Just because you’re approved doesn’t mean you should buy it photo source
This isn’t going to be a post detailing my experiences with making money online using some new method, but it indirectly relates to business success as a whole so keep on reading. Hopefully I’ll help prevent you from making one of the biggest financial mistakes of your life as well – buying a house when you can’t rent it for at least the cost of the monthly mortgage.
Why We Bought A Cheap House For $130,000
1. When it comes to areas with a high cost of living it’s incredibly risky (idiotic) to buy a house when it can just as easily be rented for less money.
Late last year we bought a house south of Seattle for $130,000 with a 15 year fixed mortgage at 2.875% interest, 5% down and our monthly payments are now $1,150. Now depending on where you live and how much money you make that figure may sound like a lot of money or veryyyyy little. In our case because of both the income from my business and the average house price where we were living in Seattle was $400,000+ it’s actually really cheap.
2015 Update: Decided to pay this house off. Not having a mortgage is nice but now that we have kids I am feeling a little itch to get something bigger.
We lived in West Seattle for about 4 years but it’s always been too expensive to buy when we could just rent instead. In fact, the house we moved out of would have cost us $550,000 to buy (they put it up for sale while we were renting). The 30 year mortgage on a $550,000 house would have run us roughly $3,000 per month and yet we rented the house that was being offered for $550,000 for only $1,500 per month for nearly two years. Why then would we buy a house that would cost us $3,000 per month in mortgage costs when we could rent it for half that? And yet, millions of idiots (people) continue to do just that.
I could continue making these arguments but I think Patrick.net does a better job than I and with more data points:
We did make offers on a few less expensive houses in West Seattle that could have rented for close to the monthly mortgage but with one house we offered on there were 14 other offers on the house. When there is that much competition it’s idiotic to bid more just to get the house. So because I can live and work from anywhere we decided to cut our costs and buy a cheap house instead.
I will miss my back yard view though
2. The less I have to spend on personal expenses the more I can invest in my business or spend time simply not working at all.
Most Americans have it wrong. You don’t go out and buy the massive house, two new cars and a boat all on credit with an income level that can barely meet those monthly bills. Just because you’re approved for the loan doesn’t mean you should do it. That is complete idiocy, especially if you’d like to retire before you’re 65.
I had it wrong when I bought a brand new 2008 Subaru WRX for $25,000+ after getting my first “real job” as a sales rep back in 2008 with a base salary of $31,250 per year – a laughably idiotic mistake. It was especially stupid because when I bought the car it was just before the economic meltdown so my interest rate was also 5.9%. Later that year my friend bought a new 2008 Subaru WRX STI (a better / faster version of my car) for what we figured out would be only $3,000 more because he got 0% interest and extra money knocked off the car because car companies were desperate for sales (typically it should have cost nearly $10k more to get that car – not saying he was right either but just further illustrating my failure).
Since that mistake in my mid twenties we paid that car off last year ahead of schedule and have since paid off most of my wife’s student loans after having a change of heart about my $26,000 mistake. But the real point of reducing my personal expenses was so that I could invest more money into my business. Now with less debt and less monthly expenses I’m able to take more risks with projects that may or may not take off. Am I frustrated that a project I spent $10,000+ on last year looks like it’s going to be a waste? Of course. But because I’m always taking risks I also had another project last year do $300k+ in gross sales with my net on that being over $60,000+ in profit.
I’d use a Wayne Gretzky quote about missing 100% of the shots you don’t take, but I prefer Mark Cuban’s advice on failure and luck instead:
“It doesn’t matter how many times you fail. It doesn’t matter how many times you almost get it right. No one is going to know or care about your failures, and neither should you. All you have to do is learn from them and those around you because… All that matters in business is that you get it right once. Then everyone can tell you how lucky you are.”
When I ultimately exit from a business with f&^! you money I’ll have plenty of critics saying how lucky I was or whatever, but they also won’t know how many times I failed or how earlier in life I was willing to drastically reduce my personal expenses by buying a cheap investment house so I could try and grow my business faster.
3. If I can work from anywhere I may as well work from someplace cheap to live.
There is a massive consumption problem here in America. Certainly no matter what I say will stop it – heck – I’ve even profited handsomely from it, but hopefully some of you that read this will take this advice to heart. The point is that if you truly want to build and grow an online business the last thing you want to do is to overextend yourself financially to large monthly payments on a massive house, two new cars you can’t afford because you’re unwilling to use alternative modes of transportation like a bus or train perhaps?
Our personal monthly fixed expenses are now lower than they’ve ever been in the past 3 years and yet my income is dramatically higher than what it was when I first lost my job. After I finish work on fixing up this house and meet the 1 year HUD requirement of living we could turn it over as a rental and just as easily buy another house to fix up and turn into an eventual rental as well.
This has turned into somewhat of a rant, but all I’d like to say is this:
Bottom Line: Don’t be a typical American idiot and over commit yourself financially to bills you can hardly afford. If you ever want to break free and build your own dream lifestyle then try to cut your fixed monthly expenses while at the same time finding ways to increase your income.