Ask Brian is a weekly column by Real Estate Expert Brian Kline. If you have questions on real estate investing, DIY, home buying/selling, or other housing inquiries please email your questions to [email protected].
Question from Camilla in NM: Hello Brian, my dad has been riding me about buying my first house. He sounds like a video that keeps looping, "Take advantage of low mortgage rates and build equity!" I’m 29 and single. I guess that I’m at the age when I should be looking at buying a home but I still like the freedom that renting gives me.
Financially, I can swing buying a home. My income is about $110,000 (with bonuses) and the last of my student loan will be paid off late this year. I was actually thinking about buying a new car when my student loan is gone. When this pandemic is over, I’d also like to do some traveling. I’m not planning to get married anytime soon or have children in the next few years. Is buying a home really the right thing for me to do?
Answer: Hello Camilla. Only you can decide if now is the right time to buy a home. I’m sure that you know your father has your best interests in mind. Your father does have a good argument that there may never be a better time to buy. Your age means that buying now will build equity for the rest of your life. Owning a home will probably be your biggest asset when you approach retirement age but today that seems a long way off.
Something else you should consider is the stress that comes with buying a first home. It’s a relatively complex process that requires considerable time to understand and look at a lot of options to make the best decision for your circumstances. Buying a first house is a life-event. It might not rate all of the way up there with getting married or having children but it is probably in the top five for most people. Camilla, you might want to consider getting this stressful event out of the way now, so that you don’t pile getting married, having children, and buying a house all into a two-year period when you turn 33. But I’m going to make a suggestion that lets you buy a first house and still keep most of the freedom that you want.
You could become a real estate investor today and still rent an apartment that you’re not tied down to. Investing as a landlord at your age gives you plenty of flexibility while building equity at the same time. A big advantage of being a landlord is that your renters will pay your mortgage and other expenses. Investing takes upfront cash but once you get the rental cash flowing, you will probably be able to buy that new car that you have your eye on and even do some traveling in the not too distant future. Another advantage is that you’ll learn the home buying process. Most beginning landlords start with a small and less expensive house. That can lower your risk the first time around. Developing your financial sophistication today can mean that when you’re ready to buy a home for yourself, you’ll be able to purchase something close to your dream home.
Some people fear becoming responsible for maintenance and repair costs. And yes, these can include expensive roof or heating system replacement. Wise landlords build a reserve fund from rent profits for these expenses. Alternatively, a home equity loan can replace an expensive roof. Having equity is a big deal. Not only can you use it for major rental house repairs, but you could also draw on it for a personal emergency.
Camilla today is a good time to buy a house (even if it’s a rental instead of your residence). The housing market consistently repeats the same cycle. It’s like other markets where you want to buy low and sell high. The cycle has high, middle, and low points. Beginning in 2012, prices have been screaming up. In 2018, the market coasted along in the middle of the cycle. Prices are again going up today but interest rates are the lowest you’ll see in your lifetime. You could wait for the next low point but in the real estate cycle that seldom makes sense because prices don’t go down. They just go stagnant.
This is a very good time to buy a house. The real question you should be asking is if you want to build equity or NOT build equity?
What advice would you give Camilla and others in a similar situation? Please comment.
Our weekly Ask Brian column welcomes questions from readers of all experience levels with residential real estate. Please email your questions or inquiries to [email protected].