Apple pie, meat and potatoes, high school prom, backyard BBQs, a hot car, and buying a home...that pretty much sums up the "I'm an American" checklist. Wait, how did being in a ton of debt get in that otherwise exciting equation? Raise your hand if you've grown up with the assumption that buying a home somehow makes you "more American" than anyone else.
I'm sure you've heard the old adage that real estate is all about location, location, location. I live in Southern California, the land of expensive homes. You can't touch a "starter home" for much less than $400,000. Now that doesn't feel very "American", does it? To top it all off that price tag, which might buy you a mansion in other parts of the country, in Los Angeles it's a 50-year-old home that usually needs a lot of TLC. Now I'm beginning to rethink this whole "American dream."
My peers are in a rat race trying to save money and squeeze into an expensive mortgage to fulfill the "American Dream", but I am here to urge you to think outside the box. Rather, let's start thinking "dollars and sense" about buying your first home.
You know how apple pie can be served many different ways? You've got classic apple with a plain top crust; you can have it with a lattice crust, or even a crumble crust. There are so many different ways to enjoy one of America's best desserts. Let's apply this same idea to buying your first home. Here is the scenario that most of you are very familiar with...
A. You want to buy a home...well to fulfill the "American Dream."
B. You start looking in your favorite neighborhoods, the ones that you've always wanted to live in.
C. You get a realtor and a mortgage broker and find out if you can afford your "American Dream." You crunch numbers, pull together every penny you own and any pennies your parents drop out of their pockets for the down payment.
D. You drive around and find a house that has your name on it, make an offer, and...
This is where my apple pie analogy will start to make sense. I don't want you to order the classic pie -- I want you to order something "alternative." Let's look at what I'm talking about.
A. You want to buy a home...but you are using your "Dollars and Sense" logic.
B. What if you buy a home in an up-and-coming part of the U.S. where you are likely to get a good return? Some areas like Nashville, Tenn., are seeing great appreciation and the opportunity for some nice gains. This doesn't have to be where you live, but an area that is well researched. Hmmmm...
Nashville is full of great places to live these days.
C. What if you buy that property for a lot less than you would buy in your neighborhood and rent it out for rental income? In Nashville I can get an uber-hip loft for $200,000ish in a very nice building where a lot of musicians want to live. Hmmm....
The town is full of music lovers -- young and old.
D. What if you held it for 2-4 years, sold it, and realized a nice profit on your investment? After 2 years you are considered a "first-time homebuyer" again and can take advantage of using IRA funds penalty-free as part of your down payment for your next purchase.
You never have to worry about running out of renters in a town like Nashville.
E. THEN, what if you took that investment gain, and were able to buy the house you really wanted in your neighborhood? By putting your gain down as part of the down payment you can significantly reduce your monthly out-of-pocket expenses and not have to scrounge around for loose change to afford the house.
So, you wait a few years. You have a plan in place. You still own real estate in this case, but you are using it wisely as a vehicle to fund your "American Dream."
Of course there are many details involved in each of these scenarios, but what I want you to do is to think of this differently...order the apple pie with crumble on top and melted cheese (I know, it sounds gross but it's actually good).
Buying a home can be a part of the "American Dream checklist", but like any other investment/debt, when you are young, you've got to be wise in how it is done. My job is to help your money grow, not to see it dwindled and locked down in an expensive purchase. I can assure you, that is not part of the "American Dream".
Oh, and don't forget to add some ice cream to your Apple Pie; it just tastes better that way!
Photo Credit: Jeff Game, Travel Writer & Photographer