I never want to own a house again.

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I never want to own a house again.

John Chapman
Investor · Dallas, TX · Member since 2009 · 718 posts · 913 votes

I moved to DFW in 2005 about a year after law school and immediately purchased what I perceive as an expensive house. I spent way more than I should have and bought way more house than I needed. Like many people my age, I felt that a house was just something you had to buy as soon as you could (and especially when you have kids) and that with my first “real” job, I had made it. That purchase was single handedly the dumbest financial move I’ve ever made. About a year after moving in, the price dropped to a point that I couldn’t liquidate it. It forced me to continue working at high stress, high paying jobs to afford it. Worst of all, I came to believe I really loved the place and couldn’t picture living anywhere else. It was the proverbial golden handcuff. Fast forward eight years later and I believe I can now get out from under it and just walk away. I’m working like a madman to get it on the market and just the thought of getting away from it is liberating. Without owning this home, I’ll have so much more freedom and flexibility. I can live anywhere and choose to reduce my housing payment if I want. I’ve pretty much decided that I will never own a home again or at least own a home that can’t be immediately turned into a rental (multiple exit strategies). I have no idea where I’ll move if I sell it (maybe one of my rentals) but I don’t particularly care. It will definitely be smaller and less expensive.

I’m curious, though, has anyone actually done this before? I’d be interested to hear positive or negative experiences, or even just general thoughts about my plan. I notice a lot of younger people being smart on the front end and purchasing sfrs that can be rentals, but I haven’t really heard much about people doing what I’m doing (correcting their past mistakes). I did read a recent BP blog about an investor who wouldn’t own the house he lived in.
As a final note, it’s a pretty hilarious because anyone I’ve told that I’m selling believes that I’m trading up to the next colossal waste of money. (I had a buddy who lost $100k when he sold his house but then immediately went out and bought another expensive house.) The few people with whom I’ve been honest think I’m nuts.

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George P.
Property Manager · Livonia, MI · Member since 2011 · 4k+ posts · 1k+ votes
13y

it's amazing how little people need to live comfortably. the general notion is to get as much as you and work as hard as you can to keep increasing your lifestyle. it baffles me every time why people put themselves in that situation every time.

i am probably richer than anyone i know and yet still live in a 3 bedroom 1,058 sq feet ranch house with a basement and loving my $680 monthly mortgage.

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  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    13y

    Well I, probably like most, believe you jumped in during an anomoly that probably won't be repeated for at least 50 years, at least not to the same degree. It's like buying into the stock market in 2000, or 2007 then selling a couple of years later. If you buy at the top, sell at the bottom, and don't rebuy at the bottom, it'll never work out well.

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  • Chuck Redman
    Residential Real Estate Agent · Pearland, TX · Member since 2013 · 163 posts · 32 votes
    13y

    What are you going to do ... rent from yourself? You will still OWN the house you are living in.

    We have the same situation, bought more house than we needed and now it is worth less than we can sell it for.

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  • John Chapman
    OP
    Investor · Dallas, TX · Member since 2009 · 718 posts · 913 votes
    13y

    Chuck Redman Yes, if I move into one of my rentals, then I will own the house I live in though I haven't made a decision on that. (The big difference, in my mind, is that it will be a much smaller payment and I could rented quickly if I want to move.) More likely, I'll rent.

    Wayne Brooks I respectfully disagree. We didn't get hit that hard in DFW, and prices went down only a little bit relative to the rest of the country. Even if prices had stayed flat, with transaction costs it would have been very expensive to move and I would have still been likely stuck. (Obviously, the more expensive the house, the higher the transaction costs.) As far as being an anomoly, in DFW there was a significant housing bust in the 80s. (I suspect if I look around for the last fifty years I'll a bunch of other booms and busts.) You're probably right we won't have a national bust like we did.

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  • Addiel Flores
    Real Estate Investor · Riverside, CA · Member since 2013 · 35 posts · 20 votes
    13y

    I know how you are feeling I was in a similar situation. I had bought high and could have sold higher, but greed kept me in. Then prices immediately started plummeting. I was fortunate enough to survive that. I can understand how you may be apprehensive right now about getting back into it. The fact of the matter is that the housing market just started doing any upswing. You are at the bottom right now. And I think it would be crazy not to start buying. I agree with Wayne, Sell at the bottom and don't rebuy at the bottom, Then it won't work out. Obviously, don't buy a big shirt and wait to see if you grow into it. Just learn for your original mistake and only buy enough house you truly need.

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  • Matt Devincenzo
    Investor · Clairemont, CA · Member since 2011 · 3k+ posts · 2k+ votes
    13y

    I'm not in your position with having a house to try to get rid of, but I am in the renter position. I was looking for a house here in SoCal about 1 year ago, and couldn't justify the expense of a 200K house that wasn't even in a great area. Looking back if I had I would have a healthy bit of equity due to the ridiculous appreciation here recently, I also think it's going to go back down here in the next 2 years.

    More importantly with not having that mortgage on my credit, I'm much more able to borrow for rentals out of state that bring money in. I would love to own my own house, if I didn't live here in SoCal, out here I've pretty much decided I will be renting for the rest of my life here, or until I just make so much money it really doesn't matter and I can afford to throw 750K at something nice and not worry about where prices go.

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  • Lynn McGeein
    Real Estate Agent · Virginia Beach, VA · Member since 2012 · 2k+ posts · 1k+ votes
    13y

    John, Maybe focus on the part where you own a home that can be turned into a rental. If you can be happy in a smaller place in a worse neighborhood than you are used to, this could be a great way to build a bigger real estate portfolio, using every 2 years to either sell and take the profits tax free or decide to turn it into a rental and buy another one to move into using owner-occupied financing, live there another 2 years, repeat. Not the same scenario, but when we moved across the country for work, due to the buy and bail rule, we had to buy a much smaller place to qualify with both mortgages and none of the rental income from our old primary residence. We chose an area that will make a great rental. We rented apartments for a while but couldn't stand giving other people so much money each month that we could be investing in a property for ourselves instead, and it was very frustrating moving so frequently as we found around DC, you get a 6-month or 12-month lease, but then they raise it $200/month if you want to stay. Owning this place, at least we know we can stay put as long as he's working here, known fixed costs (hundreds cheaper than renting apartments), and we can rent or sell it once we're ready to move on. I will tell you, at least for us, we are looking forward to a big old house in a great neighborhood again. But for now, this is helping us consolidate, building a much stronger base for the next phase.

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  • John Chapman
    OP
    Investor · Dallas, TX · Member since 2009 · 718 posts · 913 votes
    13y

    Thanks, Addiel Flores. I appreciate the solidarity. I actually purchased twelve rent houses and a fourplex over the last five years, most of which were at the bottom of the market, so I've done well with that. My primary house is just sort of last vestige of poor decision-making in my younger days.

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  • John Chapman
    OP
    Investor · Dallas, TX · Member since 2009 · 718 posts · 913 votes
    13y

    Lynn M. You kind of hit on one idea I'm toying with, picking up a fixer upper house, moving in and fixing it up, and then refinancing into owner occupied financing. (I'm capped out on Fannie financing as it is.) Then, if I want to move in a year or two, I can just turn it into a rental. Was it pretty hard dropping to a smaller house/worse neighborhood? That's the thing I'm most concerned about, but when I weighs the pros and cons for me, it seems like it would be worth it. I hadn't really thought about the regular, massive rent increases. (I haven't rented for a very long time.)

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  • Bryce Y.
    Dallas, TX · Member since 2011 · 308 posts · 59 votes
    13y

    John Chapman

    This is a very interesting topic and I’m in sort of the opposite situation, renting and thinking of buying. If we take a purely financial approach, meaning not looking at things like quality of life, quality of neighborhood, etc., the argument to buy vs rent is not so obvious.

    I have thought about moving into one of my rentals , and the more I crunch the numbers it seems to make more of a case for renting. In my case, I could get about $625/month from my rental, and my budget to rent is around the same. So by moving in, I don’t have to pay rent, but the opportunity cost is $625/month. If I rent, I pay (to make the math easy) $625/month but also get the same from my rental. It’s not quite a wash since my expenses would be less in the case where I move in to my rental because I would take good care of the place, not have to evict myself, etc.

    If we assume I save $100/month in expenses by moving in to my rental, the question then becomes is that worth the cost of living next to my tenants (it’s a 4plex), living in a less desirable area, living farther from work, etc. To me it’s not worth it, so I’ll continue renting at least for the short term.

    This of course neglects to take into account the lower interest rate from owner occupied financing and lower (FHA) downpayment, but I would never get FHA financing anyway, especially with the new regulations.

    I think the main arguments for home ownership is if you know you will be living there a LONG time, and the house provides some utility that could not otherwise be had renting. For myself, I would never pay retail for the house I eventually move into. I would need some equity on the front end. I also think that having a place you would be happy living in long term AND being a good rental are somewhat oxymorons, hence needing equity.

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  • Tom Lafferty
    Plano, TX · Member since 2013 · 226 posts · 156 votes
    13y

    Its funny for me that you posted this, as I just started thinking the same things over the last month. I'm part of a group here in DFW that educates and mentors people on apartment investing. The guy that runs it is quite wealthy at this point, owns several apt complexes, and could live wherever he wanted. He rents an apartment!! I thought he was crazy at first, but started looking at it differently. I owned my own home for 18 years and started doing some math. Taking into account all my expenses (PITI, repairs, upgrades, etc, MY TIME), and all my gains (appreciation, deductions, etc), and then running a few "what ifs" based on investing all that money instead, I don't know that I'd go the same route again. I like having my own house, but I just don't look at it the same as what I've been taught my whole life: A house is your biggest and greatest asset! If I could start over, I'd buy a dump, fix and sell every several years. I'm guessing my wife would squash that plan the minute we got into a house she really liked though!
    I don't think youre nuts at all. The biggest problem I'd have in renting is like someone else said, just finding something I liked well enough. If you're okay with it, great!

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  • John Chapman
    OP
    Investor · Dallas, TX · Member since 2009 · 718 posts · 913 votes
    13y

    Bryce Y. That's good reasoning. I would also add that for me it's not just a pure numbers game. It's also about having the freedom and flexibility to move when you want. I think this recent housing bust has emphasized just how little mobility you really have when you're underwater on your house. It's one thing to terminate a lease to pursue a new opportunity; it's another to come to a closing table with a 5 to 6 figure check in order to get out from under a house.

    Tom Lafferty I'm going through the exact same analysis as I get my house ready to sell. As John Holdman says, a house is just an expensive doo-dad. It is certainly not an "asset" in the conventional understanding of the word.

    I realize most of this stuff is pretty basic and frequently repeated here on BP and elsewhere. I do think implementing this way of thinking (particularly after you've purchased a house you love) can be difficult.

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  • Jon Holdman
    Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    13y

    IMHO a house is nothing but an expensive doo-dad. If you can afford one that meets your needs, great. If you can't, you make other living arrangements. Unless you get lucky, like folks who bought in 2000 and sold in 2006, a house you live in is rarely a good investment. It might seem like it if you buy, live in it for 30 years and compare the value now to the price you paid 30 years ago. But factor in the interest, insurance, property taxes, routine maintenance, lawn care, new roofs and furnaces, etc and its almost always a loser, financially. Now, that's OK. You have to have a place to live. And you shouldn't expect that to be free

    The real killer is the idea of a starter home, then a move up home, then a mini-mansion, then a downsizing condo. That's a fabulous idea - for the folks collecting all those fees for all those transactions. For your financial health, its a disaster.

    If you in a position where you know you're going to stay put, and like what you can afford to buy, buy. But if you're in a situation where you may have to move around, rent. Nothing wrong with renting. There are downsides, but there are upsides, too. And a big upside is the ability to pick up and move if the needs arises.

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  • Jon Holdman
    Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    13y

    John Chapman, we were posting at the same time, and I just saw you reference my "doo-dad".

    I recall reading some analysis during the recession that a contributing factor to the recession was home ownership. People were stuck with a house they couldn't afford to get out of. But stuck in an area where they couldn't find a job. Had they been renting, they could have packed up and moved on. As it was, they were stuck and became unemployeed.

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  • Bill Gulley
    Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    13y

    John, as they say, been there done that. Had a home where my bed was 52 steps to the refgerator! That's nuts! Didn't take long to put a bar fridge in the master. About 5 years laterr it was sold! I also don't want anymore swimming pools.

    I think we all go on that ego trip and later realize that we only take up so much space, we finanly learn that anything beyond your needs is really a waste of money and those that have real money don't need to finance thier egos.

    A friend of mine, a soybean farming family that has 6 banks, bought a nice 3/2 and a half /3, about 2400 sqft from a 6000+ sqft home. He told me it was nuts to have bedrooms for family to come visit a few times a year and it was cheaper to put the kids and grandkids up at the Hilton where they can start thier day on thier own and the kids have things to do. They meet during the day and at the end, they go back to the motel allowing he and his wife to wind down.

    Having a cleaning lady is nice to have, nicer when you don't need them but just want one. Cleaning unused space, heating it, cooling it, insuring it and paying taxes on it, is just nuts.

    Join a club and entertain there! Rent the room, with a cash or coverd bar and catered food, much cheaper. No after party clean up either!

    I suggest you buy the worst house in a nice area, update it, improve it, live there and when another comes along, move on. Get rid of stuff! I think I've moved 14 times, at one time I had moving down to an art. Most of those were move-in flips with owner occupied financing or rolling them into rentals.

    I have moved down twice now. I have three places I can live (family second homes, I started to sell the lake house and family got on my case, the kids expect to get it, so guess I'm stuck with it.) I may end up moving back in and getting rid of others if I get permission, LOL. So, start your plan before you get to retirement where kids or family begin looking at what they think they are getting!!

    My oldest son just bought a 500+K home in Texas, nice place, but he has two little ones running all over the place, but he's already planning on stepping down when the kids leave. He moved up from improving (having the place improved, he doesn't rehab) and selling at a profit rolling it into the new home.

    So, John, you're a smart guy and comfortable in your skin, I totally agree with your thoughts! :)

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  • Tevis Verrett
    Lender · Woodland Hills, CA · Member since 2013 · 364 posts · 115 votes
    13y

    John Chapman I feel your pain. Eventually the market corrects itself. . . sometimes after we have passed on to the great divide.

    I think you should have a heart to heart with Brian Gibbons, he is the master of the upside down and no equity solutions.

    Pleased to put you two together.

    . . . and with all of the salient advice you have recieved thusfar, perhaps this exit pain can be mitigated.

    Be well,

    Tevis

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  • John Chapman
    OP
    Investor · Dallas, TX · Member since 2009 · 718 posts · 913 votes
    13y

    Jon Holdman@jon That's pretty funny, your "expensive doo-dad" reference has stuck in my mind over the years. The ability to pick up and move was one my of points with this post. I really think young people just starting out underestimate the opportunities they are giving up if they buy a house and then cannot move. Life changes very quickly when you're younger and you have no idea what you want to do or where you want to end up. There's a huge world out there beyond your local neighborhood and city.

    I also have personally come to believe that home ownership can cause you to miss opportunities. For me, it was always something like, "That's an interesting idea, but if I wanted to do that, I would have to sell my house." And then I would dismiss the idea out of hand. Even if I hadn't been underwater, just the process of selling your house is a much larger hurdle to mobility than if you're just renting or can easily rent your house (as opposed to selling).

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  • Ken S.
    Landlord · Tampa, FL · Member since 2013 · 1 post · 0 votes
    13y

    One of Kyosaki's main points was that if something is costing you money out of pocket, it's not an asset. Assets pay you, and liabilities do the opposite. This especially rings true if one can't count on a modest appreciation if value any more. Of course, housing costs money, so we all need to spend on housing one way or another.

    For me... the years of mowing, trimming, fixing, spraying (bugs), fertilizing, driving back and forth to Home Depot, etc... has burned me out (quite literally since the FL heat is a killer between March and November and things rarely stop growing).

    I'm all for home ownership, if you know what you are getting into. But, IMHO it makes perfect sense to avoid it as well.

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  • Bill Gulley
    Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    13y

    Gee, I missed the mobility issue! I thought you'd be buying, fixing and renting when you moved on. Most places have PMs. While I understand very well Jon's doo-dad thing, RE is very much an asset. I'm sure there were many properties that went underwater, but if they are rented with a positive cash flow (even if they just break even) they are an income producing asset, even if they only generate an after tax advantage.

    If you're interested in more of the nomad lifestyle, visit some crusing forums for yacht owners! Many just rent a land base and travel, some have no land home and they have good tips on getting rid of stuff and making the move. I considered a bigger boat myself, but realized I'm too out of shape, too lazy, too spoiled and lack the expertise to sail the seven seas. Had I thought of it 20 years ago, I'd probably be out there.

    But, I'm not understanding getting out of your own home and being a landlord, you'll still have land anchors with the rentals, even with a PM.

    Another angle is getting into vacation homes, resorts, many live there for a season and then take off renting them out, good ones can be a lower cost place to reside.

    You have lots of options! :)

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  • John Chapman
    OP
    Investor · Dallas, TX · Member since 2009 · 718 posts · 913 votes
    13y

    Bill Gulley Thanks for the words of encouragement. It's not just the house, we've also just been getting rid of stuff. It's just ungodly amazing (and embarassing) how much stuff we have that we don't need. The move is definitely accelerating the process.

    It's funny you mentioned the house guests because I did the same analysis. It's way cheaper to put them up at hotel than to have that extra "guest" bedroom that stays empty all year long. It's also really liberating not having a cleaning lady (we got rid of ours about six months ago) and just not "needing" as much.

    I do think I'm going to do what you suggest about buying the fixer upper to move in to. I'm just salivating about Fannie Mae owner occupancy rates right now, and it would be a fun project.

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  • Jon Klaus
    Developer · Garland, TX · Member since 2008 · 8k+ posts · 4k+ votes
    13y

    Great topic, John.

    Jon Holdman perhaps you should trademark "expensive doo-dad" It sticks with me, too.

    I don't look at "expensive doo-dad" as a bad thing. If I'm going to get value out of something I consume, I think a home would be at the top of my list. I don't have $50K or $100K cars, or take $20K vacations, or have any expensive habits except for a big family, and a big property. I'm willing to spend on these.

    Is it more than I need? Of course it is. Is it an investment? Absolutely. Does the house appreciate? No. Does the dirt? Umh, yeah. Can I force even more appreciation? Yes. Did I buy it for $200K less than I can sell it for now? Probably. That was just 30 months ago. Would the gain be tax free if I sold now? Yes. Can i borrow more against it to buy investment properties? Yes. At 3% fixed.

    I'm blessed by the lifestyle the home gives me and my family. The appreciation is a bonus, but I did shop hard for a long time to buy under market and match my family's needs and desires.

    As RE investors, don't we have the knowledge needed to make money on our primary residences? Of course we can buy at the wrong time in the cycle, but we can also be conservative near the peaks and aggressive in the troughs.

    1Reply
  • Brian Gibbons
    Investor · Sherman Oaks, CA · Member since 2008 · 6k+ posts · 3k+ votes
    13y

    John Chapman
    God what tough question!

    I have owned simple houses and a million dollar house, I have rented in Westchester Co NY, Providence RI, Boston MA, Auburn CA, and now Los Angeles.

    I have lived in renovation 2 times with babies - toddlers, resold at a profit, and never have lost money, but that was prior to 2009.

    Texas is unusual housing market, where I live in So Cal I believe will lose value, but not slide more than 3% to 7%, if you are away from the water, near the water maybe appreciate slightly. But who really knows.

    The big issue this spring is THE LOW INVENTORY. See the WSJ article here
    http://blogs.wsj.com/developments/2013/01/22/six-reasons-housing-inventory-keeps-declining/

    Low supply means people cant sell then buy. So they do not want to rent, so they do not sell.

    The article also states that smart sellers do not want to sell at the bottom of the increasing market.

    Is there going to be consistent appreciation over the next 3 years in all markets? I dont think so.

    And home loan credit is not going to loosen up for home mortgages, which affects appreciation.

    That is why I like lease option assignments to be a strong component in my REI business, along with wholesaling and rehabs.

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  • Carlos Flores
    Commercial Real Estate Lender / Syndicator · Dallas, TX · Member since 2011 · 888 posts · 309 votes
    13y

    Man this is one timely thread. I've been thinking about selling for a while. Houses are now selling in two days in my subdivision and they have finally gone up enough that I can get out gracefully. I'd say make a profit but it's only an increase over what I paid for it not what I've spent on it. Taxes alone have cost me slightly short of $100k in 10 years, so definitely no profit. I have more SF than I need, less garage spaces than I need, a pool I don't want, taxes that are way too high (just went up 10.29%), utility bills that are ridiculous, and on and on. I would still buy another one, one that was a better fit. Don't think I'd rent ... although cashing it all out, buying an apartment complex, and renting from myself seems interesting while I find a killer deal to live in. My wife would probably nix that though.

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  • Chris ClothierBusiness Member
    Rental Property Investor · memphis, TN · Member since 2009 · 2k+ posts · 3k+ votes
    13y

    John Chapman - I think you are spot on for one main reason...it is your plan! You are the only one who has been down your particular road. Lots of us have walked a similar path, but everyone's experiences and decisions are unique to them. I think it is a great idea and if your family is on board, then i think it can be a great experience as well as a wealth accelerator for you. Best of luck with it.

    Chris

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  • Rob K.
    Investor · Southeast, MI · Member since 2012 · 2k+ posts · 1k+ votes
    13y

    I don't think home ownership is where you went wrong. It sounds like you just bought a McMansion when you became a "hot shot lawyer". I think the benefits of home ownership far outweigh any negatives. With interest rates so low, I think you will do just fine to purchase a more manageable sized house.

    I'm curious why you would want to go rent something? You are a real estate investor who buys houses to rent to tenants for a profit. Why would you want to become a tenant to a different landlord and feed his profits?

    I think purchasing a house that could be rented if you had to is an excellent idea. I'm planning to buy a new house to live in and rent out my current house. When I purchase the next one, I will make sure that I will be able to rent it a few years down the road if I decide to move up again.

    It sounds like you're just really bummed out about this one bad deal. I think most of us who have been buying houses since before 2005 can relate to watching their equity disappear. I was a millionaire (on paper) at age 30 and then watched much of it disappear. It's a bummer. I think once you get out of this house and into a new house, you whole perspective will change. Good luck to you.

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  • Mark Ferguson
    Flipper/Rehabber · Greeley, CO · Member since 2013 · 2k+ posts · 1k+ votes
    13y

    We bought a foreclosure at the public trustee sake for our personal house. We love it(not too big). It has paid me over and over again with refi and line of credit it has helped my buy more rentals.

    I would not have bought the house if I didn't really love it, it's not worth the hassle and stress otherwise.

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