First-time homebuyers often view their home as an investment. However, real estate investing should generate income, whether it be in monthly cashflow or in equity. Sadly, the majority of homeowners do not have an investment. Rather, they have a liability that leads to a recurring high monthly mortgage payment. The average homebuyer “hopes” that their home will appreciate with little to no understanding of the market dynamics that lead to real estate appreciation.
This home liability causes further financial damage to the average homebuyer when they decide to take on a large mortgage. This leads to living paycheck to paycheck just to live in a giant home and keep up with the Jones’. Quite simply, if your home is not generating income in cashflow or equity gains, then it is a liability. If it is causing you to dump most of your money in the mortgage and leaving little to no money for savings or investment, then it is definitely not an asset.
Why I purchased a Real Estate asset
When I purchased my first property, I was very aware of the possibility of a mortgage creating a large financial burden. This burden would have created stress rather than wealth. I wanted to purchase a property where I would pay the least amount of money for my housing cost each month. I already had become accustomed to not paying housing costs due to running a successful Airbnb business in Brooklyn, NY. Through Airbnb I rented out an extra room in the 2bedroom/2-bathroom apartment I rented. The profit from my Airbnb business covered the full apartment rent and utilities. My priority in purchasing a home was to replicate this same concept and pay little to nothing on my mortgage payment. As a result, when I started looking to purchase a home, I specifically looked at multifamily residential units as my first property.
The Numbers Then and Now
At the time of purchase, my sole goal was for the rental income from the property to cover my mortgage payment. 8 years later that decision to treat my home purchase as an investment decision has led to an increase of net worth by half a million dollars. 99% of millionaires are created through real estate. While I am not a millionaire, I can see how that is possible based on the net worth created from that one decision in 2012.
I believe that anyone can get into real estate investing by treating their first home purchase like an investment transaction. The amount that I brought to the deal was $22,350 dollars including my closing costs and deposit on a 3-unit multifamily building. I did not have a large income. I was a city employee making only $48,000 a year. So it’s possible to get into real estate without earning six figures. The primary goal of this transaction should be to reduce housing payments to be as close to zero as possible. Doing this will create discretionary income for additional savings or investing.
Today, in 2020, that building that I bought is estimated to be worth $786,250. When I subtract the home value from the amount I owe on the mortgage that leaves approximately $530,000 in equity. That’s halfway to becoming a millionaire from only one decision to purchase a home! If a 28-year-old single immigrant female living in New York City on $48,000 a year can do it, YOU can do it as well!
Benefits of Approaching a Primary Home Purchase with a Real Estate Investing Mindset
Real estate is a powerful tool to build generational wealth. Real estate assets not only benefit you in this lifetime but can be passed down for years to come. An advantage of purchasing an owner occupant property is that you are able to qualify for loans with a lower down payment. With the correct property, you can have a permanent residence to call your own and also get started in real estate investing at the same time. For example, a property with an in-law suite or a two or three-family dwelling can be purchased with the same 3 or 5 percent down payment that is traditional for an owner occupant. You can benefit from a low down payment but still have an opportunity to gain experience with real estate investment, start gaining equity, and increase wealth.
Another benefit of treating that first purchase as an investment is the opportunity for tax deductions. There are some amazing tax benefits for real estate investing including claiming any expenses related to building maintenance and upkeep. So if you purchase a property that has additional units that you can rent out, there is the potential to benefit from tax deductions that are available to landlords.
While choosing a multifamily property might be beneficial to your wallet, it will mean that you will be sharing the building with someone else. You essentially will now become a business owner and landlord. While this may seem intimidating, self-managing a two to three family is a great way to learn the business. Through self managing the property, you will learn what might be important to you from a property manager if you choose to scale up following your first purchase. The Book on Managing Rental Properties by Brandon Turner is a good starting point for learning more about self-managing rental property.
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