S-6 E-7 Is Home Buying What is it good for

. Is the home an asset or a liability? Meaning, does it make you money or cost you money? We've had a liability asset conversation before, haven't we? You guys comfortable enough with that to answer the question? Yeah, I have an answer. Yeah. I think, well, I'm fairly certain a home is an asset.

Interesting. Because it makes money. Okay. Gideon, I think it's a liability. You know, you're, you're both right. No, how is that possible? Well, most people misunderstand that it is just an asset. However, there's a lot of liability tied to owning a home that people don't think about. And so what we're going to do today is we're going to go through some financial consideration.

Buying a home, the length you plan on staying in a home, market conditions, as well as your lifestyle and flexibility of owning a home. I want to start by letting the listener know I'm kind of biased. I have a home, working on a second home right now. So that just is a place to come from as I'm a homeowner by nature, but don't know for sure that  it's for me long term.

Transcript

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If you're thinking about those economic, like, say I wanted to move to Indiana, and how much should it matter what the economy is doing with this house that I'm moving into? Say I'm planning to sit there and make it my career, is it like, well, this house is gonna depreciate for a little bit before it starts to go up? Cause if you're trying to, if you're trying to invest, it matters very much. But if it's a place to live... The way I would look at it, Ashton, is I'd look at what my rent would cost me versus what owning a home. When I'm making that financial decision and is that month to month? Is it over the course of 10 years? If you think you're gonna be there, I would run and I would look more like at the 10 year span If it's just the short term, I'd look at a short term here's the thought for today. Is the home an asset or a liability? Meaning, does it make you money or cost you money? We've had a liability asset conversation before, haven't we? You guys comfortable enough with that to answer the question? Yeah, I have an answer. Yeah. I think, well, I'm fairly certain a home is an asset. Interesting. Because it makes money. Okay. Gideon, I think it's a liability. You know, you're, you're both right. No, how is that possible? Well, most people misunderstand that it is just an asset. However, there's a lot of liability tied to owning a home that people don't think about. And so what we're going to do today is we're going to go through some financial consideration. Buying a home, the length you plan on staying in a home, market conditions, as well as your lifestyle and flexibility of owning a home. I want to start by letting the listener know I'm kind of biased. I have a home, working on a second home right now. So that just is a place to come from as I'm a homeowner by nature, but don't know for sure that it's for me long term. Just so that everybody's aware where I'm at, right? Do I always want to own a home? Do I always want a standalone dwelling? I don't know now that I'm Getting older and watching in laws and parents deal with that. I'm thinking Rethinking that idea so I still might own something But so when I'm talking about home even I'm even talking about a condo a townhome a standalone home You know, something like that versus renting and how that liability changes. Yep. All right. So some financial considerations, let's just say a typical home just to try and keep it real simple is a 325, 000, right? So not a huge home, kind of a starter home. If you took a 15 year loan, out on that. On that mortgage at about six and a half percent where the mortgage rates are right now. Six and a half to 6. 8 How much do you think you're paying for that home total with your interest on over 15 years over 15 years six percent interest every month? Right. Yeah Wait, what was the starting price? Yeah, 325 325 I was gonna guess 800 to a million, I guess. Yeah, you're, you're a little high on a 15 year, it's half a million, 500, 000. So you're paying, what is that close to 200 and 200, 000 plus 280 on, on just interest. Yep. Now we'll talk about some tax breaks and some of that as we go into it, just keep that in mind. Now, if you do a traditional mortgage, which is where your lender is going to probably steer you, they're going to say, Hey, go to a 30 year loan. Your payments are a lot lower. And they are on this type of home. If you did a 15 year note at that 6. 8% interest, your loan payments can be like 2, 800 a month. If you did that same home and you're like on a 30 year note, your, loan payments, like 2170, any thoughts on how much you pay for that? Now you're a little bit higher interest rate normally. Cause you're borrowing money for longer. So, I ran that at about a seven and a quarter. About a half a percent difference. Say all the numbers in a row again. Yeah. 325, 000. Yep. A 30 year note. Okay. 30 year loan. Yep. At seven, yeah, at seven and a half on that 325, 000. So the last one was 500, 000. It's a longer loan. It's a higher percentage. I'm gonna guess that that one's... 708 Well, actually you got it cuz you didn't go over but get in was closer at eight. It's seven hundred and eighty seven 1, 000 give or take means I still win on the price is right. You would yeah. Yes. So where's my free home then? So yeah So there is You know, you do pay a lot in interest. Now, there are some tax write offs on interest, and we can cover that in a tax episode, but really, you're still not, you're getting a tax break, but you're really not making any money, so there's a lot of interest you're going to pay. There are some upsides, and Ashton, I think you hit on this early. You can build equity. Do you guys know how much my home's increased in value since we've owned it? Just to give the listener perspective, we've owned it for 20 years. Do we get to know what you bought it at? Yeah, two hundred and two thousand dollars. I'm gonna guess it went up by... Well, I've guessed first a lot. Do you want to guess first? Sure. I'll say two hundred percent. Okay, so what you're saying is you're worth, you're saying it's worth double. So now it's 400. So I'll, I'll say 500 instead. I'll make it 500. I was gonna say 500 too. I'm gonna do 501. Ashton, you're closer. Yeah! 501 is like 530. But really the only upside is like 330, 000. So that seems like a lot. Right? In 20 years. And it is. I don't want to discredit that, but if I would go to buy a home now, I've got to spend all that money to buy a home because the price of his home are up for everybody. But if you think about it, and I've paid that much in interest, right, 500, 000 in interest in theory, you know, you start going, where does this home really make sense? Yeah. Well that's why you, some of these tax breaks help. But you gotta look at, there are taxes on a home. There's property taxes you have to pay every year. There's insurance you have to buy for it. You know, and then you got to make sure your budget can afford it. One of the other thing I'd look at on a financial, cause the reason why this came up is I've been interacting with our Reddit people that I've been chatting with on Reddit and, and they're going, when can I buy a home? I'm 20 years old and I'm really excited about buying a home. And my take is wait, just give yourself a second. What's your budget for home? What's the rent in your area? Right. If, if I would have paid rent for that same amount of time, I probably, it's all gone. And I probably would have had to pay as much as I paid for my mortgage and rent because of the size of our family. Right. There's six of us. We needed a big home. Gideon's the last one that actually lives at home right now. And so I'm down to where I don't need that size of a home. You know, and it puts all this stuff in question any other financial considerations. Well, I mean there's the operating cost Yep, good Yep, which there isn't an apartment, right? But the operating costs are a little bit different because now you've got to think about lawn care You've got to think about watering outside watering. You've got a sprinkler repairs General repairs hot water. Like if you if you're renting you can always put in like hey, this is no longer working fix it Whereas if you own a home you can Text yourself if it makes you feel really good, but yeah, fix it anyways. So mom texts me, Hey, can you please fix this door? It's still broken now, but there are stuff that you can do. And we'll talk about that, you know, like, and that's like in the lifestyle section about how you can modify and update it. But now when you're thinking about getting a home, another thing to consider on is how long do you plan on staying there? One of our. It was our second home that we bought. We bought our first one in Taylorville. Our second one is in Colorado. And in between those two we lived. We rented a place in California because I told my wife, California is crazy. The market goes up and the market goes down. And you just have to time it just right. And I don't know that I have the timing of it just right for a two year deal. Cause that's how long I'm supposed to live there. So when we moved to Colorado, I'm like Colorado safe. My brother in law kept telling me how the market is so strong in Colorado and that it's going to go up in Colorado and you'll never lose money in Colorado. Well, the problem is we got over there. We decided that we didn't love the job. Didn't mind Colorado, but the job wasn't for me. And I moved in six months. Any guess on how much I lost on that home in six months? I'm already telling you, it's a loss. Yeah, it's a lot, I'd imagine. Yeah, I lost twenty grand. Yeah. And it was mostly in realtor fees. Right, because they were like, you said you'd do this, and now you're leaving. Yeah, so I still had to pay the realtor for, to sell my home. I had to pay for the property inspection. I had to pay for everything else. And so I lost 20, 000. So, how long are you going to live in an area? The longer you own a home, mathematically, the better chances you have of equity in that home. And equity is the, what you paid for versus what it is now. Right. Doesn't include interest. And then the other thing that I wanted to talk about in this length of stay is, is it's stability for your family. Right. For, for mom and I that became a big deal. I had moved her 10 times in the first 4 years of marriage, 5 years of marriage. She was done. It was actually our 11th move to move into that home. So there was an emotional attachment to that home. Right. That I couldn't talk her out of. She's like, look, I'm going to, I'm going to be here. I'm going to raise my kids here. Now that you guys are raised, that emotional attachment is starting to separate for, so you gotta, you gotta be honest about it with yourself and say, how long am I going to stay here? Is this best for the kids? I don't know. You've, you have to decide as a listener. Cool. How long are you going to stay there? Yep. So financial considerations, length of stay. Something else is to think about is market conditions. And we kind of touched on those. What kind of market conditions affects housing? Just about everything I'd imagine. Cost of living in an area. Yep. Outside of, you know, living in a house. But like all the stuff, like food, gas, all those other sorts of things. Sure, and then location. Yeah, location, location, location as they say is the most important, three important things in real estate. So, so that's something to think about. I have a friend of mine bought some homes in Indiana. And Indiana was going through a real. Economic downturn. They're not bringing in the businesses. There's there's a lot of deflation that's happening They're how to lose his all of his money that he put into him Yeah, cuz they never went they never grew friend in Phoenix bought a home never made the move to Phoenix We said hey, it's a good investment. At least I have a home Paid every month on a losing project At some point in time, you just have to say, look, take the home, you know what I mean? Sell it for a loss, be done with it, you know. And so with those sorts of, so those two examples are individuals that are trying to get into the real estate business to accrue wealth. Which is a bit different than the situation that someone like me would be in getting a home for the first time. So, that, I have a question here that I'm trying to formulate correctly. If If you're thinking about those economic, like, say I wanted to move to Indiana, and how much should it matter what the economy is doing with this house that I'm moving into? Say I'm planning to sit there and make it my career, is it like, well, this house is gonna depreciate for a little bit before it starts to go up? Cause if you're trying to, if you're trying to invest, it matters very much. But if it's a place to live... The way I would look at it, Ashton, is I'd look at what my rent would cost me versus what owning a home. When I'm making that financial decision and is that month to month? Is it over the course of 10 years? If you think you're gonna be there, I would run and I would look more like at the 10 year span If it's just the short term, I'd look at a short term That's where you want to look at the supply and demand in an area like in Utah You're like, oh I found this home and it's really a cheap price and I can put my whole family in and it's the right Thing you have to buy that home because rents out of control here Right. So you look at it and go, yeah, yeah, this is, this is a good move, but, but that's why it's not always just a financial, it's it's sometimes it's what market am I in? What is what's happening around me did like an away, everybody lost money on their homes. I only have bought mine in no four, but I never went negative because I looked for a foreclosure home that somebody was already at low end. So when I bought it, I already had some equity. It got sucked up in a way, but I never went upside down on my home. Right? So, yeah, those, that, that's a very fair question. So I'd, I'd look at that analysis and just kind of make that that baseline best decision I could. And you don't have a crystal ball, right? But you do know, you do know Utah's growing. Yeah. And in Indiana, you know it's shrinking and you're making a career out there. You're gonna look for the nicest property that you can buy. Where in Utah, I'm looking for the cheapest home I can buy in the nicest neighborhood. Right? Yeah, yeah. Over there, you're like, wow, my money's going to buy me a lot, I'm going to go look for something really nice, because I might as well, because I'm going to be here for a while. Makes sense. Does that help? Yeah. And then the other thing is to pay attention, when you're going to buy a home, read the newspaper, pick up, look at what interest rates are doing, what's the economy doing, what are they projected to be doing, that when you go to buy that, like, I don't know that I'd buy a home right now. Keep in mind, realtors are going to tell you it's a great time to buy a home. It's always a great time to buy a home when you've got commissions on the line. Right. But when you want to really step back and look at it, how does it work? Okay? It might sound like I'm being negative about home buying. I'm not trying to be. I'm just trying to help the listener understand that we have been sold a bill of goods since World War II. That every American should own a home. It was kind of the thing that the, the US government realized that as people are coming off farms and they're going into suburbia that they didn't want a transient population. They're afraid what would happen is what we were seeing in the great depression where people live in an area for two or three years and then pick up and move and go to a different area for four or five years. And they wanted to try and stabilize that. And they did that by. Making home ownership affordable, which was a good thing for a lot of Americans, but it, it doesn't mean that that's what you have to follow. Fair. So we're kind of going against a bunch of decades of education. My parents would flip out if I told, if they heard me telling podcasters and listeners not to buy a home. Me, I'm going, hey, I think you need to look at it balanced. And that's, that goes into my last one, which is lifestyle and a personal preference. Gideon, what's your big goal after college? Live in a van down by the river. That's right. So does it make sense for you to get into home ownership? And so what you should do on your income is you should look and say, okay, my van down by the river is going to cost me two grand to live in a month, you know, or it's going to cost me three grand to live like that monthly. I should know that if I was to buy a home, it would cost me about 900 more than that. Take that 900 and invest it. something that you believe in, whether it be stock market, whether it be land, whether it be real estate through. A diversified fund or directly buy and want to have somebody rent it. You know, you need to look at your ROIs and look at it as a business, but you need to invest that money. Let's say that your career over the next six months, Ashton, all of a sudden you're making big money, you've got some good leads and you've got a job. You might look at it and say, okay, do I really want to buy my home right now where, and I don't know that I'm going to live in Utah. I don't know if I'm going to be in Montana, California. I'm not a hundred percent sure you might be better off to say, cool, I'm going to invest the difference. If I know that I should be paying 3, 000 a month for a home, for the style of home I want, I'm only paying 800 a month in rent, invest that difference, and that's where you're going to grow your wealth. But make sure you invest the difference. Because when people here don't buy a home, they hear... Oh, live off less money and spend it. And that's not the true either. Cause some of the cool things about owning a home is I can modify the living space. Have I modified my personal home much? Nah. Oh, okay. I disagree. I've modified. No, you're right. I really haven't. I've added a couple extra. I really haven't, I've added a couple extra closets, but I haven't tore down walls and knocked down stuff. So you can modify it, I can paint it, you know, so on and so forth. That's what I was thinking, we've painted that a lot. Yeah, painted it, updated the tile, updated the carpet. You know, trying to keep it modern. Right? Granite countertops and those kind of things. But... Now I realize I'm also responsible for my lawn and my garden and those kind of things make me look at it and go, I think I'm ready to downsize my home because I don't love mowing lawns Gideon does. Nah, I just get paid for it. Oh, did you mow my lawn before you left? Nope. I didn't think so. I tried to tell him too. We had to do it to Monday right before he pulled out of town. Do you want to wander if you want to wander a home might not be the best for you? But like I said, make sure you invest the difference. I think one of the biggest things that I, that I've been thinking about is you, you mentioned it. It's, culture exists for a reason, and I was trying to remember, I remembered the quote wrong. Herbert Hoover, his slogan was two cars in every garage and a chicken in every pot. For some reason I thought he said, and a home as well or something, but he didn't. But those cultures exist. For reason but it doesn't mean that that reason has to be your reason either is something that you've kind of touched on a lot. I think it adds a little bit more to the front end. cause when you get into all the interest rates and the, and the money that it costs and all that sort of stuff, you've decided that a home is for you. But before that you've got to think about all the culture and you know, the culture of what you want to do with your life, the culture of the work that you're in the culture of. All those different things and it can help you before you get to the step of this is how much money it's gonna cost over the course of 20 years. I love it, Ashton. Cause that, that really built right where I was gonna say is sometimes it's the pride of raising your family, right? It's that culture of being, hey, I raised my family in the same spot. They had stability. Right? So there's that cultural pride that I still feel, and there might be a sense of pride in the neighborhood, the community, the security. But I love that you ask the listener to take a step back and say, what do I want in life? Not what does everybody tell me I need to get? And that's so hard, so hard to step back and say, what do I really want? And then make a decision to make a plan of action. I love home ownership. It's been really good for us as a family. It's been great. I provided a stable place for you guys. You knew where you're coming home every night. You didn't have to worry about moving every six months because of rent change. I'm very glad I did it. I just don't know. Like I said at the start of the episode that that's where I'll continue to be in the future. But at the same token, I'm planning on how to build onto here, how to build a bigger cabin, you know, encouraging the listener to look at their life. But don't follow the crowd, make your own decision and realize that home buying is buying a home, not just buying a car or signing up for a cell phone plan. A home is a commitment but it is a lot, it's a less of a commitment than getting married. So you know, it's that balance between the kids and then move forward in confidence after you make that decision, whether to buy a home or not, and then live your best life. You got this.