When to buy primary house?

Question

Hello everyone,

Forgive me if this isn't the correct forum.

Me and my wife purchased a duplex that we have been house hacking for the last year and a half. I'm trying to figure out when we should buy our primary home. I keep thinking of Robert Kiyosaki saying that your primary home is a liability, which I understand. I'm just not sure how to save up the total amount for a house in my market.

I'm trying to come up with a plan for whether I should be saving a larger down payment for a nicer house where I can have it paid off relatively quickly.

Another consideration is to pay off my duplex, and use proceeds from the sale to purchase a primary house so more can be saved without worrying about a large mortgage for where I'm living (liability that stops you from saving for investments).

Something else I've considered is to stay here for as long as possible and save a down payment for another property that I can rent out (just worried that this will mean that we'll never have a primary house).

Where I live, the prices for homes are kind of higher so it seems like it would take forever to get any momentum any method I choose.

Could someone explain a way to (possibly) get the best of both worlds? Or explain what you did and how long it took you to get there?

Jim K. · Answer

@Enoch Wolsey

I currently live in an over-under duplex with two two-bedroom apartments that has just appraised at 433% of its original sales price from 2017. This has happened for a variety of factors, and I doubt your situation will be exactly the same, but duplexes do tend to appreciate nicely in a variety of markets, you should be aware of that.

First off, congratulations on having the brains to marry a wife who is willing to follow you into duplex living based on what you've both read. Women you can build wealth with starting from nothing, which is what it sounds like you're trying to accomplish, are few and far between, and you have managed to seal the deal with one of them. Congratulations are also in order to your wife, who also clearly has the brains to marry a guy who was willing to think differently about the American dream of homeownership and take a risk like you.

I'd like to take a moment here and examine that American dream of homeownership. The most common variant of it is wonderfully illustrated by the new series "Your Friends and Neighbors" streaming on Apple TV. You start off working a huge number of hours a week after school, invariably telling your wife and children they'll just have to put up with you not showing up "for now." As a way of asking forgiveness, you go into debt heavily and buy them the nicest house you can afford, trusting that your income will catch up to your house sooner or later.

Let's say you're lucky, and it does: well, now you move on to an even nicer house, deeper into debt, but your wife and children are happy with their surroundings and the schools they go to. A couple more iterations and you end up in a McMansion at the end of a cul de sac, your wife has realized she wants more out of life than a big house and children she has to raise by herself with only the help of daycare, nannies, and private schools, and you end up divorced, deeply in debt, your ex-wife tells all your former social circle about the underwhelming size of your waterworks in comparison with that of her new beau, your kids hate you and treat you like a debit card, and so you're ready to make more expensive mistakes with your life.

As George Carlin once said, "It's called the American Dream because you have to be asleep to believe it."

I'd ask you to believe that your happiness in life, past a certain basic poverty level, does not depend on what you own. More or better stuff will not change your long-term level of happiness in your life. What will make you happier are stronger, closer, more authentic relationships. Children that love you. A spouse you can trust to ride into Hell with and steal the Devil's treasure, and then get out with her before he knows you're there.

But right now you and your wife still, at some level, want that American dream of homeownership, and everything that comes with it. You want a nice house, and a nice couple of cars in the garage next to it. You want four thousand feet of living space. You want a two-story lawyer-foyer. You want beautiful hand-rubbed clear maple cabinets in the kitchen and a sweet Japanese toilet that plays soothing music as it heats up water to wash your backside with in the bathroom. You want a cleaning service with presentable cleaners in twice a week. Maybe a membership to the local country club or marina, hell, why not both?

And most of all, you want freedom. To buy whatever you want. Do whatever you want with your money. Never having to deal with the nagging feeling that you're missing out on anything in life. No budgets, no penny pinching, just beautiful freedom to live and spend and go and come and live life on your own terms and your own way.

It's all an illusion, Enoch. More money usually means more problems. He who dies with the most toys wins nothing. The shround has no pockets. The Joneses bitterly hate each other and spend their days scheming about how to make each other's lives more miserable.

You may already believe all this, but does your wife? Or is duplex living a stopgap on the way to assumed social normality, well, financial aspirationality coupled with familial exceptionality?

The last thing I want to tell you is that in my experience, real estate is a weird lifestyle, and only weird people really have a high-probablity chance of getting ahead in a world where all the normies will do anything to have the house, the cars, the toys, everything an Instagram-worthy lifestyle demands. You need to reject all that and focus on what will make you money in a broken world.

Scott Mac · Answer

Hi Enoch,

If you have not read "Awaken the Giant Within" by Tony Robbins, you might want to take some time and do that.

In that book, there are a series of exercises (written exercises) that you can do to help you possibly come to some conclusions on your own about how you want things to be for yourself in the future.

Good Luck!

Theresa Harris · Answer

If you are staying in the area long term, buy a primary house.  Lots of people start in one home and move to another for many reasons (they have a family, kids leave home, etc).  Focus on buying a home in an area that works for you for the next 5 years.  If you can save to get 20% down, you should be able to avoid mortgage insurance which ends up costing a lot in the long run.

Everyone needs a place to live, the question is do you want to rent or own?  Both have pros and cons.  your primary residence may not produce income in the short term, but your house should appreciate in the long term and you will save on having to pay rent which is paying someone else's mortgage and doing nothing for you (other than giving you a place to live).

Enoch Wolsey · Answer

Thank you all! Your posts have definitely given me food for thought. I appreciate you taking the time to reply.

Dan H. · Answer

I enjoy Robert k’s books and believe it can enlighten to Other possibilities.  However, I do not agree with everything he says.

I have owned 2 primary homes in my high housing cost market.  Both have appreciated ~$900k for a total appreciation of $1.8m

market rent on them is $5k and $7.5k per month.

If I was renting I would be paying that rent to a landlord that would use that money to pay off his mortgage and ideally have some cash flow for his efforts and risk.

So it is not only the money that can be made on leveraged appreciation but the saving from not paying rent.  Note leverage appreciation magnifies based on leverage.  The higher leverage, the greater the magnification.  Owner occupied is the easiest way to obtain very high leverage.  At 96.5% LTV, the return from appreciation is 28 times the appreciation.  So a modest 3% appreciation returns 84% return.  6% appreciation like my market, returns 170% return.

The market is more challenging than usual   Studies show in virtually every market the typical Purchase at high LTV has initial negative cash flow.   But for the long hold, the negative cash flow will turn positive and the gains from appreciation will be great

I question what Robert K believes will provide a better return than a long term OO home purchase.  My opinion, not much.

I would take my 2 owner occupied liabilities every day.

Good luck

Kate Sanchez · Answer

@Enoch Wolsey  Great job, house hacking! Consider reinvesting in cash flow properties before buying a primary. Have you looked into a home with an ADU to balance comfort and cash flow?

Alecia Loveless · Answer

@Enoch Wolsey I’ve been house hacking for almost 30 years. The first 25 or so I lived amongst my rent by the room tenants. Now I’m in one side of a duplex which is a much better situation now that I’m older and want more privacy.

I’m currently foregoing buying myself a SFH to be my primary residence in favor of being able to buy more investment properties.

Only you can decide when is the right time to make the leap into a detached SFH purchase as a primary residence based on your finances and personal preferences.

I live in the 3/3 side of my duplex and my tenants side is a 3/1. It’s possible to find a duplex with lots of room for you to expand into, not all duplexes are small.

I’d consider looking for a second duplex and moving into one of those units and fully renting out your current property. Especially if you don’t have the 20% down payment to avoid PMI. You can buy a 1-4 unit property for as little down as 3.5%. It might be smarter financially to save up more for a down payment but only you know your finances.

Personally I like the security of having at least 20% down on my purchases.

Kerlous Tadres · Answer

You're on the right track don’t sell the duplex. It’s an asset that’s helping you build wealth.

Stay put, save aggressively, and buy another property that cash flows. Let your investments grow and eventually pay for your dream home.

Build assets now, buy liabilities later.

Bryce Jamison · Answer

I often see variations of this questions. It comes down to debt risk tolerance. Do you want to leverage as much debt as possible, or put as much down as possible, or even buy outright. Lots of debt lets you scale faster, but you can get caught with your britches down if you don't have enough cash when things need replaced/repaired and all your tenants stop paying rent at the same time.

This debate is more nuanced now with interest rates around 7. When interest rates were in the 3s it was easy to justify putting money somewhere else for a higher return, but today that higher return isn't as guaranteed.

I'd recommend some combo of the below things to get you where you want to be.

1.Contunue to save a down payment

2. Make offers that work for you, even if they're way below asking

3. Asking sellers to buy the rate down to where it makes sense for you

Eventually you'll get someone to accept terms that work for you, or you'll have saved up enough down payment to make the deal work. Also, don't forget to keep a big beefy emergency fund!

Wale Lawal · Answer

@Enoch Wolsey

Great question—and it’s one many house hackers wrestle with. You’re thinking like an investor, which is smart. Instead of rushing to buy a primary home (which, as Kiyosaki says, doesn’t produce income), consider staying in the duplex as long as possible to build equity and stack cash. From there, you could either buy your next property as another house hack, or use the equity to level up into your dream primary home with less financial stress.

Good luck!

When to buy primary house?

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