We Bought a House!
We’re officially homeowners!
Two years ago, we were pretty dead set on purchasing a house but didn’t. We met with a few lenders to get prequalified so we could start shopping around. But we couldn’t get qualified because we were both self-employed and you have to jump through a few more hoops in that case.
Last year, we could’ve bought a home in Utah but were planning on moving to Texas so that wouldn’t have worked.
This year, as soon as our lease was up we wanted to purchase a home. And we ended up buying a house five houses down the street from where we live right now.
This is the first post I’ve written about real estate and homeownership. I’ve had a few people ask me to write about buying a house but I haven’t wanted to because I hadn’t bought one myself.
We’ve faced a number of challenges in the past trying to buy a house. We just weren’t ever in a position to do it. Moving around the country for the past few years hasn’t made it any easier.
For any of you that have been following me for some time know that I’m a big fan of Mint.com. I’ve been using it for 5 years and it has always said that my profile is 90% complete. It wanted me to add a house to be 100% complete.
It probably sounds dumb but I was super excited to finally add a house into our financial picture to have a 100% complete profile.
Why we bought a house
I was taught from a young age that it’s important to own real estate.
We decided to buy a house because it’s the American dream, of course. Not really… I’ve run the numbers multiple times and homeownership is not all that it’s cracked up to be. It’s a huge investment and the house starts to own you.
People always say buying a house is the smartest thing you can do and honestly, I don’t always agree. It’s a pretty illiquid “asset” or “liability” depending on how you look at it. There’s multiple rent vs. buy calculators and it’s not totally clear what the best choice is.
We decided to buy it as a long-term investment not just trying to save money on our monthly expenses. Our plan is to rent it out after living in it for about a year.
The area is great and it should rent out easily. We tried to follow the 1% Rule. It should rent out for 1% per month of the purchase price. For example, a house for $145,000 should rent for $1,450 per month.
Being a landlord is a lot of work and most people don’t want the headache of trying to maintain a property. But I’m looking forward to it!
I grew up watching my mom invest in real estate. I helped her mow lawns, clean up and get them ready for new renters, I learned a lot about real estate. I’m excited to be a landlord because someone else is going to pay my mortgage.
What we paid
Lubbock, TX is affordable with a strong job economy and low unemployment. When we starting looking, we wanted an investment property that we weren’t planning to live in. We wanted to buy a house around $80,000 and fix it up to get it rent ready but didn’t want to dump a ton of cash into it.
We realized we were going to have to live in it so we looked at buying a house that was $125,000 and then $145,000 and ultimately paid $152,000 for the house we just bought with a little renovation. It’s a great home that was built in 2016.
Some of you are probably thinking, “how are the houses so cheap?” In Texas, the homes and land are cheaper but we don’t pay income tax so it all gets made up through property taxes. Property taxes in Texas are the second-highest in the country.
The house we bought is 1500 sq ft., 3 bed 2 baths, it has a two-car garage, a big yard, nice area, and our mortgage payment is $668. Our payment is low because mortgage interest rates are really low.
When we got our preapproval letter they quoted us a 4.25% interest rate. But just a couple weeks later when I went to lock in the interest rate it had dropped to 3.75% 30 years fixed interest rate. Literally, the day I called the lender to lock in the rate he told me rates had dropped and this was the lowest interest rate he had done in 2019.
With a 4.25% interest rate, we would pay $117,190 in interest over the life of the loan. But because we locked it in a 3.75% we will pay $101,418 in interest (which is still crazy if you think about it). But that saves us almost $16,000 in interest over the life of the loan! A difference of about $40 a month.
I wanted to make sure we got the lowest interest rate. We considered first-time homebuyers programs but honestly, nothing looked great. I’m going to write a post about the pros and cons of first-time homebuyers programs because there’s a lot to consider there.
We went with a conventional loan and put down 5%. This gave us the lowest interest rate and didn’t require us to live at the house for any specific amount of time. Some FHA loans require you to maintain the property as your primary residence for at least a year.
We’ve already made some mistakes that we wish we could go back and change but hopefully, this is the first house of many and the more experienced real estate investors we will become.
Is it smart to buy a house?
So the big question is… is it smart to buy a house and will that help accelerate your path to financial independence? If you want to maintain flexibility in your life and invest everything in index funds, renting might be for you. That works for a lot of people.
But, if you don’t mind the headaches of homeownership and possibly being a landlord you can build up equity and produce a positive monthly cash flow that could accelerate the amount of time it takes to become financially independent.
We’re excited about the new chapter of our lives and I look forward to building up a real estate empire!
Originally published at https://www.simplifinances.com.
