Home Investment I'm convinced real estate is one of the most overrated investments out there, but I plan to buy a house anyway because of a strategy I implemented years ago – Business Insider

I'm convinced real estate is one of the most overrated investments out there, but I plan to buy a house anyway because of a strategy I implemented years ago – Business Insider

10 min read
0
56

Ramit Sethi.Courtesy of Ramit Sethi

  • Ramit Sethi is the author of the New York Times bestseller, “I Will Teach You To Be Rich.”
  • He considers real estate investments to be terribly overrated … but he knows he and his wife will still want to buy a house someday.
  • He’s been saving for that house since his late 20s, thanks to a strategy he implemented in his early 20s: a sub-saving account that receives monthly automated contributions, allowing him to save passively.

I have an unpopular opinion about buying a house:

Real estate is one of the most overrated investments out there, but that doesn’t mean I think that real estate is a terrible investment. There are plenty of reasons to own a house:

  • You want to settle down in a neighborhood
  • You want more control over the design of where you live
  • You just plain want a house

I always tell people to make sure that they run the financial side of the equation as much as the “desire” side. My wife and I know that eventually we’ll want to settle down somewhere and to change the layout of our house, even if running the numbers don’t show that buying is the best investment.

In fact, I’ve actually been saving for a house for many years now. Not only that, I’ve been doing so passively.

Here’s how I did it:

First, I’ve had a special sub-savings account for a down payment on a house since my late 20s. I knew that I’d want to put 20% down and that I was living in a high cost-of-living city, so I researched the average real estate prices for a house I wanted. Let’s say it was $500,000, and if I wanted to put down 20% for a down payment, that meant I had to save $100,000.

I estimated it would take me 15 years just based on my savings rate (it could take more or less time for you — this is just an estimate).

Knowing all this, I did the math: $100,000 down payment / 180 months = ~$556.

Awesome.

Read More: I started my own business more than 15 years ago, and I wish I could have given myself 3 crucial pieces of advice

Now that I had a hard number to aim for every month, I could put it into my automated personal finance system, which meant that about $556 went into my specific sub-savings account for my down payment every month — automatically.

Not only was I saving without actively thinking about it, it also provided the crucial psychological benefit of knowing exactly what my money was going towards. In turn, that gave me more motivation to pursue my spending goals.

However, a couple things started to change as the years went on.

As I got older, I realized I would eventually want a more expensive house (e.g. nicer neighborhood and more space), so I increased my savings goal.

I also realized that $500,000 was not enough because I was living in Manhattan. Additionally, I started to make more money from my business, which meant that I could afford a nicer home if I wanted to.

With these in mind, I adjusted my saving amount to reflect my new circumstances, and I got more aggressive with my saving.

Eventually, I had more than $200,000 saved in my down payment sub-savings account. By then, though, I realized I didn’t need the money because it makes no financial sense to buy in Manhattan, where I currently live, and I’m not ready to commit to living somewhere for 10+ years.

What I could do then was invest the down payment money.

Read More: I spent years agonizing about wasting money until I realized successful people have a completely different mindset

If you have money that you don’t need for 10+ years, you can invest it so it can grow even more. After 10 years, my $200,000 will likely double due to compounding interest and gains.

Once you withdraw that money, you can use it to do things like buy a bigger house, purchase a home in a city with a higher cost of living, or pay down your mortgage.

Starting to save for a home doesn’t have to be hard.

In fact, you can do it with perhaps $50 or whatever you can afford per month by automating your personal finances and leveraging a sub-savings account. Because when it comes to buying a house, the most important thing you can do is sit down and plan the necessary steps for your future.

Ramit Sethi is the author of the New York Times bestseller, “I Will Teach You To Be Rich,” and writes for more than 1 million readers on his websites, iwillteachyoutoberich.com and GrowthLab.com. His work on personal finance and entrepreneurship have been featured in The New York Times, Wall Street Journal, and Business Insider.

Let’s block ads! (Why?)


Source link

Leave a Reply

Your email address will not be published. Required fields are marked *

Check Also

The IRS Tool You Need To Know About If You Are E-Filing Your Tax Return – Forbes

Getty Are you planning to file your tax return electronically? Be sure to have last year&r…