay on top of expenses.
I hope that this warning report has helped you figure out the next step. Making money in real estate is possible. You just have to be smart about it.