It isn’t just the fact that you own and will be stable, but also your neighbors own as well. I'm not sure of what the current statistics are, but years ago the average renter moved every 2 years, while the average home owner moved every 10 years.
There is a commitment involved in owning. In a rental area, if there are a few crimes, there is a tendency to say “bad area” and move. Owners tend to complain to the city, form neighborhood watch and take action. Owners vote by a much higher percentage. Ownership makes most people better citizens.
The American dream is still ownership. Most friends in rental areas will move on when they can afford to own. Ownership allows you to customize and improve the space with you reaping the benefits.
When I sold starter condos I would watch a transformation many times. Once someone bought, they would go out to restaurants less, and entertain at home. They would spend less money on other activities to improve their space. Instead of a weekend away, they would buy, install and paint crown molding. Initially, they would do it with enthusiasm. J They would interact more with their neighbors and get involved in the condo management for maintaining and improving the building.
Right now, there are two parts to the value equation of owning. One, of course, is the price of the property. The other is the mortgage. In Canada, for example, we do not have 30 year term mortgages with fixed rates that can be paid off with no penalty after a year. It is an amazing one way option on interest rates in the U.S..
Let's say you're thining of starting to have kids. What are rents going to be in 15 years when your kids graduate from high school? We don’t know, but a lot higher is a good guess. With a 30 year mortgage, you know what the payment will be, and you will still have 15 more years of cost protection. Now I suggest a mortgage with the same term as your planned work career, so you have a clear title house on retirement. Another alternative is a 30 year mortgage, but take the difference between that and, say a 15 year if you want to retire in 15 years. I'd suggest investing the difference in a blue collar rental properties. When you retire, you can sell some of the investment property, pay off your primary residence and be clear title on the home.
You have heard me mention someone close to me that talked about investing in real estate from age 20 to 50. They nly did when I strongly nudged them into a few investments with me. Let’s look at how to avoid the delays. Russ Whitney’s book, Building Wealth, is good motivation if read regularly. Ignore the parts about rooming houses and bi-weekly mortgages. Another tool is an annual guided, written goal setting session that is reviewed weekly. I have used Jim Rohn’s CDs, Zig Ziglar’s CDs and Tony Robbins’ goal exercise in his book Unlimited Power in various years for that.
When I moved to San Diego I created a new, uncomfortable belief system to get me to buy real estate. It would have been easy to say I have been successful and semi-retired. Instead, I said to myself that I’d been in real estate for 17 years, and I didn’t have 17 investment houses to show for it. Based on the reasons I had gotten into the business, I was a failure. I got in to invest, and make excess income to do so. I sidetracked myself starting businesses with the money and did far worse than real estate. This belief and Whitney’s book kicked my butt into aggressive investing.
It is easy to let a week, a month, a year or a career go by without owning a home or investments. The price is huge for doing that. I have been helping a few friends here invest. The difference is electrifying. They are far more excited about the future. They are loving the game of buying, fixing and renting. It is easy to fall into the belief of “I don’t have the time”. They put about 4 hours a week into it. If you look how quickly that 4 hours a week can eliminate the 50 hours a week of a job, the cost may appear small.
I have a relative in Vancouver who is about 10 years older than me. He has never owned. He has always rented a house in a good area of town. A few times over the last 30 years the cost of owning came close to the cost of renting. Once I tried to help him make the jump, but he always let the urgent come in the way of the important. He always could tell me about the latest, coolest restaurant. The cost of a house is now 10 times higher. The cost of rent is now 5 times higher. Any hope of a comfortable retirement is gone.
Here are some other traps we fall into:
“I need my time and money now.” I read once that that is the belief system of the animals. Kill, eat, sleep and repeat. Some of the things that make us human are storing knowledge and investment for the future.
“My kids and wife need me now.” You may be able to take your reading and studying time and transfer it over to real estate investment for a short time, with no loss of family time. Very soon you will have almost all your time available for family and reading because you won’t need a job.
“I only have enough money to buy a small property or two”. With leverage, compounding and 1031 tax deferred rollovers it can be amazing how fast it can grow. I turned one investment of $30,000 into $500,000 in 7 years. The best leverage, returns and interest rates are on small investments.
It is an amazing time for real estate investment. I have only seen times like this once every decade or two. Those who don’t take advantage of it now will be working at a job for decades more.
I had a friend in Vancouver who was quite successful buying, renovating, then selling or renting property. He would point things out to me about investing. Some of the things he would point out to me would offend me. Later, I would realize those things were usually my beliefs that weren’t serving me well. I’m writing this not to offend you or criticize you. I’m just trying to put forward some of my beliefs for investing so you can have more fun and less work in the future.