Buy a house and rent it out?
It’s Thanksgiving 2020. I’m grateful for my financial journey and I’m reflecting on how it led me to become a Financial Coach. This is the first of a series of blog posts. Trust me, you do not want to read all of them in one setting. I did learn some valuable lessons along the way, and I hope that these lessons will benefit others; not you…you would never make these mistakes.
Flashback, eight years ago. Kent and I were dating. I had been working for the same non-profit for eight years already. I had just purchased a house of my own thinking I would be a landlord and rent it out someday soon. That’s what people do to make money, right? They buy houses and rent them out? I was so excited to be a homeowner. I had been living in a gracious family’s home for almost two years, following a divorce and was ready to really be out on my own.
The problem with this thought was that I didn’t put enough money down to keep the mortgage payments low enough for the renters to cover it. It was actually a stretch for me to cover it and maintain my lifestyle. Not only that, I actually had no down payment. I made a choice to take money out of my retirement account for a down payment. I paid an early withdrawal penalty AND I paid taxes on the money when I took the money. My colleague at work warned me about the financial consequences of pulling the money out. Let’s not forget to mention that my retirement account would be reduced a significant amount. My ability to see the money compound in earnings was also diminished. I also wasn’t prepared to pay for house maintenance and repairs when I lived in the home or when I rented it out. I do not have a handy bone in my body.
Needless to say, this was not a great choice. As good as it felt to be an independent woman who had purchased a home on her own, in retrospect, I wish I would have listened to my colleague. I don’t think I discussed the retirement withdrawal with my family. So, of course they were supportive of my house purchase.
Even during the time when I was buying, moving into, and living in the home, I did not have a monthly budget. I didn’t tell my dollars where to go, so the dollars just went. When making such an important life decision, such as buying a home I highly encourage people to establish a monthly budget. This one step alone can help put homebuyers on the right track to purchasing a home that they will love and that they can afford.
May this Thanksgiving, you take a pause to be thankful for the many lessons you have learned throughout this very different year.
May peace be with you!