S2E24 – Preparing To NOT Buy A House In 2023

Homeownership Isn’t The Right Answer For Everyone! What should you do if buying a house is not right for you? How do you end up in the same position as a homeowner when it comes to retirement? How much money do you have to invest to have the same net worth as a homeowner? In this episode, we discuss what you have to consider if you’re preparing to not buy a house in 2023 as we help you become The Educated HomeBuyer.

✅ – Want to get connected with us or to a local expert in your market, please reach out at http://www.theeducatedhomebuyer.com/expert

Connect with me 👇 Jeb Smith (huntington beach Realtor/orange county real estate) DRE 01407449 Coldwell Banker Realty ➡I N S T A G R A M ➳ https://www.instagram.com/jebsmith ➡Y O U T U B E ➳https://www.youtube.com/c/JebSmith

Connect with me 👇 Josh Lewis (Huntington Beach Certified Mortgage Expert) DRE 01209148 Buywise Mortgage M:714-916-5727 E: josh@buywisemortgage.com ➡I N S T A G R A M ➳ https://www.instagram.com/borrowsmartjosh ➡Y O U T U B E ➳https://www.youtube.com/c/buywiseborrowsmart

📩 – info@theeducatedhomebuyer.com

For Show Notes, See Below 👇

[00:00:12] Jeb Smith, Huntington Beach Realtor: Home ownership isn’t the right answer for everyone. In last week’s episode, we talked about the risk of not buying a home, and in that episode we talked about 65% of Americans choose to become homeowners at some point in their life. Well, That leaves 35% of Americans out there not buying a home for one reason or another.

So in today’s episode, we’re gonna talk about the idea of what you need to do to prepare if you decide home ownership is not right for you, right? Because we talk about Josh all the time about how owning real estate helps create that long-term generational wealth. How homeowners have a 44 times greater net worth than those of renters.

Last week we talked about that equates to $255,000 at the end of the road versus renters having just over $6,000. And in previous episodes, Josh, we’ve talked about that burial costs are like $8,000. So you’re actually in debt when you die as a renter based on those numbers.

But that said, what do you do if you decide home ownership isn’t the right path for you? What do you need to do to arrive at the same, end result as someone that does decide to own a home. 

[00:01:29] Josh Lewis, Expert Mortgage Broker: Jeb, in this discussion, I’d like to jump in the time machine and go back to about 2010, 2011, 2012. You guys that listened to every episode here probably heard me say about 15 times that I was screaming from the mountaintops, telling everyone, you have to buy a home. You have to buy a home. 

In many parts of Orange County, you could own for less than it cost to rent. I do a lot of business out in the Anaheim area, is one of the more affordable cities. You could buy a home at a payment that was about a hundred or $200 less than it cost to rent it, but no one wanted to hear that. 

And there was a lot of people out on Reddit. Now let’s consider who our average Redditor is. Average online person. Male, techie, good with math, that type of stuff. And I probably saw 15 different versions of, here’s the math, if you invest the savings of renting versus owning, which there was almost none at that time. If you invest the savings of rent versus own, you get the median return over the next 150 years, you will end up wealthier in retirement. 

So if you look at it, there’s no way to punch holes in those numbers. These are smart people that ran those numbers, Jeb. We’re gonna run through some of them here at the end of the show so you can see exactly what this looks like. If you do all those things, if you are highly disciplined and achieve all of those things, both your savings goal, your rate of return on investment and you’re comfortable with a really big rent payment when you arrive at retirement. You can come out ahead as a renter. 

So there is no disputing that math. Today, what we’re gonna go through, Jeb, is why doesn’t it play out that way? [00:03:00] Why are the renters having one 40th of the net worth of owners? There are reasons for it, and you hopefully can determine that despite the actual and factual math that you can arrive as a renter wealthy in retirement.

You need to determine, are you the person who can achieve that? 

[00:03:16] Jeb Smith, Huntington Beach Realtor: Yeah, what’s easy to do? Is easy not to do, right? So we all, we all know that saving money is a good thing, right? Putting money in an investment account, letting it compound interest over time is going to help you create wealth.

Why aren’t more people wealthy? Because it’s not quite as easy to do as it is to say it. Before we dive into that, Josh, on the investing side and what you have to do to put yourself in that position, let’s talk about why do homeowners end up with a 44 times greater net worth than those of renters.

[00:03:46] Josh Lewis, Expert Mortgage Broker: Jeb, let me ask you a question. We both know what the factors are here. What do you think is the number one factor of all the four or five factors that go into that? What do you think is the number one thing in your opinion that helps owners versus renters over the long haul? 

[00:04:00] Jeb Smith, Huntington Beach Realtor: I think the fixed payment, Personally the appreciation, obviously, 

[00:04:03] Josh Lewis, Expert Mortgage Broker: I was gonna say the same thing. I was gonna say the same thing. 

[00:04:05] Jeb Smith, Huntington Beach Realtor: Yeah the appreciation obviously helps. I, probably equal at the end of the day, help you achieve that long term goal because again, like we said, most people, again I can’t say most cuz I don’t know that to be true, but I would say a lot of people out there aren’t saving, the majority of their worth, as we discussed last week, 65% of Americans, total net worth at the end is in their home equity. So we know that appreciation adds to the long-term benefit of helping, homeowners reach that generational wealth. But fixing the payment, not having your cost continue to rise every month is obviously one of the key components there.

And with inflation, with time payments are going to continue to go up. And we’re gonna talk about what those numbers look like. And quite frankly, you’re gonna be surprised, I’m surprised when I look at those numbers. It’s one of those things, Josh, that talking to my wife 10 years ago we bought our house for $500,000 and I told her, and I said, one day these houses are gonna be worth a million, a million two right? And she’s like, yeah, I understand that. And then within probably eight years we were at that million dollar mark. It doubled and you’re like, wow. Like holy cow that happened really quickly. And so now the conversation is, Hey babe, at some point these homes are gonna be $2 million homes.

And it seems crazy, but because of, a lack of inventory nationwide, population demands, more people turning prime buying age, inflation, time, all of those things, the cost of real estate is going to continue to go up, which means the cost of renting is also going to go up. And, a long way of getting to what we were talking about, but fixing the payment is definitely a key component. 

[00:05:49] Josh Lewis, Expert Mortgage Broker: So number one there is there’s no 30 year fixed rent. As an owner, you can get a 30 year fixed mortgage. Yes, your taxes and insurance will increase a little bit over time, but the biggest majority of your housing is both [00:06:00] fixed and eventually will go away entirely.

Unless you’re doing cash out refinances, you pay that loan down over 30 years. Do rate and term refinances and keep the remaining term available if you’re a typical buyer. 32, 35, 38. When you’re hitting retirement age, you’re gonna have a really tiny mortgage. We talk about that number all the time. Jeb.

It’s shocking how many homes in America are owned free and clear. It’s because our parents, and more importantly, our grandparents, they didn’t look at it as a piggy bank. They bought their house, they paid it off, they arrived at retirement. Cool. I don’t have a housing payment.

So we’re fixing the payment. You talked about the next part, which is appreciation. And the important part about the appreciation is this is an argument used in favor of renting. We’ve gone through the numbers over the last 70 years, housing across the United States, which your market could be more or less, but nationwide, 4.6% annually over the last 70 years.

But, S&P 500 over the last 70 years has been 7.4%, so a full 3% more. And that’s the argument. People will say, Hey, you’re gonna get a greater return in the stock market. But what they don’t count on is that the homeowner is getting control of 100% of their home. Whether they buy a $300,000 home, an $800,000 home, a 5 million home, they’re controlling that asset and getting all of the appreciation.

While only putting a chunk of money down. So the example you’re gonna see, we’re gonna use $600,000 house. Say you put five, 5% down for $30,000, you controlled a $600,000 asset. So if it goes up 4%, it went up $25,000, you have almost a hundred percent cash on cash return over that first year. So leverage.

So it’s not just appreciation, it’s you are benefiting from the appreciation. Through leverage. And most people are never going to invest in their stock accounts, mutual funds. They’re not doing options. They’re not applying leverage to that. They’re just going to invest. And if they’re lucky over the long haul, they will achieve what those long-term averages of seven to 8% returns are.

Jeb, we talked about, another one that’s really important is forced savings. So we’re gonna talk it. Indisputable in the current market with higher interest rates, higher home prices, that nearly everyone will pay more to own a home than they would to rent that home. But what they don’t account for is that a big portion of that mortgage is going towards principle every month.

So in essence, you’re paying the lender for using the money. And you’re putting money in your home equity account. The home equity hopefully, is growing over time because of the annual appreciation, but that mortgage is decreasing over time. So again, that’s the benefit there that our renter doesn’t have.

The last one, Jeb, that we like to talk about, And for most first time buyers buying 500,000 and below, I don’t talk about it much. The tax benefits are not what they were on the high end. Your interest deduction is tapped, tax taped tops out at $750,000. So you can’t do a million like you used to, and a million isn’t what it used to be.

So $750,000 of mortgage debt, you can write [00:09:00] off the interest. If you’re in a high tax state like New York California, you’re going to get capped out on your state and local taxes. So your property taxes may not be deductible. So for most people, Jeb, the prime benefits of homeownership that lead to that 40 times greater net worth is fixing your rent payment, leveraged appreciation and forced savings. Would you say that’s pretty important? 

[00:09:19] Jeb Smith, Huntington Beach Realtor: No, absolutely. And something I wanna be clear in here, we’re not telling you to think of your home as an asset, as an investment piece of the puzzle, right? It just ends up working out that way.

You need a place to live and we’ve talked about, the benefits of home ownership in other podcasts in detail, but just to spell it out plain and clear here. We just wanna make sure that, we’re not saying, Hey, use your house as an asset. It ends up being an asset at the end of the day, but regardless, you need a place to live and the alternative is really renting. And we’re gonna talk about what, what you really need to do now, Josh. So if you don’t plan on buying a home, right? So if you’ve listened up to this point and you were like, you still haven’t sold me on home ownership. It’s just not for me for one reason or another.

What do I have to do as someone that is saying it’s not right for me? How do I focus my goals, Josh, to arrive at the same end goal as someone that decides to buy a home. 

[00:10:19] Josh Lewis, Expert Mortgage Broker: So let’s start with the archetype of the person who successfully does this. The people that I always relate back to is engineers. I’ve had engineers come to me with their spreadsheet and they’re like, tell me why I should own. And they lay it all out and I go, okay, you’re wearing a t-shirt and jeans. They don’t look particularly new. They don’t look particularly expensive. You drive a Honda that’s 10 years old, runs perfectly well, you have no plans to improve it.

You are happy in the two bedroom apartment. And more importantly, when we say, show me your finances. They pull out a spreadsheet they know to a penny where all of the money goes. So to be successful at this, you have to say, here’s my gross income. Here’s my net income. Here’s all of my expenses, here’s what I have left to invest, then you need to invest that successfully.

So what do you mean by successfully? Taking advantage of tax deferred accounts. Or in the case of a Roth where you’re eliminating the taxes in the future. So tax advantaged accounts and making sure you’re getting a good return and staying in the market during the inevitable downturns.

Like one of the things that keeps the average investor over the long haul from achieving those 7.46 returns. If you bought an S&P index fund 70 years ago, had just left it, you would’ve been fine. The average investor panics in the middle of a downturn and sells so absent an excellent strategy that you have seen and proven over the long haul to get in and out and time the market, most people are better off staying in. Most people don’t have the discipline to do that. 

[00:11:46] Jeb Smith, Huntington Beach Realtor: There’s that stat out there, Josh, that the majority of the gains in a year are actually gained in like a couple of days. So if you miss out on just that handful of days in the year, you’ve missed out on that 7.6 or 7.5% that we’ve [00:12:00] actually talked about.

[00:12:00] Josh Lewis, Expert Mortgage Broker: Yep. And there’s arguments on both sides of it, but we are talking about the typical person. Jeb and I deal with money. Jeb has experience with trading options. I’ve studied trading options, so probably higher than the average person listening to this in terms of financial knowledge and how to go about this and potentially time the market.

So when we’re talking about an average person, it’s important to keep your income solid, budget and save in excess of 10% of your income. You’re gonna see Jeb when we go through the numbers here, that if you’re gonna be a renter, you need to be saving about 20% of your income and investing it and getting those returns.

So those would be the two big ones for me. Jeb, protect your earning power, budget wisely, save and invest at least 20% of your gross income. What else do you have to add to that? 

[00:12:47] Jeb Smith, Huntington Beach Realtor: That’s really it. Investing is the key. The one thing about investing your money in stocks, bonds, whatever, anything other than real estate is you don’t get the leveraged approach. Again, unless you’re doing options or something that’s quite frankly, a little bit more risky. There, there can be more reward on that side. But for the majority of people out there, you shouldn’t be out there trading options or borrowing, doing things on margin and that sort of thing. It’s just way too risky. 

Especially when it comes to, if you’re comparing it to real estate in creating that same wealth the two are completely different approaches, . But Josh, I think let’s go through those numbers because the numbers really tell the story.

And now I realize a lot of you are listening on a platform outside of YouTube. Maybe you’re on Spotify, maybe you’re on Apple. And so you don’t have the numbers that we’re going to talk about here. So what we’ll do is we’ll take this spreadsheet that we’re going to create and we’ll figure out a way to put a link to it in the podcast description and or on the YouTube video here, so that you can go and download that piece, and at least be able to go over the numbers while listening to it in order to help it make a little bit more sense.

[00:13:52] Josh Lewis, Expert Mortgage Broker: And I will preempt all of the engineers out there that want to reach out and put comments on YouTube or reach out to us. I am certain you could build a much more accurate and more complex spreadsheet than what we put together here, but for most people, this is a solid simplification of what this looks like.

Jeb, we started with a $600,000 purchase price depending on where you are in the country. That could be absurdly low or it could be obscenely high, but generally a good number to give us an idea. So a $600,000 house, current interest rates somewhere around six and a half percent. 5% down, which is pretty common for a first time buyer. Maybe they’re doing three, three and a half, five but it’s a good place to start. So at that, your principle and interest payment is 3,600 bucks. Used California figures here. So if you’re in a high tax state, taxes, insurance could be higher If you’re in a hurricane area or high wind, tornado alley, that type of stuff.

But brings you to a total payment, including mortgage insurance of about $4589. Now, you and I had a little debate, what would that $600,000 house rent for? And this will vary depending on where you are in the country. We settled on the figure of $3,500. Maybe you get it for 3,200, maybe where you’re at it’s 3,800. But $3500 is a [00:15:00] pretty safe figure.

[00:15:01] Jeb Smith, Huntington Beach Realtor: It’s hard to figure out Josh, because we don’t have $600,000 homes in Southern California anymore. Yeah. So it’s it’s one of those things that we’re guessing a little bit, but 3,500 seems to be pretty accurate.

[00:15:11] Josh Lewis, Expert Mortgage Broker: Yeah. So even if it’s $3000, which I think very safely, when you’re talking about a home that would sell for $600k, it’s going to rent for at least $3,000 a month. You would, in that case, you’re talking about a $1,500 monthly savings to owning. Use a figure here of how much income does it take to qualify.

People always ask us, Jeb, we get it on the live show. We get it in emails. What is the right amount to allocate to my housing payment? Let’s use 35% for this example. Some people think that’s high. Dave Ramsey would say we’re crazy. People in Southern California would say, I would love to be able to get something, but I don’t qualify for what I need.

But 35% says you need about $13,000 of income to get there. So for our figures that we’re gonna use here, we said saving 10% of your income is $1,300 a month. A little bit more than the savings that you have renting versus owning on a monthly basis. The number that we’re gonna suggest is you need to be at about 20%, and that puts you at about $2,600.

So I did not for these numbers, again it would make a much more complex spreadsheet, I did not run these numbers saying 3% cost of living increases to the wages, and it would skew them in many ways here. But looking at it, Jeb, so just look at the home value, we talk about that leveraged depreciation.

For both of this, for the increases in rents and the increases in home values, we’ve used 3%. That’s much lower than what we’ve seen over the last 20 years on both fronts. But let’s keep ’em in line and let’s keep ’em similar and be conservative with them. At 3% appreciation in five years, your $600,000 house is $696,000. In 10 years, it’s $809,000 . 

[00:16:44] Jeb Smith, Huntington Beach Realtor: And Josh, something important to note here, we’re not talking about 3% every single year. The calculations are based on that, but that means some years it’s five. Other years, it might be two. One year it might be 10. You might get zero on another year. We’re talking about an average over that period of time. Just to be completely clear here, although our calculations that we’re giving you are, based on a annual return of 3%. 

[00:17:09] Josh Lewis, Expert Mortgage Broker: And Jeb, going back to the conversation that you had with your wife, so if you bought that 600,000, it’s reasonable to expect with 3% inflation, that somewhere between 15 and 20 years, that property is gonna be worth a million dollars.

If we get more than 3%, it’ll happen sooner. If you get 2%, maybe it’s 25, 30 years. But importantly, while we’re looking at this, in five years, you’ll have paid that mortgage down to $533,000. In 10 years, you’ll pay it down to $483,000. In 15 years, you pay it down to $413,000. 

So what does that do? In five years, you have $163,000 of home equity. So your initial 5% down payment, 30,000 has become $163,000. In 15 years, your $30,000 has become $525,000. Now, when we get to year 30, And you paid off your mortgage, that home is now worth $1,474,000, so call it $1,500,000 and you owe no [00:18:00] mortgage. So you have 1.5 million in net worth created through home ownership.

So let’s look over here. What happens to rent during that time? Same 3%. So you start at 3,500 in our calculation, in five years, that’s gone up to $4,000, a little over $4065. In 10 years, it’s $4,722. In 15 years, it’s up to $5,500. And at year 30 when you finally get your house paid off, the equivalent rent is now $8,600 a month.

And Jeb, you and I were both taken aback by that number and I gave you an example. My wife moved from Washington to California in 1996, so 27 years ago she moved here and we thought the really nice two bedroom apartment that her and her friend were renting was obscene at $1,300 a month.

That was just insane. Now I can tell you today, That’s a $2,900 apartment. So more than doubled in that 27 years. So these numbers equate with what we’ve seen over the last 15, 20 years, as crazy as it seems to project that forward when we’re saying rents are so high right now. Home prices are so high.

What we’re talking about. If you choose to rent, why you’re gonna see, we need to accumulate a much larger nest egg is you are now in heading into retirement and stopping working, and you need to have $8,500 a month to make that house payment, which will continue to go up at 3% a year on average. 

[00:19:30] Jeb Smith, Huntington Beach Realtor: Now, what do you say to the people, Josh, that say you’re not factoring in the cost of owning a home. Those aren’t coming into the numbers, right? So you’re gonna have to put, x amount of your income every single month into some sort of fund so that you can replace the roof, so that you can replace, the HVAC, the refrigerator, the stove, the flooring, whatever it is, over the cost of owning that property.

So the numbers you’re here aren’t equating, you know the expenses of owning that home. 

[00:20:00] Josh Lewis, Expert Mortgage Broker: Different numbers thrown around Jeb, one I would see is whatever your mortgage payment is, add about 10% onto that for your maintenance and upkeep. And they would have to be including everything in that.

And it also depends on the quality of the home that you’re buying. I don’t mean quality. If you’re buying a 50 year old home that has a lot of deferred maintenance that you wanna rehab and update, you’re gonna spend a lot more than someone buying new construction. Or in my case, in 2003, we bought a 1972 home.

So it was 31 years old, but about five years before that, the previous owner bought it from the original owner, replaced the windows, replaced the roof, replaced the appliances. So for us looking back at the last 20 something years of ownership, we’ve had very minimal maintenance costs. So it’s something you need to look at when you’re buying a home and say, is this something that’s, that I need to be allocating $2-300 a month for or not?

And then you also need to look at, am I gonna do the landscaping? Do I have to pay a landscaper? Is there a pool? Is there a pool person that needs to be handled? But really, you’re gonna paint, carpet, replace some [00:21:00] appliances. So there’s some additional costs to home ownership that are not accounted for in here. To me, in my experience, they haven’t been tremendous numbers. How about yourself, Jeb? 

[00:21:09] Jeb Smith, Huntington Beach Realtor: Same here. I live in a property that has a homeowner’s association. So the homeowner’s association actually it’s an attached single family home, so they actually take care of the roof. They take care of, the outside of the property.

Now I pay an HOA fee that covers that. Even with that said, based on where I bought my house, my mortgage, what I could rent that house for today, it’s over $2,000 in positive cash flow. Yeah, some people don’t want an hoa, some people don’t want to deal with that.

But for me, looking at the numbers, there’s no real argument here. The alternative for me would be to rent and throw it all away versus throwing, say, in this case you could say throwing $500 away is throwing it away. But again, they’re taking care of the maintenance, they’re taking care of all of the stuff that at the end of the day, I don’t have to worry about.

The only real improvements I’ve done to my house or money that I’ve spent on my house are things that we wanted to do, never anything that we absolutely needed to do other than, we had a leaky window. Insurance ended up paying for that and we ended up benefiting in some ways because we used that money to do other things to the home that needed to be done as well.

Nevertheless, yes, there are expenses, but I think a lot of people, it’s an easy argument for those that are against home ownership for whatever reason. The easy argument is to say you have all these maintenance expenses, when in all reality, yes, there’s maintenance, but it’s never, in my experience, never as much as most people want to make it out to be.

[00:22:28] Josh Lewis, Expert Mortgage Broker: Yeah, so it needs to be accounted for and it’s not in this spreadsheet, so just full disclosures there. What we’re gonna look at before we move on to that, what I wanna say is the savings to the mortgage. We talked about you’re about $1,100 cheaper to rent versus own today, but with a 30 year fixed mortgage, we go five years forward it’s about a $500 monthly savings. 

And remember a good chunk of that, if not all of that, is going towards principle. So it’s just a forced savings account in your home equity. But by year 10 with 3% rent increases, you are paying more to rent. Than you are to own. By year 30, you’re $4,000 more a month in rent than what you are paying to own.

So $2,800 before you get it paid off, and then $4,000 once that is paid off. So that’s what we’re looking at and what we’re needing to overcome. So let’s shift over here and we did three different investment scenarios achieving that 7.46% return going forward that has been possible in an S&P index fund over the last 70 years.

So what we did is took the $30,000 that you would put as the down payment. You might wanna bump that to $40,000 if you’re running these numbers, if you’re ending up paying your closing costs, but 30 to $40,000 initial investment, and then investing that $1089 a month. In five years, you’ve built that up to 122 grand.

[00:23:39] Jeb Smith, Huntington Beach Realtor: Just explain again where the $1089 comes from so people understand where that invest… 

[00:23:44] Josh Lewis, Expert Mortgage Broker: That’s the initial savings of renting versus owning. So today you are saving 1,089. And it’s assuming that despite the fact that gap decreases as rents go up over time, you’re able to continue for the next 30 years, saving $1,089. Which should be possible. Your rent will [00:24:00] go up, but your income would hopefully go up as well. So hopefully you have the discipline and ability to do that. So when we get to year 30, you have $1.7 million in your investment account. The homeowner has $1.4 million in homeowner’s equity.

So that’s what we’re saying. These numbers do pencil out. If you have the discipline to save and invest and hit those numbers, you will end up with more money. The problem that you have is you still have to put a roof over your head, and as we said, the rents are now $8,600 a month. So a concept we wanna talk about, there’s a little bit of debate around this, but financial planners say, 4%, 4% of your nest egg is what you can pull out at retirement, to make sure that you don’t run out of money through the rest of your life.

So at 4%, at year 35, it gets you to $2.6 million. That would allow you to take out $103,000. $103,000 doesn’t cover your rent. So this example, you did not save aggressively enough. So if we bump that Jeb to 10%, so $1,300 savings without increasing your wages and increasing that 10% over your time of ownership, at your 30, you’re at 2 million, year 35, you are at $3 million and that would allow you about $121,000 of withdrawals at 4%. 

Enough to pay your rent. So what you can see here is just investing the savings, just investing 10% of your income unless you are indexing that up as you get pay raises continuing to hammer away and put 10% away, you’re only gonna be able to really cover the cost of your shelter in retirement. 

So if you’re going to pursue this route, now let’s look at the 20% column and we start seeing some more significant numbers. At year 30, you have $3.7 million, almost $3.8 accumulated in your retirement account. At year 35, which we’re assuming a first time buyer, somewhere around 32, 33, 35.

Retirement age has been trending up, so somewhere 67, which you can get your full Social security. 70 is where a lot of people are retiring. Somewhere in that range, you would’ve about $5.7 million and that 4% would get you $225,000 a year. So enough to pay your $10,000 a month rent? Yes, I said that correctly. $10,000 a month rent and leave you about seven or $8,000 in today’s dollars to live off of. 

So just remember that’s really about $3,500, $4,000 a month in today’s dollars. So Jeb, I’m gonna steal your thunder. We talked about this before. What’s the right answer here? Should you rent and invest aggressively or should you own? Why don’t you finish that.

[00:26:32] Jeb Smith, Huntington Beach Realtor: I’ll let you answer the question. I wanna go back and point something out here. We said saving 20% of your income. In this example, that’s $2,600 a month based on our original example. So that means, At say year 2025, when you’re still aggressively saving and putting money away.

Your rent payment at year 20 is nearly $6,400 a month, and you’re taking an additional $2,600 a month and putting that [00:27:00] into savings. So there’s about $9,000 of your income going away every single month in order to accomplish this. That’s a lot of money just in those two things. That’s not factoring in any other expenses that you have. 

So I think that’s really important to note. But let’s go back to your question, Josh. Is it right to buy? Is it right to go the direction that we’re talking about here and aggressively save and try to accomplish, the same end goal going that direction?

[00:27:29] Josh Lewis, Expert Mortgage Broker: You and I both agree that the objective that everyone should have is to buy a home that they can comfortably afford. Fix that housing cost. Get all of those factors working in their favor, and then save and invest as aggressively as possible. Budget. Keep an eye on your money. Know where it’s going.

All of us are shocked when we look at the monthly printout of where money went last month. Don’t be shocked. Look at it every month. And in a perfect world, which most of you are gonna chuckle and go, we don’t live in a perfect world. I cannot do that. You are buying a home that you can afford and saving and investing 20% of your income in tax advantaged accounts.

That’s the recipe for a very comfortable retirement. Before we post this, Jeb, we’ll get the link in there. I’m gonna go back and I will add another another segment there of saying let’s index the contributions to the investment for 3% annual increases in income as well.

That will increase your contributions. It’ll increase the amount of money that you end up with. I still think it is just a really tough route to take to believe that you are going to be able to be disciplined enough to save and invest that through life. Jeb, you know better than I, do three boys raising three boys, paying for that, does that increase your ability to save or does that decrease your ability to save?

[00:28:45] Jeb Smith, Huntington Beach Realtor: What does save mean? What, what does that mean? No it’s tough, right? We haven’t even gotten into the thick of it yet. And I’ll be working for a while to take care of this whole thing. But it’s the life we chose and that’s what we wanted. And it’s all good. 

We have the benefits of home ownership. We know, we have the goals and try to follow the advice that we’re giving here as much as possible. We hope that that we’re going to be that, that column there on, on the left hand side where, we have refinanced….

That’s something we haven’t talked about. Josh, I think that’s important to note. A lot of people are going to be able to refinance, they already have a fixed cost, but in some cases, they’re going to be able to lower that fixed cost by taking advantage of a lower rate in the future.

Now we’ve done that, right? We have refinanced and we’ve actually pulled cash out of our property some time ago, the original investment that we put in. But one thing that we did do that was smart, was went back into a term of our original mortgage so that it still gets paid off on time.

And so we didn’t quite get the savings that we would have had we gone back into a 30 year fixed mortgage, but we were able to save money, lower the rate, keep the term in everything, moving in the right direction. And that’s something guys that we haven’t discussed here today. And there’s no guarantees that’s, you’re going to be able to take advantage of a refinance [00:30:00] in the future.

But it’s also, important to note that if you’re somebody that owns a home and you continue to pull cash out of your property and you continue to go back up to a 30 year fixed term, yeah, at some point you’re fixing your costs, but the numbers aren’t going to work out the same way. 

Jeb, what you’re saying is, the homeowner needs to manage their equity and be disciplined in the same way that the renter is managing their savings and diligently investing. You have to treat it as an investment, even though it’s not liquid, even though it’s not money you can write a check to pay your bills with. It is an investment. It needs to be managed and it needs to be treated accordingly. The number one most important gift you can give to future you is a fixed or non-existent housing expense in retirement.

I can say that from seeing many people buying late in life, having refinanced through life, arriving at retirement and realizing I cannot afford the home that I’ve lived in for the last 20, 30, 40 years. So the name of the show is The Educated Home Buyer. Jeb and I will freely admit we are biased.

We believe strongly that home ownership is the path to building the greatest wealth over the long haul. Investing wisely, saving and investing and budgeting also very important. But the topic today was, can you, if you choose not to buy and be a renter? Can you get there? Yes, you can. So hopefully we’ve laid out what that case looks like, what you need to do, and most importantly, who you need to be.

I painted the picture of the really disciplined engineer who lives an austere lifestyle, isn’t out spending willynilly on whatever out there. I can go to the flip side. My mom has a really good friend that she’s been friends with since high school. The most fun person you will ever meet in the history of the world.

She is a hairdresser. She didn’t own a home. She’s been married four times. She’s seen every part of the world. And once again, the coolest, most fun person you could ever spend time with. But for her, if she had bought a home in the seventies when she was young and just paid it off, she would be a thousand miles a ahead because she isn’t the type of person that was ever going to save and invest in the way that needs to be.

So if you are considering that, if you’re saying home ownership is not for me, make sure that you have that personality type that can commit to what is required to arriving at retirement with a solid nest egg that you can comfortably enjoy your golden years. 

Absolutely. The name of the game here is buying, right, borrowing smart, building wealth. So if you’re not going to take that path, then you’ve got to what? Save right, budget, invest smart, invest a lot and build wealth that same way. So again, home ownership is a choice. It’s something that you have to decide whether it’s right for you and maybe you’re listening to this going, it is something I want to do, it’s just not something I’m able to accomplish today.

That’s okay. Put a plan in place, keep working towards it. Focus on the goals in getting there. Go back and listen to some of the [00:33:00] podcasts. We lay out the structure in creating The Educated Home Buyer, what you need to do in order to get there. So go back and take a listen to those.

Share this with somebody that you know that, that might be contemplating the idea of buying or not buying for whatever reason. But either way, we appreciate you guys coming every week. We appreciate the support. Until next time, Adios 

[00:33:22] Josh Lewis, Expert Mortgage Broker: and Vaya con Dios!

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