Investment properties are great, but let's get PERSONAL.
Real Estate Agent · Oklahoma City, OK · Member since 2020 · 471 posts · 462 votes
Investment properties are great, but let's get PERSONAL.
Most Popular Reply
Reading between the lines, Forrest, you keep on trying to flip Kiyosaki's dictum right around. I could be wrong, but it sounds like you and wife are caught in the classic American trap of wanting to live in a "NICE" place.
Your family is "outgrowing your current house," you say. I have a friend who live in a 5,200 ft2 place with four kids. He grew up on foodstamps right along with me, but found his ticket to the middle class through his job as a software guy and his decidedly middle-class-minded wife. He's concerned his McMansion just isn't big enough. He's actually pumping $50K into the place to turn his house's greatroom (yes, his place has a two-story greatroom) into a two-story addition that adds three more bedrooms and two more bathrooms, 1000ft2 of living space.
"A primary house is an essential part of life," you say. Is it? There are billions who don't have one. Ah, you mean an essential part of the life YOU want to lead. That's a whole different story. A centerpiece of your dreams. Not a fact of life. It points to a mindset where "THE FAMILY HOME" looms large, a mindset which millions of Americans share (or some might say have been brainwashed into). I can understand this, and the people who make their money off this dream can also understand it, and THE FAMILY HOME you seek will be priced accordingly.
So I really think you're trying to convince yourself that, despite what Kiyosaki points out, a big opulent personal residence is the right fit for you and won't drain your finances too bad. I'm sorry, but this is invariably not true. The numbers NEVER work out.
96 Replies
- Rental Property Investor · Member since 2020 · 215 posts · 137 votes5y
@Forrest Faulconer
I understand the concept of the house not being an Asset. It brings more expenses and no revenue.
But i look it differently. I considere my house as an asset. I “pay” a synthetic rent ( the one i would have to pay to have a similar house, assuring i can live for a long period ( landlord happy, so no harassment of moving every 1 or 2 years plus taxes, maintenance minus the money working.
If theres a huge difference, then my house is a liability. If the equation is relatively balanced, i am living in an asset.
Theres an intrinsic value for living in your house. And that needs to be taken in consideration.
- Investor · VA but NOT in real estate · Member since 2020 · 57 posts · 55 votes5y
Originally posted by @James Wise:
Originally posted by @Forrest Faulconer:
According to the classic Rich Dad Poor Dad, Robert Kiyosaki says your home is not an asset. This makes sense considering your home is not making you money but demanding repayment from the get-go. Appreciation is no guarantee and the tax write-offs are not great compared to investment properties.
However, a primary home is an essential part of life (no offense to my van-dwelling vagabond friends). But why not plan and approach this very large purchase from an investment-minded approach?
As our family grows, we are about a year or two away from out-growing our current house, inciting us to start planning for the next homestead. I would love to hear how some investors approach purchasing their primary homes? Do you utilize the low down payment options? Do you put 20% down to keep your monthly payments lower? Is renting a better strategy for you?
**We do not want to house-hack unless it's a detached mother-in-law suite type of situation, so chances are that will not be the strategy that is best for us.
Forrest Faulconer
Anyone who thinks your personal home isn't an asset is a full blown idiot.
I guess I'm a full-blown idiot then. ;-).
A personal home usually doesn't cash flow unless you're renting out rooms, is expensive to get into, ties up a lot of funds, and can be a money pit when you decide that you "need" XYZ upgrade. They're also expensive to sell and put you at risk of market downturns. About the only thing you get from a purchase is a more or less stable rent payment and more freedom to do what you want in a house you own.
How about this for a house hack? Run the numbers on rentals and pick out a house that doesn't cash flow. Rent that nice house for less than it would cost to own it and maintain it. Let some other investor take the loss.
- Financial Advisor · Boulder, CO · Member since 2019 · 38 posts · 75 votes5y
@Forrest Faulconer his forest, this is a great question.
I think it all depends on various factors. What is the historic appreciation in your market? Did you buy a fixer upper or something new? Could this home be something you could rent in the future? Are rents going up in your market? Are you splitting expense with someone?
I’m my market of San Diego, 1br rents are approaching 2k. Idk about you but, I would rather pay a mortgage than 2k a month to someone else’s mortgage. I also house hack in a condo with my significant other and cut down a majority of the payment. I know that the 50 year appreciation for San Diego is 5% year over year. I feel comfortable knowing that this will appreciate long term and if I move, it could be rented with ease. I would argue that if your primary residence is saving you money than if you were to rent, it is giving you a return and this is an investment.
Now if you are in a market that is flat and buy a big home that costs you more than you would pay renting and there is no opportunity to rent it out later down the road, then it is liability.
And I would say that being in a primary home that appreciates can even give you enough equity that you can take out a heloc to then buy more investments. Primary homes when used correctly can be powerful.
- Member since 2020 · 1 post · 0 votes5y
@Forrest Faulconer how many properties do you think I’d need to retire early ???
- Folsom, CA · Member since 2018 · 134 posts · 100 votes5y
@JD Martin great reply. We’re currently house hacking and talk about moving in the next year or so. I do find that we justify an increase in our mortgage in exchange for a bigger house.. which is why I love your idea of not attaching a home or anything in particular and asking yourself how much of an increase in expenses would make you uncomfortable. Thanks for that! Great advice
- Investor · Fort Washington, MD · Member since 2014 · 1k+ posts · 1k+ votes5y
This argument makes no sense but I guess it´s a relative Dave Ramsey type argument. There are little to no homes that will not appreciate in 30 years. If you have equity you have an asset, in addition to a roof over your head. You will acquire tax advantages in addition to being in the position to pass down generational wealth. How is this asset any different than buying stock in IBM 30 years ago and letting it ride for the long haul?
- 5yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Jim K.@JD Martin@Steve Vaughan@James Wise Hey just wanted to tag some of my favorties BP buddies.
from my point of View personal residences have been very very good to me.. So I will say it depends on what part of the US your in.. mine were in the Bay Area and Portland.. What the gurus dont mention is the 500k tax free exemption for married couples.. And in both of those markets this has happened to hundreds of thousands of folks and myself included..
If I lived in areas that historically dont really appreciate especially bigger older homes.. then i would look at it completely different.
Plus for me its not math or whats best.. I just dont want anyone telling me what I can do in my home.. or when landlords decide they want to sell and One would have to move.. moving is as we know a royal pain.
Even at that we tend to move every 8 years like the average American but we take advantage of that 500k tax free when we do.. you dont have to 1031 to get cash you dont have to worry about recapture etc etc.
So thats one side of the coin. For good bad or indifferent home ownership is the back bone of the US.
- New to Real Estate · DFW TX area · Member since 2017 · 11 posts · 2 votes5y
@Lamont Chen this is something me and my fiancé want to do where are you located? Would love to pick your brain!
- Real Estate Agent · Oklahoma City, OK · Member since 2020 · 471 posts · 462 votes5y
@Voghens Larrieux
Hey man, okc!
Originally posted by @Jay Hinrichs:
@Jim K.@JD Martin@Steve Vaughan@James Wise Hey just wanted to tag some of my favorties BP buddies.
from my point of View personal residences have been very very good to me.. So I will say it depends on what part of the US your in.. mine were in the Bay Area and Portland.. What the gurus dont mention is the 500k tax free exemption for married couples.. And in both of those markets this has happened to hundreds of thousands of folks and myself included..
If I lived in areas that historically dont really appreciate especially bigger older homes.. then i would look at it completely different.
Plus for me its not math or whats best.. I just dont want anyone telling me what I can do in my home.. or when landlords decide they want to sell and One would have to move.. moving is as we know a royal pain.
Even at that we tend to move every 8 years like the average American but we take advantage of that 500k tax free when we do.. you dont have to 1031 to get cash you dont have to worry about recapture etc etc.
So thats one side of the coin. For good bad or indifferent home ownership is the back bone of the US.
You probably wrote the best answer... It depends..
- Investor · Muskegon, MI · Member since 2017 · 20 posts · 11 votes5y
Happy Thanksgiving folks, as a property investor, my personal residence is basically free. Yes, I have a mortgage, which is basically the same as paying rent, but it's to the bank, and I have to do my own repairs . How is it free? The same as my car is free, yes, I have a payment on that too. It's free because I have acquired enough rental properties that after expenses, pay for my house and car and utilities and insurance, and my travel expenses. My tenants are paying for my growing equity and and one day when I sell my residence, I will take that equity with me. After many years of investing, the conclusion is that all my properties are free, as my tenants pay for them. Any down payments I ever made were paid back, any repairs and rehabs and expenses were ultimately made by tenants. So , within reason, and with plenty of reserves, I say , buy the biggest house your tenants can afford for you. Enjoy the house, give your kids a great experience with good schools and and a safe environment, they grow up, they go away, get married and leave you with a big house to sell and harvest the equity you built up, and then you move to Florida and wait to go meet God, while playing golf and hanging out on the beach. And in the meantime , I am selling some of my assets and investing passively in multi family syndications.and occasionally picking up deals and flips to keep my hand in it for fun and profit. Living the American Dream,
- 5yDan BeaulieuPro MemberLender · Knoxville, Tennessee (TN) · Member since 2016 · 422 posts · 667 votes
@Ratan Khatri that is a pretty interesting way to look at expenses. I suppose my entire life is free then since my clients pay for it???
I see your point though. Every time I want a new toy or a liability, my agreement with my wife is that I just have to do another deal that pays for it and allocate those funds appropriately.
I think what you’re trying to get at is things feel free when the money is made from investing and cash flow / capital gains, rather than time that you traded for money. It does certainly feel that way sometimes, but in the end, money is money and should be appreciated no matter the source.
- Investor · Muskegon, MI · Member since 2017 · 20 posts · 11 votes5y
Absolutely, I am grateful for all that I have, and our job becomes to keep our tenants happy and continually improve our assets so they build and retain value, and manage our cash flow to its highest and best use.
- Investor · VA but NOT in real estate · Member since 2020 · 57 posts · 55 votes5y
Oh this is a great topic. And I'm going to take the position that owning a personal home is a mediocre investment at best compared to the alternatives. As a matter of fact I'll go further and say that in most cases* personal home ownership is not an "investment" at all, but a significant expenditure and lifestyle choice. Full disclosure: we own our house. I like the fact that we can live here as long as we pay the
rentmortgage, and that therentmortgage payment is stable. We also like being able to do what we want with regards to a garden, pets, etc. But an investment? LOL. If this is an "investment", it's an underperforming one. Especially when you add in the cost of repairs, maintenance, and upgrades. And tax deduction, what tax deduction? With the tax changes of a few years ago, most people can't deduct their home mortgage interest anyway.Here's a fun trick for homeowners. We're all familiar with investment calculators like the one at BP or dealcheck? Take your own house and put it in the calculator. Does it cashflow? How bad is the ROI? Our house has a negative cashflow of $500 a month. Our house is not an investment. It's a lifestyle choice that we pay a lot for.
To sum it up: owning real estate can be a great investment. But for your personal home? That's highly debatable.
*Obvious exceptions being those who are renting rooms in their own house, or doing a slow-motion flip to take advantage of the tax exclusion.
- Flipper/Rehabber · Member since 2018 · 24 posts · 18 votes5y
@Forrest Faulconer my wife and I bought a deeply discounted house that needed some work in a high demand area. We bought it 18 months ago for $155 with 3.5% down ($945 monthly on a 30 year). We’ve put in roughly $10 into it so far. It’s appraised for $216.
2 things to note:
1. Our monthly payment is very affordable
2. We bought extremely well
Yes I did put affordability above buying well because margin is key to successful investing. Don’t ever be house poor.
- Richmond, VA · Member since 2017 · 24 posts · 11 votes5y
@Forrest Faulconer
Our current strategy is moving into a duplex and renting out one unit and living in the other, minimize I g out mortgage expense. Renting ,in my opinion for my situation, is not a better alternative. nothing working with renting as long as it fits you strategy. We are selling out current home and the proceeds will be very helpful. Research and strategies are key to making the right individual decision.
- Rental Property Investor · Torrance, CA · Member since 2016 · 724 posts · 1k+ votes5y
I don’t see a primary residence as neither an asset, or a liability. It’s simply an expense, and one that we all need. I put it in the same column as my phone bill, car insurance, utilities etc. Regardless if you’re paying rent, or paying a mortgage, you’re not necessarily throwing money away. Choose the option best for your individual scenario and goals.
We rent an apartment because our goal is building a rental portfolio first. We live in an extraordinarily expensive housing market, and we can rent for far less per month. If I bought the apartment we live in the mortgage would be about $1,000 more per month, after a $100,000 down payment. I could buy 5 houses in Indy for that. Renting allows us to save, and buy rentals out of state.
In the long run I say home ownership is the way to go, because inflation will always press rents higher. Wether or not a primary should be your first purchase depends on where you live, and what else you could do with your money.
- Investor · Los Altos, CA · Member since 2014 · 942 posts · 1k+ votes5y
@Forrest Faulconer It has been touched upon by @Jay Hinrichs and a few others in this string, the issue of the primary residence purchase is really a subsection on the discussion of equity vs cash flow debate. From a financial perspective, it makes no sense to purchase a primary residence if there is little to no appreciation potential. This appreciation could be in the form of a market location or forced appreciation via sweat equity, etc.
However, if you purchase a property that can appreciate AND you take advantage of that appreciation via cash out refi's or HELOCs to purchase investment properties then it is definitely an investment. Additionally, unless this will be your "forever home", look at the property as you would any other investment property. Look for appreciation and rentability and understand your exit strategy for the property.
To you address your question directly, my previous primary residence was an investment. I purchased a 3b/2b in a nice part of SF Bay Area and added over 1k sqft. I lived in it for 14 years and turned it into a rental for 1.5 years prior to selling. I went into the house knowing that I would either sell it or rent it, so the build finishes and budget were appropriate to that strategy. During my time in that house I did several cash out refi's and a HELOC. This money was used to purchase multiple rentals in the SF Bay Area that cash flow AND have appreciated. Upon exit I took advantage of the $500k exemption and because it was a rental I am doing a 1031 exchange into other properties. I have received some questions about the ability to use this strategy, but I have checked with both 1031 exchange specialists and CPAs and I am satisfied with their positive input.
I did purchase a new primary residence that I consider a life style purchase, AKA a liability. I purchased an expensive property in the SF Bay Area, but it literally checked off everything on my "want list". Will I see appreciation on this property? I am sure I will over a long time horizon, but I doubt it will come close to the performance of my last home. The new home was move in ready, with zero forced appreciation ability.
In the end the purchase of a primary residence can either be a liability or an asset, like any other purchase it depends upon what the buyer does with it. The cool thing is that you get to chose.
- Investor & Agent · Tulsa, OK · Member since 2016 · 1k+ posts · 1k+ votes5y
@Forrest Faulconer
Great thread. I too cannot likely convince my wife to house hack in terms of sharing a yard with our garage apartment type tenants etc. And I don’t claim to always know why - I assume it’s just demand outpaces supply - but Tulsa for the past 3 years at least has not had an abundance of “househackable” duplexes where your tenant could be nice and separate... so. We live in our humble version of a dream home - purchased for $175,000 and with strong faith in the area being in the path of progress, it’s a tiny secret in Tulsa called Gilcrease Hills, and I have reason to believe over the next five years this area is about to radically go up in value.
All this to say, I don’t feel like it’s a liability either and I think there’s a lot to be said for giving yourself a pass to enjoy where you live. We are, and I guess it’s a sort of “live in flip” although we didn’t get a great deal and we are betting on appreciation to some extent. But even if we just enjoy it I think keeping personal and investing separate is actually okay. Getting a strong rental portfolio will accomplish much of the same goal as a house hack. Continuing to obtain “OPM” as Kiyosaki says also makes the argument less relevant to some extent; as we aren’t simply trying to out-save or reduce expenses to zero—- that mindset is fine but it begins to conflict with the principles of intelligent utilization of leverage IMO.
I have a personal rule which is there is no one I can agree with more than a 90% level. So Robert Kiyosaki is included here for me.
- 5yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Arlen Chou:
@Forrest Faulconer It has been touched upon by @Jay Hinrichs and a few others in this string, the issue of the primary residence purchase is really a subsection on the discussion of equity vs cash flow debate. From a financial perspective, it makes no sense to purchase a primary residence if there is little to no appreciation potential. This appreciation could be in the form of a market location or forced appreciation via sweat equity, etc.
However, if you purchase a property that can appreciate AND you take advantage of that appreciation via cash out refi's or HELOCs to purchase investment properties then it is definitely an investment. Additionally, unless this will be your "forever home", look at the property as you would any other investment property. Look for appreciation and rentability and understand your exit strategy for the property.
To you address your question directly, my previous primary residence was an investment. I purchased a 3b/2b in a nice part of SF Bay Area and added over 1k sqft. I lived in it for 14 years and turned it into a rental for 1.5 years prior to selling. I went into the house knowing that I would either sell it or rent it, so the build finishes and budget were appropriate to that strategy. During my time in that house I did several cash out refi's and a HELOC. This money was used to purchase multiple rentals in the SF Bay Area that cash flow AND have appreciated. Upon exit I took advantage of the $500k exemption and because it was a rental I am doing a 1031 exchange into other properties. I have received some questions about the ability to use this strategy, but I have checked with both 1031 exchange specialists and CPAs and I am satisfied with their positive input.
I did purchase a new primary residence that I consider a life style purchase, AKA a liability. I purchased an expensive property in the SF Bay Area, but it literally checked off everything on my "want list". Will I see appreciation on this property? I am sure I will over a long time horizon, but I doubt it will come close to the performance of my last home. The new home was move in ready, with zero forced appreciation ability.
In the end the purchase of a primary residence can either be a liability or an asset, like any other purchase it depends upon what the buyer does with it. The cool thing is that you get to chose.
Arlen ,
I love that play.. especially high value high appreciating markets were Equity far exceeds the 500k tax free Brilliant move.. putting that one in my quiver :) PS sold 3 homes this week alone !!!
My primary house is what got me into real estate. A primary home loan is usually at a much lower rate than an investment loan. Since I move often anyway due to military requirements, it made sense for me to purchase a primary home at a low rate then convert it to investment when I move 2-3 years later. This is a significant advantage when considering leveraging a low interest rate to maintain a positive cash flow.
- Rental Property Investor · Boston, Massachusetts (MA) · Member since 2016 · 2k+ posts · 2k+ votes5y
@Forrest Faulconer your first statement that your primary home doesn’t have
The tax and other advantages of investment properties is flat out flat earth level wrong.
It takes nothing away from @jim k’s good analysis to acknowledge that a primary is one off he most subsidized and tax advantages investments in the planet, even after recent adjustments to the tax code. For starters:
1) huge capital gain exemption shielding an enormous amount of appreciation
2) interest rate deductibility (less effective since the standard deduction went up but still often useful.)
3) a federally subsidized secondary market creating loans at right around the cost of inflation . Next time someone complains about socialism look up Fannie and Freddie’s role in the economy
4) favorable (and often unfair) zoning standards and exemptions from certain zoning and rental requirements
5) let’s not forget your primary can be converted to an income property or can even generate rental income while being used as your primary if u are so inclined.
Kiyosaki did a wonderful job of shocking people into stepping out of the “get a good job and buy a big house is the way to succeed” and he opened peoples eyes to the power of investment real estate but taking that bumper sticker statement as gospel does him and everyone a disservice
- Real Estate Agent · Oklahoma City, OK · Member since 2020 · 471 posts · 462 votes5y
Originally posted by @Nate Sanow:
@Forrest Faulconer
Great thread. I too cannot likely convince my wife to house hack in terms of sharing a yard with our garage apartment type tenants etc. And I don’t claim to always know why - I assume it’s just demand outpaces supply - but Tulsa for the past 3 years at least has not had an abundance of “househackable” duplexes where your tenant could be nice and separate... so. We live in our humble version of a dream home - purchased for $175,000 and with strong faith in the area being in the path of progress, it’s a tiny secret in Tulsa called Gilcrease Hills, and I have reason to believe over the next five years this area is about to radically go up in value.
All this to say, I don’t feel like it’s a liability either and I think there’s a lot to be said for giving yourself a pass to enjoy where you live. We are, and I guess it’s a sort of “live in flip” although we didn’t get a great deal and we are betting on appreciation to some extent. But even if we just enjoy it I think keeping personal and investing separate is actually okay. Getting a strong rental portfolio will accomplish much of the same goal as a house hack. Continuing to obtain “OPM” as Kiyosaki says also makes the argument less relevant to some extent; as we aren’t simply trying to out-save or reduce expenses to zero—- that mindset is fine but it begins to conflict with the principles of intelligent utilization of leverage IMO.
I have a personal rule which is there is no one I can agree with more than a 90% level. So Robert Kiyosaki is included here for me.
Definitely, I have never approached a primary home with an investment mindset until this point. Only because we have moved 12 times in the last four years and know our current home is also temporary. So hoping the next home will suit us more along the 3-5 year timeline. With that timeline it presents plenty of opportunity to see some appreciation in the right areas, as well as put in some sweat equity over the long haul without having to feel like living in a rehab house. Also, gives us a year or so to plan well and be strategic, leaning towards buying a fixer upper, putting 20% down, reducing our monthly payment and then take advantage of capital gain deductions after two years. 20% is a lot to have buried in the walls of a house, but I think it may be worth it since it is built in equity, will avoid PMI, and reducing our payment will allow us to save more per month.
Forrest
- Real Estate Agent · Oklahoma City, OK · Member since 2020 · 471 posts · 462 votes5y
Originally posted by @Jonathan R McLaughlin:
@Forrest Faulconer your first statement that your primary home doesn’t have
The tax and other advantages of investment properties is flat out flat earth level wrong.
It takes nothing away from @jim k’s good analysis to acknowledge that a primary is one off he most subsidized and tax advantages investments in the planet, even after recent adjustments to the tax code. For starters:
1) huge capital gain exemption shielding an enormous amount of appreciation
2) interest rate deductibility (less effective since the standard deduction went up but still often useful.)
3) a federally subsidized secondary market creating loans at right around the cost of inflation . Next time someone complains about socialism look up Fannie and Freddie’s role in the economy
4) favorable (and often unfair) zoning standards and exemptions from certain zoning and rental requirements
5) let’s not forget your primary can be converted to an income property or can even generate rental income while being used as your primary if u are so inclined.
Kiyosaki did a wonderful job of shocking people into stepping out of the “get a good job and buy a big house is the way to succeed” and he opened peoples eyes to the power of investment real estate but taking that bumper sticker statement as gospel does him and everyone a disservice
Totally agree, I was thinking too specifically about only deducting mortgage interest, but the capital gains tax incentive alone is one of the greatest benefits out there! Not to mention what you also laid out. Thanks for your post!
Forrest
- Rental Property Investor · Boston, Massachusetts (MA) · Member since 2016 · 2k+ posts · 2k+ votes5y
@Forrest Faulconer like the post by the way, meant to jump on that concept not on you :)
Join the conversationCreate a free account to reply, vote on answers and follow this thread.