Very sensitive topic as many people’s golden egg are all put in a single basket. Our goal here is to open your perspective on the subject and make your own investment decision.
Traditional Mentality: Study, Work, pay your house, give it to your kids.
- “Safe” “Stable” “Everyone understand” “Socially acceptable investment” “That’s how life is.” “Save money on the rent” “Renting is for poor people” “Real estate always go up.” “Safe”
New mentality: House is a real-estate investment part of your portfolio.
- Illiquid investment (Hard to get in and out)
- High initial capital investment
- Save on the rent
- Can bring passive income
- Lots of tax regulations and incentives
“Fear is just a lack of understanding.”
First read article “Why houses are a scam?” by Millennial Revolution
TL;DR Strong opinions on house as a life investment. People don’t know much about investment and just stick with what their parents or friends know: House.
Second: Define what does “house” mean to you.
- Some life dream is to “own” a house. Feel the “security” of not paying rent. Knowing you have a physical place you can call “home.”
- For others, it’s just another investment projects, which can bring passive income.
- It helps to cover your insecurity about life’s success.
- “At least in this lifetime, I succeed by owning a house.”
Third: Crunching numbers
Now that you know “why” you are buying a house. We can move to the next question: “Does it make senses to buy now?”
Remember our goal is to “Buy low, transform, sell high”. Even if the house is just to live in, you’re better off buying it at an undervalued price.
Understand the some concept:
Mortgage: Loan amortization
TL:DR Mortgage payment are the same during the period. Banks need to guarantee their money. Early payments pays the interest because the principal amount is higher. Late payments pays the principal more because less interests from the principal (Since interest is calculated as % of principal)
How to win the mortgage game?
- Pay the house in cash. (No interest payment)
- Make lots of additional payments to pay off the principal quickly.
- Flipping during heated market: Get the mortgage to reduce your “initial investment cost”, sell the house at a higher profit.
Question: If your time frame is lower, is it better to take a “line of credit” and pay off the mortgage.
To be continued….