Don’t Make the Mistakes I Made. Invest in Real Estate.

O.K., I admit it. I am a Realtor® who does not own property. Had I started in this business earlier then I probably would have realized that one of the best investments you can make in your life is to buy real estate. I did own for a short period around 20 years ago, but it was a bad investment, and I sold it nine months after buying for reasons included below*.

You only have to do the math to realize that if there is any way you can make it work buying is going to cost you less over the years than renting, especially with the rising cost of renting in a city like Los Angeles. It can be a scary thought for first time buyers. It is a commitment, and what if you lose your job or something else goes wrong. But that is not the way to look at things. Let’s leave aside the down payment which many don’t have. We will get to that. The average rent for a decent two-bedroom apartment in a good area is going to be around $2,500 per month. And let’s say you stay there ten years. That’s $300,000  you will never see again, and you have helped pay someone else’s mortgage. If you are single and maybe have a roommate you actually only expended $150,000. And this is presuming the rent never goes up which it undoubtedly will. That $150,000 could have gone towards your mortgage.

According to the Federal Reserve Survey of Consumer Finances “The net worth of the typical homeowner has ranged between 31 and 46 times that of the net worth of the typical renter.” If that doesn’t make you sit up and think……

Now let’s see how we can keep this money in the family, something I wish I had had the good sense to think about when I was young.

  1. Keep your credit in good order. Getting a mortgage with bad or mediocre credit is going to be near impossible.
  2. Save up for that down payment. Or maybe you have someone who can gift it to you? The down payment will be the start of your journey into home ownership.
  3. Buy a two-bedroom place rather than a one-bedroom. They are easier to resell and if you are single, even if you don’t want a roommate, if you get into trouble then you have that option. But having someone help you pay your mortgage just makes sense. Or if you work out of your home you may be able to claim the second room as an office and take the deduction at the end of the year.  Also, you will get more money for a two-bedroom if you decide to rent it out.
  4. *When you buy you don’t have the option of moving out after a year if it doesn’t work. Make sure that it is a place you see yourself living in for some time. Don’t buy just to buy. I did not do my due diligence. The building was badly constructed and I could hear everything my upstairs neighbor was doing. It became unbearable. Renting it out would have been a problem because it would have been the same issue for renters.
  5. Think of the tax deduction. Your monthly payments are gross not net. At the end of the year you are going to get a wonderful tax break. Imagine how good that will feel.
  6. And imagine not being at the mercy of your landlord’s whims. Other than any homeowners restrictions you are free to do as you please.
  7. Yes you have expenses and responsibilities you don’t have as a renter and that should be factored in.
  8. But whatever happens, long term real estate is your best investment. Even if you break even when you sell, or heaven forbid, lose a little, you are still ahead of the game. Remember the money you would have thrown away on rent.

Sometimes it just doesn’t make sense to buy, as in my case, where my rent is lower than market because of the length of time I have been there, as well as other factors. But given the choice again I would not hesitate to buy. It just makes sense.

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