An Engine to Prosperity
You’ve seen infomercials and eye–catching books about how to become a millionaire in a booming housing market (hint: buy low and sell high a short while later) or how to become a millionaire in a depressed housing market (hint: buy low and sell high a short while later). This “advice” makes sense, but if it is so easy, then why do these authors spend their time writing books instead of following their own advice?
Our advice is quite different and, unlike the infomercial pitchmen, we definitely follow our own advice. We own the home we live in. So should you if you can afford the down payment and the numbers make sense. You don’t have to become a speculator or become a slumlord to get rich. You can become a millionaire simply by owning your home. This is great news because you would probably not be happy being a speculator or a slumlord, but you will be very happy living in your own home.
After the 2000–2003 dot–com crash in the stock market, many people jumped into the real estate game. Some bought foreclosed properties. Some rehabbed fixer–uppers. Some accumulated rental properties. If home prices are rising rapidly, you can make money pretty easily by flipping homes—buying homes and selling them a few months, weeks, or even days later for a quick profit. Oddly enough, although many people are familiar with the idea of making money by playing the real estate game, they don’t think about their own home—the home they live in—as an engine to prosperity. They say, “Everyone has to live somewhere, right? My home isn’t a real investment like stocks and bonds. It is just where I live.”
No, your home is an incredibly important investment. All you have to do is buy a home to live in and make prudent, sensible financial decisions about your purchase, your mortgage, and your remodeling.
Your home is not a lottery ticket—don’t buy a home thinking that it will make you rich overnight. Your home is not a brokerage account—don’t day trade homes (or stocks, for that matter). Your home is not an ATM—don’t use home equity loans to buy things you don’t need. Your home is an investment that can make you rich and that you can enjoy all your life.
You should think of your home as a retirement account, like an Individual Retirement Account (IRA). Let’s call it a Home Retirement Account (HRA). Ordinary retirement accounts have great tax advantages. So does your home. Ordinary retirement accounts can provide financial security for you when you are retired. So can your home.
Homes are different from stocks, bonds, and most other investments in that you can’t really enjoy your stocks and bonds much beyond watching their prices fluctuate daily. (Is that fun or scary?) But you can enjoy your home. You can live in your home. You can paint the walls and rearrange the furniture. You can remodel your home. You can show off your home. And you can take pride in being a homeowner.
In this book, we show you how to think about your home as an investment, indeed as an HRA. You will learn how to determine the rate of return on your home investment and you will understand how your home investment is an important component of your wealth and how it can contribute to your overall financial prosperity and security.