Personal Finance

Warning: Your “Dream House” Will Chain You to Your 9-5 & Rob You of Wealth-Building Potential

Expertise: Real Estate Investing Basics, Personal Development, Business Management, Personal Finance
49 Articles Written

The young couple had their eyes glued to the computer screen. The beautiful home staring back at them made their hearts flutter. It was ready for move-in, in the right school district, and checked many of the other items on their “dream home” checklist.

"Let's move fast! Call the agent so we can schedule a showing and make an offer before someone else does!"

Yes, it was a stretch on their budget. But the interest on the mortgage was historically low at 4%. With a 20% down payment, their loan would still fall below their pre-approved amount from the bank. The interest was deductible, so the extra expense would actually "save" money on their taxes. And it was certainly better than throwing money away on rent, right?

And beyond all of that, they deserved a wonderful home. They both worked stressful but lucrative jobs. And with plans for kids and a family, didn’t it make sense to buy the perfect nest for a growing family? After all, this home would produce many happy memories for years. And happiness and family come first.

Housing Dream or Nightmare?

This isn’t an abnormal scenario for young home buyers today. The details will vary, of course. But the common themes are these:

  • Stretching financially to buy the right home
  • Justifying the “investment” for health, happiness, and visions of family bliss
  • Shackling yourself financially to one housing decision for MANY years

As you might imagine from my title, I don’t see this as a dream scenario. In fact, especially for home buyers in their 20s and 30s, I see it as a nightmare.

It’s a nightmare because this couple missed out financially on MUCH smarter housing opportunities. With a little patience, creativity, and forward thinking, they could have used smarter housing choices to build enormous wealth. And this wealth would have created incredible life options for themselves.

But instead, they missed out. They’re stuck with their dream house. And while they may enjoy the home, their finances and careers are fixed on a one-way path.

Here’s how.

Freedom or a Rut—It’s Your (Housing) Choice

What’s the typical path look like after that big home purchase?

Work, mortgage payment, work, mortgage payment, work, mortgage payment.

Forget those youthful dreams of freedom, excitement, flexibility, travel, and doing work that matters. Practicality rules the day for the next few decades. Yes, you may be comfortable. But “comfortable” over a long period of time is another word for a rut.

Robert Kiyosaki famously calls this rut the rat race. One of my favorite financial books, Your Money or Your Life, calls it “making a dying.”

The rut makes your choices for you. You work a job because it earns the most money. Your bills get paid. You enjoy your Netflix subscription on the weekends. And you save that 10% in a 401k so that you can retire someday.

Not awful, right? But is it excellent? Does it make you excited to get up in the morning? Are you actually doing what matters in your life? Or does your work-mortgage rut consume all of your precious time?

My mission as a writer and the purpose of this article is to help you avoid big financial ruts. Money may not be the most important thing in life, but it sure does keep us from the things that DO matter.

So, it makes sense to learn to win with your finances. And your housing choice is the best place to start.

In the rest of this article, I’ll share several smarter, investment-oriented housing choices you can make:

  1. Live-in flips
  2. House hacking
  3. Live-in then rent

Along the way, I’ll also show you the enormous positive difference these choices could make in your life.

But first, let’s look at the true costs of purchasing a dream home.

The True Cost of Your Dream Home

One of the most popular articles ever on my personal blog was called “How to Get Rich With Embarrassing Old Cars and Ugly Old Houses.” The main point was to pay attention to your big expenses like housing and automobiles. But the real lesson of the article was something called opportunity cost. Opportunity cost simply means:

One dollar spent today loses its earning ability forever.

So, opportunity cost tells you to spend less today and invest more—at least if you want to build wealth. And it turns out housing is one of our biggest expenses. It leaks more of our personal dollars than almost any other source.

A U.S. Bureau of Labor Statistics report for 2015 shows that 19.2% of the average U.S. household’s expenses were dedicated to shelter. Canadian households’ average shelter expenses were even higher at 28.9% of household expenses. And many high-priced locations get worse than that.

This means if you’re serious about winning with your money, you should focus a lot of energy on either reducing or optimizing the return on your housing expense. And this is especially true during the first 10-15 years of your working career.

Related: How I Went From $0 Net Worth to Qualifying for $1M in Real Estate Financing in 2.5 Years

The question, of course, is HOW? Which housing choices will waste the least money and build the most wealth?

I’m glad you asked! Let’s see.

Treat Your Home Like an Investment

Unfortunately, most people make the goal of their housing choice to find, well, a home. That was the mistake the couple made in the beginning of the article. They bought their dream home, but it was not a good investment compared to their alternatives.

It’s not that they couldn’t EVER have their dream home. They just tried to get it too soon. Remember, it’s about timing and opportunity cost!

The couple didn’t realize that a home where they sleep at night could also be an investment that makes them money.

And I know what you’re thinking: Your home is important. It’s the relaxing place you come after work. It’s a haven. Your kids need a safe, comfortable place. It contributes to your happiness.

Come on, Chad! Do I really have to sacrifice my happiness by turning my housing into an investment?

But this is where thinking different comes in. You don’t have to make your home an investment for your entire life. Even 5-10 years of prioritizing investing instead of finding the perfect dream home can make all the financial difference in the world.

Just like budgeting, saving, and other forms of investing, the so-called “sacrifice” you make with housing pays enormous dividends for the rest of your life. And if you make it a game, turning your home into an investment can also be a lot of fun!

I know firsthand. I’ve been having fun with it for 15 years!

Now, let’s move on to the first of five smart home ownership strategies.

1. Get Rich With Live-In Flips

Two friends of mine, Mr. and Mrs. 1500 from the blog, are millionaires. They trace a big portion of their wealth back to their choice to do a series of live-in flips with their homes.

What is a live-in flip?

It’s simply buying and moving into a house that needs work, living there for at least 2 years (I’ll explain why in a minute), and selling at a higher price for a tax-free profit.

In the United States (and also in other countries like Canada and the U.K.), homeowners who follow these rules can sell their house for a profit without paying taxes on the gain. This tax exemption is capped in the United States at a gain of up to $250,000 for an individual or $500,000 for a couple filing jointly. The IRS rules also state that you must live in the home for at least 2 out of the 5 years before you sell it.

Let’s look at an example.

Example of a Live-In Flip

Let’s say you buy an older house in a good neighborhood for $200,000 that needs about $50,000 in upgrades and repairs. You use a popular Fannie Mae Homestyle Renovation Loan to fund 95% of your purchase PLUS remodel costs.

In other words, you borrow $237,500 out of the $250,000 total costs. Cash out of your pocket is only $12,500 plus closing costs. Let's call your cash investment $15,000.

You move into the house after closing. It’s livable, but the kitchen, baths, layout, flooring, paint, and cosmetics are all dated. Over the next 6 months, you live with dust while you and the contractors make the house beautiful.

Then for the final 1.5 years, you enjoy your beautiful, renovated home. And right after two years from the original purchase, you put the house on the market and sell it for $350,000.

Ignoring commissions and closing costs to keep things simple, you make a $100,000 gain ($350,000 – $250,000). And this money goes into your bank account with no taxes owed!

Use Live-In Flips to Accelerate Your Financial Freedom Plans

You just saved $100,000 after tax in two years. And this does not include the equity from your down payment and any principal pay down of your mortgage. So, what's next?

The live-in flip worked once, so why not do another? And another? Six years later, you might even own your home free and clear of debt.  Now you could relax and stay put in your favorite home forever.

Or you might do several live-in flips until you’ve built $500,000 dollars in wealth using your housing. Then you could invest like blogger Jim Collins in simple stock index funds. With the addition of other savings you’ve built over the years, you might already be ready to achieve financial independence.

You could also follow my favorite path and use the $500,000 of wealth to buy a small, easy-to-mange portfolio of rental properties for your early retirement. With the right rentals, a portfolio of only five units could produce $3,000-4,000 per month in net, spendable income. How would that monthly income change your life?

With your life now simplified financially, anything is possible. You can do what matters. Travel. Start a job or business that you love. You could even live in Ecuador with you family for a year (like I’m doing in 2017).

The main point is that an efficient wealth building tool like the live-in flip shortens the time to your financial goals. It does this by turning a typical liability, your housing, and converting it to an investment.

But live-in flips aren't the only awesome housing tool! Now let's look at choice #2—house hacking.

2. Live for Free & Build Wealth With House Hacking

Soon after graduating from college, I began a business buying and selling real estate. Things weren’t always easy. Cash flow was up and down like a roller coaster for several years.

Intuitively, I knew that I needed to keep my housing expense to a minimum so that I could survive. I started by living for free in the spare bedroom of my friend and business partner’s house. When I had cramped his style too much, I decided I needed to go off on my own. But I still wanted to live cheap or even for free.

My solution? House hacking!

House hacking is a strategy where you use your residence to generate extra rental income. Typically this means living in a duplex, triplex, or 4-plex building, and then renting out the spare units. But creative house hackers also rent out spare bedrooms in houses, garage apartments, basement apartments, small guest cottages, boats, RVs, yurts (yes, it’s true), and mobile homes.

If you can dream it and your local government will allow it, you can rent it. And that extra income can cover some or all of your housing expense.

Let me share an example of my first house hack.

My First House Hack

My hometown of Clemson, South Carolina is a small university town. A friend of mine told me about a run-down 4-plex property that was vacant, neglected, and recently foreclosed by a local bank. It was so ugly, someone had spray painted “Merry Christmas” across the entire front!

Where others saw ugly and smelly, I saw home. I bought the property using a combination of local bank and private loans, fixed it up, and moved in. After six months and with the building beautiful and fully rented, I refinanced with a long-term, owner-occupant mortgage (this was a BRRRR deal before I even knew the term!).

For full details of my deal plus step by step instructions to find, finance, and analyze your own house hacking deal, see Brandon Turner’s awesome article on house hacking 101 here on BiggerPockets.

But for now, let’s look at the financial results my house hack gave me.

Financial Results of House Hacking

After I rented my 4-plex and refinanced with a long-term mortgage, here were the financial results:

  • $0 out of my own pocket (because of the refinance)
  • $1,200 per month in rental income ($400 per unit x 3)
  • -$1,105 per month in total expenses (includes taxes, insurance, maintenance, vacancy reserves, etc.)
  • $95 per month in POSITIVE cash flow
  • $35,000 equity ($155,000 new value minus $120,000 total investment)

Not every house hack works out this well. I’ll admit this was a great deal. But the same principle works with any house hack. You can use entrepreneurship, creativity, and rental income to reduce or eliminate your housing payment.

What could you do with the savings from reducing or eliminating your housing payment? Pay off credit card debt or student loans? Start a side-hustle business? Save for a down payment and more real estate (my favorite)?

The answer is all of the above! Reducing your biggest expense opens the door to all sorts of financial opportunities. And house hacking has another huge benefit. After a few years, you can move out of the house hack and keep it as a positive rental property. Because you carefully remodeled it and borrowed safe, owner-occupant financing, the building can turn into an outstanding long-term investment.

Now, let’s look at smart home ownership choice #3‚live-in-then-rent.

Related: Am I Missing Something, or Is Real Estate Investing Really Not That Hard?

3. Live-In-Then-Rent—Turn Your Home Into a Rental

You’re probably beginning to get my pattern now: Don’t just live in a house because it’s beautiful, comfortable, and has nice neighbors (although those are fine). Buy your housing based on its potential investment qualities. Save your traditional dream of home ownership for later in life when you’re wealthy (or never).

The previous two strategies are my go-to recommendations. Live-in flips and house hacks are probably the most profitable ways to own a home. But sometimes neither make sense, either because of personal or market limitations.

So, a third alternative is to buy a house, move into it, and later convert it into a rental. I call this a “live-in-then-rent.”

This is different than a typical housing purchase because it must meet strict financial criteria. No longer is the house affordable because your lender tells you it is. The house is affordable if you could move out, rent it, and still have positive (or reasonable) cash flow.

This means you likely won’t buy the 3,500 square foot luxury home in a fancy neighborhood. Instead, you’ll buy a comfortable, safe, and affordable home where the rent-to-price ratio is more reasonable.

Let me explain with an example of my own live-in-then-rent.

My Live-In-Then-Rent Example (With Before/After Pictures)

Remember my house hack? I loved living in my two bedroom apartment #2. My wife even loved living there for a few years after we got married.

But then we decided to have kids. And for some reason, likely out of irrational animal nesting instincts, we HAD to have a house, a yard, and more space for our soon-to-arrive child.

But we were still on a path to financial independence? So, what to do?

We decided to buy a fixer-upper house in a nice but affordable neighborhood. And by fixer, I mean UGLY. The walls were eaten up by termites, it smelled, the layout was awful, and the crawl space had standing water. You can see a detailed case study of this property on my BP member blog, but for now here were some before pictures of this beauty.

rent house appreciation - before - front rent house appreciation - before - back rent house appreciation - kitchen - before rent house appreciation - bathroom - before rent house appreciation - before - back 2 rent house appreciation - before - termite damage rental house appreciation - before - electric service rental house appreciation - before - crawl space

Now, don’t think you need to buy something this bad. But remember? I like houses ugly (and at good prices). The uglier it is, the more likely you’ll make a good deal.

We paid for all of the repairs except painting, which we did ourselves. And then we moved into our nest. Here were the after pictures. It’s not shown here, but within a few years, we also replaced the roof shingles.

rental house appreciation - front rental house appreciation - Kitchen - after rental house appreciation - Kitchen - after 2 rental house appreciation - living room - after rental house appreciation - master bath

For the HGTV remodeling show addicts out there, you may notice that our remodel was not extremely fancy. We did fix all functional issues, including new wiring, plumbing, water issues, refinished floors, etc. But the new cosmetic finishes were basic and functional. This was all about understanding our market and our exit strategy. We planned to rent this house someday after moving out, so we only made repairs that we thought could earn a return on investment.

We loved living in this house (and even consider moving back into it some day), but the important part for this example was its contribution financially. Let’s look at the numbers.

Related: Meet Tim: How One Newbie Investor House Hacked a Duplex With No Prior Experience

The Financial Results of Our Live-In-Then-Rent House

For many of you who also attempt to buy a fixer-upper as a residence, the best loan options are probably programs like the Fannie Mae Homestyle Loan or the FHA 203k Renovation Loan.  These loans allow you to borrow 95% or more of the purchase AND remodel while still getting a low-interest rate and avoiding a second closing for a refinance.

In my case, I was able to negotiate seller financing with a small down payment from the man who sold us the property. Our monthly payment to him was only $400 per month. But we did also invest over $40,000 of our own cash for the renovations.

While living there, we enjoyed a reasonable monthly payment for our budget. But two years later we moved out (we found another fixer upper and we had another baby on the way!), so we rented the house out. The numbers as a self-managed rental looked like this:

$950 per month in rent
– $300 per month in operating expenses (taxes, insurance, maintenance, permits)
-$400 per month mortgage payment
= $250 per month positive cash flow

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But the best part of live-in-then-rents is that they usually get better with time (in a good location). By the time our first renter moved out 5 years later, our new rent was $1,200 per month. This little house was turning into a cash cow and another great long-term investment!

Rethink Your Dream Housing

I’ve tried to make a case in this article to turn your housing into an investment instead of simply buying the first “dream house” that comes your way. This is a way to turn your biggest expense (housing) into an asset that makes a profit (or at least reduces expenses).

Is this path for everyone? Of course not. The three strategies I’ve shared require some work to find, fix up, and then cash in on your housing profits.

But these aren’t the only possibilities for smart housing. There are many more variations I couldn’t cover here. In some markets, it might even make sense to simply become a renter for your primary residence and use your down payment and monthly savings to invest in real estate or other assets somewhere else.

The point is to think outside the box. Don’t let society’s pressure to get a “dream house” early in your career trap you. Instead, think smarter and invest in a dream life instead!

I hope you’ll choose to make financially smarter housing choices. And I hope you’ll help spread the word! I’m trying to make this concept a movement. Let’s take the message to as many people as possible!

Best of luck!

We’re republishing this article to help out our newer readers.

Have you ever done a live-in-flip, house hack, or live-in-then-rent? How did it work for you? What do you think about the housing debate? Which side do you fall on—own, rent, or turn housing into an investment?

I’d love to hear from you in the comments.


Chad Carson is an entrepreneur, writer, and teacher who used real estate investing to reach financial independence before the age of 37. He wrote an Amazon bestselling book Retire Early With Real Estate, and his story has been a featured on Forbes, Yahoo Finance, Business Insider,, the BiggerPockets Podcast, How to Money, ChooseFI, and more. Chad and his business partner currently focus on long-term rental properties and private lending in and around the college town of Clemson, South Carolina. Their portfolio of 90+ units includes houses, small multi-unit apartments, and mobile homes. In 2003, Chad and his business partner began real estate investing from scratch. They started by wholesaling and fixing-and-flipping properties. They also learned to rely on non-conventional financing sources like private lending, seller financing, and lease options, which remains their expertise today. After surviving the 2007 to 2009 real estate downturn (with scars to prove it!), they transitioned to more of a focus on student rentals. You can find more of Chad's writing (as well as podcast episodes) at
    Andrew Cummings
    Replied almost 3 years ago
    Awesome article. My wife and I did an unintentional longer term live-in flip. We bought our house as a foreclosure in 2012 for $112,000(this included a $3,500 rehab loan). With a few minor fixes and some fresh paint, we enjoyed our home for 5 years and just recently sold it for $200,000. After paying off all of our credit cards, we have around $50,000 to put towards a new home. After reading thanks article, I’m definitely going to do some thinking about how we should go about spending this money
    John Murray from Portland, Oregon
    Replied almost 3 years ago
    Great article! The aspiring RI and freedom seeker seems to know naturally how to maximize an asset. Explaining these concepts, reaching the employee consumer crowd is difficult. The employee consumer paradigm seems to be immediate gratification. Planning your dreams seems to escape their mindset. That’s why the multimillionaire population is so small, we get it. Well done!
    Jackson Miller from Guelph, Ontario
    Replied almost 3 years ago
    Fantastic article! I loved that you included examples for each strategy and pictures along with them to give a visual representation of what you meant. I personally am a major fan of the house-hacking strategy and plan to incorporate it into my long-term investments.
    JJ King from Raleigh NC
    Replied almost 3 years ago
    Thanks so much for this article Chad! My girlfriend and I are looking at buying our first home now and I have been thinking along these lines but I could not formulate it.
    Justin Smith Investor from Dayton, Tennessee
    Replied almost 3 years ago
    Chad, great article! I didn’t realize it until reading this, but my wife and I have done all 3 of these with our first house! We bought it with the plan of renting it out someday, but while we were living in it we fixed it up and modernized it. We rented out one of the extra rooms we weren’t using while we lived there. We moved out after 5 years and started renting it to college students by the room, and this fall will be 3 years since we moved out, so we are going to try and sell it before the 3 years runs out to keep the taxes on the profit!
    Dehrian Ramirez from Denver, Colorado
    Replied almost 3 years ago
    Hey Chad, great article! Touched on a lot of great points! When searching for different properties, did you have an inspector look at the homes or did you just go with your gut instinct? I’d love to learn more about that process. If so, around how much was the fee to have an inspector come in? What was your strategy going forward when learning about the condition of a property and deciding whether it was a good investment or not?
    Chad Carson Investor from Clemson, SC
    Replied over 1 year ago
    Hi Dehrian, I definitely recommend hiring an inspector. The fee will depend on the size of the house and your location. I think I pay $350-$400 for typical house, and more for multiple units. But it's been worth it. I also recommend having your property manager and/or investor friends look at it to estimate rents and needed repairs. Borrowing market knowledge is helpful.
    Rose Dallas
    Replied almost 3 years ago
    Great Article Chad! Like you I love ugly houses and the possiblities of renovating and flipping them or in your exampleive then rent. For stability The House Hacking idea is one I would love to put into play. As I see later I can move on and rent my unit out. I’m gaining knowledge right now through reading as I contemplate purchasing a Real Estate Training Course. Love the Anology…”Live your Dream Life” That’s what took us to South Carolina, NMB. I wake up to the Ocean every morning having rented someone’s Vacation Condo for the Winter months. I would love to get into the Market in the Myrtle area, and will take your advice in having my Home make me money. We were looking at a Brand new home in a new community in the Rural area about 30 minutes from the Beach. However when Hubby said, “I guess we’d never move if we bought that home” it made me realize that may not be the home I was dreaming about after all. We love to Travel and do so on Hubby’s Income with 6 Children. We Travel for Experience and Hubby Travels for work. Chad, where is a great place to start here on BP? Thanks alot, Rose
    Ana Perez Investor from Burbank, California
    Replied almost 3 years ago
    Hello Chad, This is an excellent article, thank you for putting together in such a clear and easy to follow manner. I am from Ecuador, born in Cuenca. You are very smart, enjoy your stay in such a beautiful city. We live now in California but we are hoping to move back to our home country sometime next year. If you need anything please let me know, maybe some connections or guidance while you are there.
    Marcio Wilges from Sydney, New South Wales
    Replied over 2 years ago
    What’s very sad in the housing market these days is that the dream house never appears when you want it. If this ever was a reason for people to have a good financial plan in place, this would be it. Unfortunately, many people will be like this couple and end up moving into a house that will be more of a burden than a a dream because sooner or later when the kids come along, they’ll be taxed to pay for the mortgage on the property.
    Account Closed
    Replied over 1 year ago
    If you haven’t already heard of Nobul, I would highly recommend signing up. Nobul is a free consumer-centric marketplace that connects home buyers and sellers with an agent that’s right for them. The platform is super easy to use - making the entire process of buying and selling a property much more efficient. As a consumer, you have the power to choose an agent that provides a combination of services, pricing, fit (and reputation) that is best suited to you. If you’re in the market to buy or sell a home, use Nobul as your first resource!
    Account Closed
    Replied about 1 year ago
    Thanks for sharing this amazing post. I want to rent a new property. After reading this my dream will true with ease.