You probably CAN afford to buy a home in spite of so many telling you that you cannot
Posted by John Reed on
The idea that lower middle class people can no longer move-up—primarily by buying a home—is widespread. Bunch of nonsense.
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My most recent book An American Principal Residence Is The Most Advantaged Investment on Earth: Maximize Yours. Covers the difficulty of starting in part.
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https://johntreed.com/collections/real-estate-investment/products/an-american-principal-residence-is-the-most-advantaged-investment-on-earth-maximize-yours
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True, in 1970, home prices were roughly equal nationwide—around $23k. To start, you had to buy small, farther out, less prestigious, no central air.
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Duh. What else would you expect?
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Now, liberal areas have enacted all sorts of land-use regulations that make it harder to build a home. In CA, for example, all new homes must have solar panels.
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So, to start, In 2024, you may need to go to a cheaper state. Then my book says you sell that house and but another more expensive whenever you can afford about 20% higher value. I think that meant you owned a house in coastal California (which is where I live now) after several iterations. Which is rather fast.
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The main propellent is leverage—a mortgage that is four or more times your down payment. Plus inflation and many favorable laws like the ability to exclude $250,000 per spouse on the gain when you resell your house. No other asset category offers that.
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If you put 10% down on a $400,000 home, and the prices rises 3%, that is a $12,000 profit ÷ $40,000 down = a 30% return on equity. That particular form of leverage—30-year, fixed-rate, no prepayment penalty—cannot be obtained on any other asset.
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I bought my first duplex, which was NOT my residence, in 1969 at age 22 in South Jersey $14,000. 20% down. My income then as a second lieutenant on the Army was $343.20 a month. I kept on buying such rental properties and a residence when I got out of the Army. I think we paid $36,000 for the principal residence in 1974.
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In 1977, I moved to San Francisco. Prices were ridiculous and my wife stayed behind to finish her second year at Harvard Business School. I graduated from there in 1977.
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In 1980, we bought our first CA house—45 LaSalle Drive, Moraga. $152,000 I think. In 1983, we resold that and bought 342 Bryan Drive, Alamo for about $400,000. (Price is a little fuzzy because we had it custom built.) Last time I checked, it was worth $2.3 M.
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I did NOT follow the advice in my book and keep buying more expensive homes. If I had, we would now own an $8 to $10M house in a town like Atherton, CA which is one of the places your basic Silicon Valley zillionaires live.
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I urged my sons to buy a home. The middle one said he could not afford it. He works in Manhattan. We offered to put up a substantial part of down payment for part ownership. So he began looking and quickly said he could afford it after all and withOUT our down-payment help.
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My mom was a secretary. My dad was an unemployable alcoholic. My mom worked in mortgages and knew all the nuances. She teamed up with her mother who had social security income and told my dad to hit the road.
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She bought a house for $8,000 in 1963 FHA tiny down payment. After she died in 1993, we sold it for $78k I think. My two brothers shared that.
In other words, do not tell me you can't afford a house until you go talk to a mortgage company. There are many programs to help you. If you live in a state where the liberals drove up the prices, look at another state where you can afford the prices.
.
You don't want to do that? Okay. Go live in your mom's basement and spend the rest of your life whining and blaming others for your relative poverty.
.
My most recent book An American Principal Residence Is The Most Advantaged Investment on Earth: Maximize Yours. Covers the difficulty of starting in part.
.
https://johntreed.com/collections/real-estate-investment/products/an-american-principal-residence-is-the-most-advantaged-investment-on-earth-maximize-yours
.
True, in 1970, home prices were roughly equal nationwide—around $23k. To start, you had to buy small, farther out, less prestigious, no central air.
.
Duh. What else would you expect?
.
Now, liberal areas have enacted all sorts of land-use regulations that make it harder to build a home. In CA, for example, all new homes must have solar panels.
.
So, to start, In 2024, you may need to go to a cheaper state. Then my book says you sell that house and but another more expensive whenever you can afford about 20% higher value. I think that meant you owned a house in coastal California (which is where I live now) after several iterations. Which is rather fast.
.
The main propellent is leverage—a mortgage that is four or more times your down payment. Plus inflation and many favorable laws like the ability to exclude $250,000 per spouse on the gain when you resell your house. No other asset category offers that.
.
If you put 10% down on a $400,000 home, and the prices rises 3%, that is a $12,000 profit ÷ $40,000 down = a 30% return on equity. That particular form of leverage—30-year, fixed-rate, no prepayment penalty—cannot be obtained on any other asset.
.
I bought my first duplex, which was NOT my residence, in 1969 at age 22 in South Jersey $14,000. 20% down. My income then as a second lieutenant on the Army was $343.20 a month. I kept on buying such rental properties and a residence when I got out of the Army. I think we paid $36,000 for the principal residence in 1974.
.
In 1977, I moved to San Francisco. Prices were ridiculous and my wife stayed behind to finish her second year at Harvard Business School. I graduated from there in 1977.
.
In 1980, we bought our first CA house—45 LaSalle Drive, Moraga. $152,000 I think. In 1983, we resold that and bought 342 Bryan Drive, Alamo for about $400,000. (Price is a little fuzzy because we had it custom built.) Last time I checked, it was worth $2.3 M.
.
I did NOT follow the advice in my book and keep buying more expensive homes. If I had, we would now own an $8 to $10M house in a town like Atherton, CA which is one of the places your basic Silicon Valley zillionaires live.
.
I urged my sons to buy a home. The middle one said he could not afford it. He works in Manhattan. We offered to put up a substantial part of down payment for part ownership. So he began looking and quickly said he could afford it after all and withOUT our down-payment help.
.
My mom was a secretary. My dad was an unemployable alcoholic. My mom worked in mortgages and knew all the nuances. She teamed up with her mother who had social security income and told my dad to hit the road.
.
She bought a house for $8,000 in 1963 FHA tiny down payment. After she died in 1993, we sold it for $78k I think. My two brothers shared that.
In other words, do not tell me you can't afford a house until you go talk to a mortgage company. There are many programs to help you. If you live in a state where the liberals drove up the prices, look at another state where you can afford the prices.
.
You don't want to do that? Okay. Go live in your mom's basement and spend the rest of your life whining and blaming others for your relative poverty.
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