Is your primary residence your largest life investment?

38 Replies

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@Jim K.

It shouldn't be unless you live in a very inexpensive area of the country. My Roth IRA my 401(k) and about everything else performs better then my primary residence.

I suppose it is, but I don't really think of it that way. It is my home.

But if you look strictly at the numbers, I guess it is. In 2003 we built our current home on 80 acres (did about 90% of the work ourselves). Including the land (bought in 92), we have maybe $150k actually invested in it, but it has, of course, appreciated considerably. It is currently worth much more than any one of our rentals, as we won't buy a house as a rental unless we can be all in at well under $100k.

Actually, now that I think about it, we no longer own what I would consider our largest life investment. We spent 20 years of our lives building a business from nothing, which we sold in 2017. That is definitely our largest investment, though the initial cost was only $1000 - all we could scrape together.

I am struck by the difference between what a lot of the people writing here did/are doing and the common pattern we see people new to real estate so frequently ask about here on BP (but also locally for me here, in Allegheny County where the 'Burgh is, median home value $214K). "I bought a $190K home 15 years ago and I've almost paid it off. It's now worth $250K. With rates and terms as favorable as they are now, I now want to buy a $600-700K home with a new mortgage and turn my old home into a rental. Is this a good way to get into real estate investing?"

While it's a vague dream for them to get into real estate investing, it's far more important for them to live in the nicest house they can afford while they're doing it.

How do you get through to these people?

Does an investment always have to have a financial value? 

What is the value of a mindset to sacrifice comfort and leisure temporarily to advance beyond the capabilities of the mediocre?

Originally posted by @Jim K. :

I am struck by the difference between what a lot of the people writing here did/are doing and the common pattern we see people new to real estate so frequently ask about here on BP (but also locally for me here, in Allegheny County where the 'Burgh is, median home value $214K). "I bought a $190K home 15 years ago and I've almost paid it off. It's now worth $250K. With rates and terms as favorable as they are now, I now want to buy a $600-700K home with a new mortgage and turn my old home into a rental. Is this a good way to get into real estate investing?"

While it's a vague dream for them to get into real estate investing, it's far more important for them to live in the nicest house they can afford while they're doing it.

How do you get through to these people?

Keep in mind the investor looks at these far different than the average home owner who is not in the landlord business and has no desire to be in it..

what they look for is generally

1. SCHOOLS  this drives a huge section of homeowners  school scores are very important.

2. Safety or perceived safety   IE crime drugs homeless etc. Antifa now these days  LOL

3. commute is a big one in many markets.

4. new versus old  IE old 70 year old homes with limited functionality compared to brand new homes or newer homes with modern designs. IE a closet that will hold more than  10 out fits :)

5. Affordability

I think you asked the question will most folks max out their pre qual lending limits. and the answer in my experience to that is absolutely.

@Jim K. People seem to measure your success/value/achievement with your house, and neighbor quality, to an extent, improves with house value. So yes, most people invest more in homes, where they can enjoy the proceeds of the investment here and now, than stocks or other re. Makes perfect sense. As they age their stock portfolio will usually eclipse their house equity unless they add on or constantly remodel, etc or fail to save due to overbuying in the first place or bad luck. Freakonomics guy says you can sacrifice life quality by over saving and depriving your family more than needed to provide for retirement or security. (Says he did but who anticipates a best seller.) The financial snowball effect is too enticing for some. Fear or greed too, I guess. Life is a balancing act.

Originally posted by @Jay Hinrichs :
Originally posted by @Jim K.:

I am struck by the difference between what a lot of the people writing here did/are doing and the common pattern we see people new to real estate so frequently ask about here on BP (but also locally for me here, in Allegheny County where the 'Burgh is, median home value $214K). "I bought a $190K home 15 years ago and I've almost paid it off. It's now worth $250K. With rates and terms as favorable as they are now, I now want to buy a $600-700K home with a new mortgage and turn my old home into a rental. Is this a good way to get into real estate investing?"

While it's a vague dream for them to get into real estate investing, it's far more important for them to live in the nicest house they can afford while they're doing it.

How do you get through to these people?

Keep in mind the investor looks at these far different than the average home owner who is not in the landlord business and has no desire to be in it..

what they look for is generally

1. SCHOOLS  this drives a huge section of homeowners  school scores are very important.

2. Safety or perceived safety   IE crime drugs homeless etc. Antifa now these days  LOL

3. commute is a big one in many markets.

4. new versus old  IE old 70 year old homes with limited functionality compared to brand new homes or newer homes with modern designs. IE a closet that will hold more than  10 out fits :)

5. Affordability

I think you asked the question will most folks max out their pre qual lending limits. and the answer in my experience to that is absolutely.

And in many cities where the demographics are very segregated (such as mine), the price jump for areas that satisfy the criteria above is quite extreme. Looking for a decent 3br/2ba, 1,800 sq ft home in Los Angeles that's close to work and in a safe area? I hope that person is prequalified for a $2M home. 

Originally posted by @Tony Kim :
Originally posted by @Jay Hinrichs:
Originally posted by @Jim K.:

I am struck by the difference between what a lot of the people writing here did/are doing and the common pattern we see people new to real estate so frequently ask about here on BP (but also locally for me here, in Allegheny County where the 'Burgh is, median home value $214K). "I bought a $190K home 15 years ago and I've almost paid it off. It's now worth $250K. With rates and terms as favorable as they are now, I now want to buy a $600-700K home with a new mortgage and turn my old home into a rental. Is this a good way to get into real estate investing?"

While it's a vague dream for them to get into real estate investing, it's far more important for them to live in the nicest house they can afford while they're doing it.

How do you get through to these people?

Keep in mind the investor looks at these far different than the average home owner who is not in the landlord business and has no desire to be in it..

what they look for is generally

1. SCHOOLS  this drives a huge section of homeowners  school scores are very important.

2. Safety or perceived safety   IE crime drugs homeless etc. Antifa now these days  LOL

3. commute is a big one in many markets.

4. new versus old  IE old 70 year old homes with limited functionality compared to brand new homes or newer homes with modern designs. IE a closet that will hold more than  10 out fits :)

5. Affordability

I think you asked the question will most folks max out their pre qual lending limits. and the answer in my experience to that is absolutely.

And in many cities where the demographics are very segregated (such as mine), the price jump for areas that satisfy the criteria above is quite extreme. Looking for a decent 3br/2ba, 1,800 sq ft home in Los Angeles that's close to work and in a safe area? I hope that person is prequalified for a $2M home. 

Growing up in Cupertino and then living in Palo Alto this is the RULE  best public schools in the state.

we also have to keep in mind there is no where near the amount of private schools in CA OR WA as there is in other states

Especially in the deep south were many go to private academies or if the schools are top ranked in that state then that is were the MOST expensive housing is in the area by far and its an absolute.. 

Now for instance in North Charleston SC which was a tougher town.. they did build a magnet school that changed that city around I built 25 homes there and the values sky rocketed once that magnet school was built.  NO magnet school it would still be C class city with all the underlying social ills. 

No, not even close.  

I have rentals that are almost all worth more than my primary home.  Some worth multiple times the value of my primary home.  But I like my primary home, it is on a lake with a dock in the backyard.  Its not even that big.  Much smaller than many homes on the street.  I would say that all of my rentals have larger living rooms.  Most have larger kitchens.  Most, but not all, have more square footage.  But I like it...and it will stay my home until one of the kids wants it more, then I'll move to another house.

I also have retirement and investment accounts that are much more than the value of my primary house. 

@Jim K. I forget what book this quote is from, but “a persons income and expenses will equal each other unless that person actively works to prohibit it”.

Intelligent Investor? Richest man in Babylon?

Yes, I agree with you/the other Robert Kiyosaki quote 100%.