What You Can Learn From Me About The Biggest Purchase of Your Life

Are you ready to make the largest purchase of your life?

Let’s look at the process for making the largest purchase of your life…

Assessing needs before you buy or rent…

At the tender age of 24 I bought a piece of property, which may sound prestigious being a homeowner at such a tender age, but it was decision I made because if I wasn’t in the red hot real estate market, one was merely standing back and watching from the side lines while others were making money.

And so being young and naïve and I joined the ranks of home ownership without much regard for what my needs were at that point in my life.

With the lack of accessing what my needs were, I eventual fell into a trap. The economy in 2008 experienced a setback taking the real estate market with it. My property wasn’t immune to economic setback and decreased far below the value of the purchase price, thus I was underwater on my mortgage.

At that time, it was quite a common to be underwater on your mortgage, but it was different for me. I could have easily accepted the fact that I needed a stable place to raise a family, thus justifying a need for house.  However, I didn’t have a family – it was just me. Needless to say I was stuck with the payments unless I wanted to short sale.

Had I assessed my needs for myself, I probably wouldn’t have bought a piece of property at the age of 24. Reflecting on my biggest purchase in my life, one of the reasons for my real estate purchase was advice from my colleagues, which I should have taken with some caution.

Listening to advice on buying vs renting…

Being young, any advice, especially from older folks sounds great. But one thing to keep in mind is to ask yourself questions such as:

1. Is their lifestyle the same as yours?
2. Are they older colleagues giving you dated advice from the 70’s?
3. Do they have the same living needs as you?

Depending on the stage of life a person is in, they may give differing advice.  When I was hired at my first professional job, I was the youngest person in my office.  The advice of my older colleagues definitely had an influence that I should be a homeowner since I could afford it.  This was definitely the wrong way to go about buying a house.

But a house is a good investment, right?

We’ve heard the age old of advice that real estate is a good investment because if you buy bought property at $150k and sold it for $220k, you made a profit of $70k, right?

That’s not exactly true.

A property is not a true investment. A house requires maintenance and upkeep that cost money. These costs are often not factored in when a homeowner calculates their true profit. Say for example, a new roof was needed on the house? Or the hot water heater needed to be replaced.  These maintenance items add up, thus overlooked when homeowner calculate their true profit.

Contrast a house to other investments such as investing in stocks or mutual funds, there’s usually no maintenance or upkeep costs for owning a stock, there’s simply a transaction price for

But you can write off the mortgage interest. Doesn’t that help?

This is true. However, the mortgage interest is an expense you wouldn’t have incurred without the purchase of a house. You really want to assess whether you have the need for a house rather than looking at the tax advantages of having a mortgage payment. Additionally, the tax benefits are only realized when you file your taxes. So it’s not one of the immediate benefits to buying a home.

When should you buy a home?

•  You need a home.  A good reason why you want a home is you want to settle down and start a family. If so, you’re going to need a nest egg and buying a home and putting a little work into it is a perfect reason to buy a home.
• It’s an absolute steal. I’m all for bargains. I wouldn’t pass up an opportunity to own a Mercedes Automobile at the cost of a Honda Civic. Once in a blue moon, you may stumble across a diamond in the rough that’s been recently foreclosed. And if it’s within your budget, I would go for it.
• Bring Money to the Table.  If you’re planning to buy a place, bring some money to put down on a house. With that said you should be saving money toward this down payment. I made a huge mistake of financing 100% of the purchase price, which hindered my ability to refinance when interest rates decreased.

Recap on buying vs renting…

The true reason to buy a house should be whether you have a need for a house. Many couples start with a small house and then move on to a bigger house because they have children and a need for a bigger house.

The rationale should be applied for buying your first home: you need a home whether it’s because you want to settle down or to start a family.

I fell into the trap of buying a home for the age-old advice that a home is a good investment. Years after I bought my house, it didn’t turned out as I planned and I’m stuck with mortgage payments so be sure to assess what you’re need are before making the largest purchase in your life.

About the Author Mike Choi…

I write at Renting Out Rooms, where I share tips for renting out individual rooms in my home. I started out as means to pay for graduate school. Then with the deflated real estate market, I continued to rent out my spare rooms to aggressively pay down my mortgage debt to refinance my underwater mortgage. So far the journey of renting out my spare rooms proved to be a success. I hope to help others in my situation.