Using Your Primary Residence to Get Ahead Now, and For Your Future

Whatever your plan, the most effective principle is always to pay yourself first.  Using what’s leftover to invest in your future makes about as much sense as a business calling what’s leftover, their profits.  Professionally managed businesses have profit as their first line of expense, and you should consider growing your balance sheet your first priority.  Too many families are one paycheck away from disaster.  In 1998, I lost a job as part of a reorganization, and the money we had set aside kept us afloat as we got back on our feet.  Another thing that helped was that we chose a 15 year mortgage.  Things were tight sometimes, but it gave us a lower interest rate, and helped a great deal when we were going through tough times.  Cara and I now have our own businesses and the freedom that goes with it, and there is no way we could have made it if we didn’t have money set aside, and if we didn’t have considerable equity in our home.  We’re still getting through growth pains, as with any young business, but we have our foundation in place.  Now, we’re working on getting to the next level where we’re able to spend more time working on our business and less time working in it. 

 Begin with the end in mind.   Have a Plan.  Cara and I want to have the time and money to travel and simply enjoy life, and we knew that we wouldn’t be able to get there working for other people.  Our plan is to build our businesses, and get things in place so we can walk away for two weeks without having to answer our cell phones.  We’re not there yet, by any means, but we’re on our way.  We have a plan, and we’re working the action points in our plan every day.

My best advice is to buy less to start.  Everyone wants the house that is $30,000 more than they can really afford, Cara and I are no different.  When we were shopping two years ago, what we really wanted was $260,000, but we didn’t want to have to pay that much.  So we bought a 30 year old house in Kings Grant for $190k.  Figure that every $10,000 in price is going to cost you $60/month, so if you over spend by $30,000, that’s $180, plus the extra taxes, insurance and utilities. 

Now, that may mean that you don’t have the extra family room, so your kids can have their own area to hang out.  Or you might not have that formal dining room that you dreamed about.  Make sure you know the real costs of that extra 200-300 square feet by the time you look at the whole picture. 

My next best advice is to spend less.  I’m amazed at how many families have huge big screen TV’s, the kind that cost $2000, in addition to the two or three other regular TV’s they have through the house.  Talk to your investment counselor about what that $2000 will be worth ten years from now at 12% annual rate of return?  or 20 years.  If you spend less, you’ll be able to put more money toward your future, whether that’s paying down your mortgage, or working with your investment counselor on your portfolio.  Cars are the biggest cash gobblers.  Think and plan very carefully when it comes to how much you’re going to budget for transportation. 

Buy right for two big reasons You want to position yourself so that you aren’t going to have to move in five years.  Moving is expensive and a huge hassle.  Selling a $200,000 home costs about $15,000, and that doesn’t include getting your home in shape to compete with all the new homes on the market. So, renting for a little longer might be the best option, if it means that you’ll be able to buy the right house when you’re more ready.  The second part of buying right, is to take advantage of whatever the market conditions are.  Right now, buying right means finding a motivated buyer, so you can save $5000-$20,000 in the $150,000-300,000 range.  When the market is hotter, it’s more about timing and selection.  You don’t want the pace of the market to cause you to make a bad choice, so you need to spend more time discovering what you really, truly want.  Getting ahead in a hotter market means positioning yourself for maximum appreciation.  So picking the right house is even more critical.  So, whether you’re buying new or used, find a professional real estate agent that is capable of helping you make these decisions. 

Sell Right – Most of the programs on TV really distort how to make good decisions on improvements.  Be careful how you put money into your home.  I obviously have an agenda when it comes to whether or not to try to sell it yourself.  Just make sure that if you do, that you actually end up saving the commission, not just passing it on the savings to the buyer.  This is a subject in itself, so I won’t go on.  There is a lot to selling right, so I recommend picking a pro, not just someone that happens to have a real estate license. 

Paying  down your mortgage is the best sure bet you’re going to find.  Investing in the stock market sounds good, and it seems like investing at 12% makes more sense than paying down your mortgage that’s at 6%.  Everything is fine as long as the market doesn’t tank, which it could.  It might not, but then again, it might.  Who can tell.  We’re in a war right now that looks like is never going to end. 

Use the Charleston Market to Your Advantage  We’re recovering now from the “irrational exuberance” of 2005, and things are getting back to normal.  We’re on the ocean, have weather to die for, and can enjoy playing outdoors year round.  We may get hit by another hurricane, but it’s decidedly less likely that Florida or the Gulf Coast.  I think this is the best place to live in the world.  Having said all that, if you don’t make the best decisions, all this opportunity could pass you by.  Just because the average appreciation is 10% in a given year doesn’t mean that’s what you’re going to get.  You could get higher, you could get lower.   It depends on your decisions, and possibly on factors beyond your control.  If you don’t use your discretionary cash flow to your advantage, then you’ll do what thousands of Americans have done and refinance, taking the equity from your home to pay off your car loans and credit cards.  Or worse yet, hit a bump in the road and lose your home. 

This is a good time to reflect on what’s in the news and consider the decisions we’re making.  There are lot’s of people in trouble resulting from questionable decisions, often because they didn’t recieve the right advice, or got the wrong advice.  If you can’t count on other people for good advice, then your only recourse is to take it upon yourself to learn how things really work.  I hope you find that this information is a good start. 


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