{"id":120526,"date":"2019-12-25T12:00:16","date_gmt":"2019-12-25T19:00:16","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?p=120526"},"modified":"2021-03-16T14:57:33","modified_gmt":"2021-03-16T20:57:33","slug":"make-money-when-you-buy-is-false","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/make-money-when-you-buy-is-false","title":{"rendered":"Sorry, But “You Make Money When You Buy” Is a Lie"},"content":{"rendered":"

“You make money when you buy real estate.” This is the age-old saying that everyone knows to be true.<\/p>\n

There is a reason why it\u2019s so popular and why everyone says it. It\u2019s true. But it\u2019s only true for 95 percent of real estate.<\/p>\n

There is a small subsegment of real estate where the purchase price does not matter. If you know anything about me, you know that I am talking about house hacking<\/a>.<\/p>\n

I have taken a bunch of future house hackers out to look at houses in the Denver metro area and have talked to hundreds more. Almost every single one gets hung up about the purchase price at one point or another. They all try to shave off $10,000 to $20,000\u2014whether it is by offering well below listing price or trying to nit-pick an inspection.<\/p>\n

When flipping<\/a>, wholesaling<\/a>, or BRRRRing<\/a> property, this $10,000 to $20,000 is huge. It is cutting directly into your profits. With buy and hold investing, and even more so with house hacking, your plan is to hold that puppy for the long haul. The $10K to $20K difference is going to translate to an extra $50 to $100 per month.<\/p>\n

That may sound like a lot, but that is peanuts when it comes to what you\u2019re missing out on by delaying the deal.<\/p>\n

Why? Because when you house hack, it matters more that you get started rather than trying to find a home run of a deal. It is more important that you start saving $700 per month in rent, start adding hundreds of dollars of equity per month through appreciation and loan paydown, and most importantly, start that year timer so you can do it again in 365 days!<\/p>\n

Don\u2019t believe me? Let\u2019s look at a deal I just went through with a client.<\/p>\n

In this scenario, we will compare purchasing a property for $385,000 now versus finding a great deal and purchasing one for $370,000 six months from now. We will assume it takes six additional months to find the better deal than it would have just to pick the more expensive option now.<\/p>\n

Scenario 1: Buy Immediately<\/h2>\n

Let\u2019s visit Connor. Connor is eager to start house hacking, and he does exactly as he should. He gets pre-approved by his lender, finds a reputable agent, and is ready to start looking at properties.<\/p>\n

As he is looking, his agent explains to him what I just explained to you above: It is more important to get into a house hack than it is to get a slam dunk deal on purchase price. Even though this goes against the classic real estate investing mantra, \u201cYou make money when you buy,\u201d he believes his agent. After all, the agent has done it before and has seen it multiple times over.<\/p>\n

He finds a perfect single family home. It’s a large five-bedroom, three-bathroom for $385,000. Rather than trying to bleed every last dime out of the seller, he just wants to get the deal done and start saving on rent, building equity, paying down the loan, and most importantly, starting the one-year timer for him to purchase the next one.<\/p>\n

\"two<\/p>\n

He offers the full price of $385,000 with $10,000 of earnest money down and a clause that states he won\u2019t make the seller fix anything that is under $1,000. This way, the seller knows that Connor is serious, and he is not going to nickel and dime them for a broken lightbulb.<\/p>\n

For obvious reasons, the sellers are pleased with this offer; it is accepted. The inspection and appraisal come back clean, and Connor gets to the closing table one month from when he started looking.<\/p>\n

Here are what the numbers look like:<\/p>\n