How To Buy A House Like A Boss

How To Not Make The Worst Decision Of Your Life...

I had tea and crumpets... on a hand-woven carpet... in a golden palace... last Wednesday.
Or I was at the gym with a friend... I forget the details.

Anyway, my friend brought a friend who upgrades and tunes pianos. Family business.
He makes a great living. I'm always curious to hear about small businesses. It gives me a respectful happy feeling. I think it reminds me of my hardworking grandparents.
Anyway, I was interested in his story.

As our workout and talk progressed he said he was looking to buy a house. He said the floor price in this area was $750K, but to get the space he wanted, he would need $850K.

My head exploded. I barged over the bench and choked him. Just to show him I cared. Then I slapped him across the face to knock some sense into him. (Only In My Imagination... And Gently... Not to hurt him... I'm not a savage)

In reality, I held my tongue. Rarely is Unsolicited advice received nice. Especially prying into personals like a home purchases. I was forced to listen tight-lipped. My tummy twisted, taunting me to talk him through his terrible plan.

He described his “Necessities”.
I use this term tensely because it's misused loosely.
He put all of his “nice to have” house criteria in his “must have” section:
-A big yard
-Out of town
-3500 sq feet
-5 bedrooms
-A large master bath, etc...”

I thought, “Am I living in some kind of dream world. Did I miss something? Am I talking to a billionaire disguised as a piano tuner?” Either I lost my mind or he had. I had to figure it out. If I've gone mental, I should find out.

Nice guy, but the numbers proved he's a drone in the system. My brain turned into one of those kid's push-popper toys. Colored balls bounced off the plastic dome with enough force to cause cracking. Piano man kept pushing the toy around as my mind melded into a popcorn machine trying to solve his insane riddle. If I could nab these numbers out of my head, maybe I could knock some sense out of his plan.

Lets say he is an amazing piano tuner. He pulls 100k per year.

He buys a house at $850K (“Necessity”)
A standard 30 year fixed at 4% interest
He will pay $610,891 interest

The True Cost of his home is $1,460,891

YES $1.46 Million

And he only has to pay a mere $4,059 per month (Sarcasm dripping)

“Buying A Home Is An Investment”
Lets dig into that

1st remember he will pay an extra $610K in interest.
$610K interest + $850K principle = $1.46 Million invested

Let' be ambitious. Bet his home price doubles over time.
All the way to $1.7 million!

Well remember he paid $1.46 million.

That leaves a profit of $240K over 30 years. Best Case Scenario!
… not counting any taxes or home repairs over that 30 years.

But, what if best case scenario doesn't happen?
What if, God Forbid, the economy throws a curve ball.
I know this would never happen, but just play along.

In 2017 real estate is near all time highs. Near 2006 prices!

He is literally buying at the top of the prior bubble.
Lots of downside potential. Capped upside. Not my favorite way to bet.

In the face of multiple known debt bubbles and an neo-economy that nobody can predict, he would love to leverage himself into a naked position.

Would you risk a million dollars and your life savings to maybe make money in 30 years?

There is another way...
A safer way...

It is a mistake to take the easy route.
Don't follow the dogma:
“Buy Real Estate. Ride the market up. Reap the rewards and retire happy.”

This isn't 1950.
Would you send your little buckaroo to work at a car factory in Detroit?
It was one of the best blue collar jobs around.
He could work for 30 years and have guaranteed retirement.
That model died so long ago, I don't even want research when it was.

The housing model died long ago too.
The “blind buy and hold” is dead as the factory pension.

No big deal, it just means you have to think before you buy. Just buy smaller. Buy a fixer upper. Buy after a market bottom. Rent until opportunity bumps its tender nose into your neck. Live at your means and not above them.

Lets see what that looks like...

The Happy Money Man approach.

1st Challenge “Necessities”:
Do you need 3,500 sq ft? Couldn't you pull it off with 2,500... or even 1,500 sq ft?

The price of a home is based largely on square footage.
The secret is that layout is far more important than square footage.

I have lived in an 800 square foot home with a great common area for hosting friends and family. I have also lived in a walled off 5 bedroom house with an unusable common area. Just winding rooms and mazes of doors and walls. Choosing less sq ft with a better layout could save you 100K.

(I roll with 400 sq ft, but we can talk about that later)
Is it worth trading your entire life for an extra 1,000 sq ft?

I just quickly searched and found a 2200 sq ft house with an acre of land renting for $3,050
This would save him nearly $1000 per month.

He could also buy a cheaper house... and save $1000 per month.

What is the difference?
If he rents he is not subject to the whims of our current market. Maybe he can sit and wait for a market downturn and buy a house at another time when prices are reasonable.
He won't have all his eggs, plus borrowed eggs, in one reckless basket.
He has the potential for a good buy someday if he waits for the right timing.

The best part is he could build a secure retirement
That saved $1000 per month becomes $1,219,971 saved/compounded over 30 years.
Low risk. Capped downside with a high nearly guaranteed upside.

Recap:
Bad Idea:
Buy a house above your means... be weighted by debt... just like you're "supposed to".
If it all goes right, you slave away for 30 years and you can sell your house for a $240K profit.
Worst case scenario you lose everything and you're a broke joker working through your retirement years... And you were still 30 years a slave.
Hey, but at least you had a pretty house to sell.

Good Idea:
Happy Money Man Way:
You live within your means. You save $1000 per month on your housing.
You buy a less expensive fixer upper. Maybe you rent for a few years.

In 30 years you have a safe $1.21 Million.

Plus at any time over that 30 years if there's a market downturn or you find a screaming deal on a house you have cash to pull the trigger and buy property as a true investment.

I really hope my piano tuner friend doesn't spend a Million bucks on his family home. It could be one of the worst decisions he ever makes.

Its sad so many people fall into this trap. It's still ingrained in our American Dream.

It's time to spit out the spoon-fed answers. It's time to challenge the system. You're set up to wallow in debt and be a cog in a boring wheel. You must break free. Lets live our lives. Lets make money and be happy at the same time.

The point of money is to make you happy and buy time. No other points. It isn't to buy stuff you don't need and consume plastic happiness. It isn't to buy rooms in a home you won't use. It's to buy time with family. It 's to go on vacation and experience culture. We're all in this together. Our world is an amazing place.

Do you want to use your priceless life working to buy a stack of pretty wood and hide inside it. Is your life goal to buy pretty house so your neighbor is jealous. An epic castle won't make you happy. It will only make you a slave.

Stop!

Consider how amazing it is to be a human in this universe. How will you use your opportunity?

I love my home. I love my property. It makes me happy but it's not overdone.it's not to impress others.it's for my family, friends, and a frickin garden.it's intentional and planned.

I work so I can be free.

When I spend a dollar, I picture myself trading a piece of freedom. My dollar is my time. My Life. My dollar is a life-credit. I'm not going to spend a million life-credits on a house. My life-credits are going to people and experiences around me.

Plus, it's the financially savvy thing to do. Take pride in analyzing your money decisions. It's not being cheap or frugal. It's finding your personal happiness. It's being aware and awake. It's showing enough respect for your world, to live in it intentionally.

Or do it like @craig-grant and turn the whole thing on it's head. Break some ground. Be Yourself. Make it in a new space. Buy Your House Cash. That's also an epic plan. Got me inspired!

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