When to buy your dream house?

Question

Hi everyone,

I bought my first rental property four months ago and I am in the process of turning my current house into a rental as well. I have been looking at lakefront property here for a couple years. I came across what could be my dream house today on the nicest lake around for a little under 2/3 of market value. The problem is that the purchase would strech my finances to the point that I wouldn't see myself being able to buy any rental property for the next three years and I would likely miss the buying market that we have. I am 24, single, and I make about twice the average income for my area. I know that I could pick up three or four rental properties now and have a great headstart on financial security, but a part of me really wants to just enjoy the lake. I know there is no clearcut answer, but I am looking for opinions about what you would do in this situation.

Toby Munk · Answer

I always think that the deal I am on is the ultimate and that there will never again be a deal this good. I am slowly learning to relax. There will always be another great deal.

I think over the next 2 years cash is king and being liquid will offer you opportunities that will not be around again in your life time.

I would hold off on that dream house and invest in other great deals with income.

Account Closed · Answer

Some observations and ideas.

1. You should focus on the income and asset side and not the personal enjoyment. Once you have lots of cash you can buy anything you want on the lake. You can over pay to get someone to sell.

2. Consider a lease option or other deal for the lake front place. You can rent it for less than buying. You can get the enjoyment and not use up your investment funds.

3. If you buy or rent the lake front place consider renting it when there is demand. Move out and let someone else pay a premium to live there during the peak season. Do that for a few years.

4. Get a roommate or find some other way to spread the costs of the lake house.

5. If the market in your areas is showing a lot of bargains do you want to be working in a day job for the rest of your life? Why not strike while the iron is hot. Think rather than respond to your emotions.

6. A lake is a lake. There are many around the world. Why this lake? If you had $10 million in cash to buy a 1st or second home would you consider looking around for a while? There are some really great lakes around the world. You could buy multiple places and never even remember this place.

Account Closed · Answer

Hmmm. Interesting thought. Sometimes you need to "go for it" and chase your dreams. Not sure if this is the time for you or not. There is something about enjoying a lake property now. Location, location, location right? I rolled the dice in 2006 and bought a beautiful (overpriced) property. Other folks I know saw the real estate bubble and held off on buying. Now, 8 years later, I have been able to enjoy this home since then and they are still renting looking for that dream home. Really, I am not sure what direction you should take - just think about the location, the property, and where you see yourself in 3, 5, and 10 years. I have never been a "live in the home for 2 years and move" kind of guy. I like the stability of staying in one place as long as I want to. I have flipped homes since 1998 but never my personal residence. Business is business and home time is personal time for our family.

Eric Wang · Answer

I encounter this same issue.  I mainly buy duplex and triplex, I live in one and fix it up and move on to my next property.  If I were to buy a SFH, it would eat up cash flow, and be a lot harder getting more property.  It's ok for now since we don't have kids.  But when we do, it be nice to stay at one location instead of moving around every few years.

Jeff Wilcox · Answer

I agree with OG.

However, I must add, that at 24 you will have plenty more opportunities to create and find your dream house.  Your desires and needs will change as you age, marry, have kids etc.  That dream house today, may likely not be your dream house in 5 years.  I'm not saying to wait to live you life, but every opportunity for investment you pass on now, will be an opportunity you'll never get back.

I'd try and do an analysis of what your financial situation might be like if you buy the house and put your investing on hold for three years.  I'd then take the other perspective and try and forecast how many deals and their worth that you might have to pass up.

I think if it were me, I would pass on the dream house and focus on the investments.  But I'm 39, with a wife and two kids that I'm trying to provide for.  :-)

Good luck with whatever you choose.

Chad B. · Answer

Well said Jeff...exactly what I was trying to say but much easier to understand!

Chad B. · Answer

I approach every house I build as an investment no matter if I am building it for my family to live or if I am building it as a spec home. At the same time I build every house as if I were going to live in it myself but that's a different personally philosphy altogether. So in a matter of speaking every house I build is my "dream home" but I make sure I'm never so attached to a house that if someone came off the street and offered me more money than what I felt it was worth that I would even have to think about it. It's easier for me to approach it this way than it is for my wife but I'm still working on her mindset. I never buy a house with plans to live in longer than 2 years (again a tough thing to convince the wife of). It just doesn't make since to not cash out and take advantage of the capital gains tax break to not do this. So unless you are the type of person who can't be moving every couple years I would suggest stay the course with your investment property plan. At the same time I would seriously consider buying that lake house and flipping it if you think you can buy it at 2/3 of what you can sell if for. It may hurt to sell your dream home but you will get over it quickly once you move onto your next "dream home". Hope my perspective helps.

When to buy your dream house?

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