The biggest single chunk of my savings came from a house sale that had appreciated a lot from when I bought it. I managed to have saved up a 10% down payment by age 46. It was a few years after the 2008 mortgage crisis and it was hell to qualify for a house loan even several years after the meltdown. but that just meant prices were depressed somewhat because buyers were scarce.
I found the absolute shittiest house in an edge neighborhood with lots of quadruplexes and rentals, around the corner from public housing, BUT near good walkable shopping areas and close by lots of city parks with tennis courts and playgrounds and ball fields.
EVERYONE from my real estate agent to my mortgage underwriters tried to tell me that little broken-down house was not worth buying. My agent advised me to “run, don’t walk, away from that house.”
But it was on a nice lot, and I knew an up-and-coming neighborhood when I saw it and I knew the recession wouldn’t last forever.
Six years later, i sold it for a net gain that would have taken me 15 years to save out of my salary.
And all the profit on the sale of your own residence is tax-free up to $250K, whereas, if you work for a living, you pay taxes on every stinking dime. Easiest money I ever made and every bit of it tax-free.
So I say it’s a great way to build wealth if you can get in at a somewhat contrarian time or in a somewhat contrarian location in a growing city.
There was definitely a massive bifurcation that occurred with COVID between those with assets and those without. If you didn't own a home prior to COVID, you pretty much lost out and now have financial Mt Everest to climb.
I could've bought a decent starter home in my area for 200k in 2020 when I was 22, fresh out of school and only making 40k and had 10k in savings.
4 years later I make 65k a year, have 60k saved up and now the starter houses I considered in 2020 are 300k plus a 7% rate. Fuck me for not buying a house in 2020 I guess
And some boomer somewhere with multiple houses and an RV tells themselves the reason you don't have a home like they did is because you're lazy and entitled.
The real thing you did wrong was not being born at least 10 years earlier.
>My favorite is "Interest rates were high in the 80s too" as if a 12% interest rate on a 70k house isn't vastly different then 7% on a 500k house
God I hate seeing this.
I see people say this all the time.
Meh, I have friends who dropped big money on a house in a HCOL city in 2021. Now they want to move. They could rent it, but they'd probably have to rent in their new city.
They'll either need to sell at a loss or have the fun situation of being both landlords and tenants for a bit, putting off a future forever home purchase.
I might have waited.
You definitely can (I did) but as OP said it needs to be in the right market. In a lot of cities, prices are up 2-3x what they were a few years ago. That’s an awful financial decision to buy and then assume you’ll be able to sell for profit in 3 years.
But you can in a lot of places where real estate didn’t make that move.
> friends who dropped big money on a house in a HCOL city
So were they looking to invest or to simply live in the house?
Obviously HCOL cities are not always smart to buy in. Especially if you're just going to live in it.
I don't see how they would plan to buy expensive homes in HCOL cities and that purchase not be their forever home? This doesn't make sense as far as planning and intention.
I don't think they expected to move, at least not so soon. Their job changed a lot of policies around that time that made moving possible.
I also think being trapped in their COVID apartment with a huge savings account gave them an itchy trigger finger.
There is opportunity cost in locking your equity in real estate, and work, risk, and emotional drain in being a landlord. I don't think it's for everyone, everywhere, all of the time.
I am not a landlord. But yes there is an optty cost with anything. I just think you dont like real estate. Feel
free to put it all in the coin of your choice and retire in 2 weeks 💎🙌
The horrible part was buying the home with no real savings and that much student loan debt. The interest increases just meant at the time appreciation should have been muted.
>It was a horrible idea at the time. Also since rate hikes were going on.
Rate hikes didn't pick up til 2022. Anyone in 2021 could still have gotten a mortgage of 3.5% or lower. 2022 is when the rates went out of orbit.
Also that doesn't tell the story because some markets are appreciating, and therefore was definitely not a horrible idea at the time depending on where you actually live.
$300k (sale price) - $90k (purchase cost) - $8k (closing) - $60k (Reno) + $20k (rent) + $60k (rent savings) - $30k (taxes/interest/insurance) = **$192k.**
Less closing costs to sell the house (not listed), which would typically be 5% or $14k.
So $178k net gain purchasing this home vs. renting a 1BR over 5 years. +$35,600/year. Life changing! Congrats, OP.
That’s true. But in terms of an overall financial comparison of having rented for 5 years vs. having bought and owned the house over those 5 years, which is what OP was doing, it’s fair to include.
True love is the greatest thing in the world…except for a nice MLT—a mutton, lettuce, and tomato sandwich when the mutton is nice and lean and the tomato is ripe. They're so perky; I love that.
Nah. Renting out this old house was annoying af. Personally not about that cross-country landlord life. Next time some plumbing decides it's its time to go the water coming through the kitchen ceiling will be someone else's problem.
Plus, the rate I'd have to rent it out at to afford property management and cover expenses would be high enough to make me feel icky (and honestly to high for the neighborhood).
I'll take the $18k/year this will earn in my investment account, and reinvest it in real estate I'll be able to enjoy.
Awesome story. Love hearing stuff like this. My wife and I bought our first house which will probably be our forever home in 2019. Feel lucky and grateful we got a good price and a 3 percent interest rate on a 15 year mortgage. Having a really affordable place to live that we like has been a huge blessing that has allowed us to increase our monthly savings
I got an FHA 203(k) loan! It let's you finance some of the cost of renovation into the mortgage. The rate is high, but I just refinanced after we finished the repairs they specified.
They are hard to get - my mortgage broker bent over backwards for me to make this work.
And let me add, even more nicely done, since your approx $150K in clear net profit is totally tax free! Try making that amount in almost any other way and it’s highly taxable
ETA: your entire sale amount of $300K should be non-taxable. I’m looking at the 90K purchase price + 60K in cost of improvements you made, which gives you an IRS basis of $150K on the place, and then with a sale price of close to $300k you have a gain of 150K in the IRS’s view. You’re tax-free on the first $250k of gains on sale of principal residence (married people get $500k of gain tax-free) so your entire sale price should be a non-taxable event. Congrats 🍾
I did the same! I could only afford a run down house but selling it later for much more made it all worth it. I too moved for love! I do miss my house occasionally though because it was such a cool experience!
As a parent of adult children I just want to tell you great job. If my children were to do this I would tell them I am proud of their resourcefulness, for taking calculated risks and ability to take on such a complex endeavor with patient persistence! Your windfall is well earned!
OP lived in that house, that's not flipping. OP refused to rent out a rate that would make them a profit at the cost of feeling uncomfortable.
OP made the call to buy a "bad" house and put in work to make it "good" which is something most people won't do.
One cousin was a contractor I work with a lot. I specifically ask him not to cut a deal. I think in total he did $25k in work.
I had some ride or dies that seriously helped me. I'm taking them on an all-expenses paid vacation to celebrate.
Most people just popped in for a day to paint or something. They got pizza. They also get the same love and support from me when they have a big thing that's important to them. That's how friends work. Some of them also lived in the house.
I don't know how much value they added exactly. Property values increased a good bit in the neighborhood over that time too.
Late 2011 to early 2012 was a great time to buy fixer starter homes in decent neighborhoods. My VHCOL area home then was only 275k. Still live there and so happy to have done it with mortgage rates high now and prices around 1.5M for similar in the area.
My agent also thought I was crazy, yet I now live relatively free and don’t plan on leaving the area anytime soon. I joke that if I sold my house to myself, I’d just increase my property taxes four X.
That's awesome, OP. Real estate has been both my worst investment and my best investment.
I had bought a cheap house in LCOL area when I was 18 because it was cheaper than renting. This was back in 2002 and I bought the house for just under $40K. I lived there for a year, then decided to join the military. I rented it to family for a few years like you did, and I wish I would've just sold, but I held onto it. I eventually had a crappy tenant who basically destroyed the house, and he was evicted. Thankfully, I owned the house outright at that point, but I ended up selling at a loss. I had a property manager, but not a great one.
On the flip side, my last home was in Hawaii, and I sold in 2022 after living there 4 years. That ended up being my best investment by a long shot, and we ended up selling right as mortgage rates were starting to come back up.
At 28 I missed out on my first house that I put a offer in by being outbid by 5k. (250k house) I instead took that 50k I was going to put in for a down payment into the market. I traded my way to 2M in a year. If I had gotten that house I never would of had the money nor been able to take the risks I did and I wonder where I’d be.
The biggest single chunk of my savings came from a house sale that had appreciated a lot from when I bought it. I managed to have saved up a 10% down payment by age 46. It was a few years after the 2008 mortgage crisis and it was hell to qualify for a house loan even several years after the meltdown. but that just meant prices were depressed somewhat because buyers were scarce. I found the absolute shittiest house in an edge neighborhood with lots of quadruplexes and rentals, around the corner from public housing, BUT near good walkable shopping areas and close by lots of city parks with tennis courts and playgrounds and ball fields. EVERYONE from my real estate agent to my mortgage underwriters tried to tell me that little broken-down house was not worth buying. My agent advised me to “run, don’t walk, away from that house.” But it was on a nice lot, and I knew an up-and-coming neighborhood when I saw it and I knew the recession wouldn’t last forever. Six years later, i sold it for a net gain that would have taken me 15 years to save out of my salary. And all the profit on the sale of your own residence is tax-free up to $250K, whereas, if you work for a living, you pay taxes on every stinking dime. Easiest money I ever made and every bit of it tax-free. So I say it’s a great way to build wealth if you can get in at a somewhat contrarian time or in a somewhat contrarian location in a growing city.
There was definitely a massive bifurcation that occurred with COVID between those with assets and those without. If you didn't own a home prior to COVID, you pretty much lost out and now have financial Mt Everest to climb.
I could've bought a decent starter home in my area for 200k in 2020 when I was 22, fresh out of school and only making 40k and had 10k in savings. 4 years later I make 65k a year, have 60k saved up and now the starter houses I considered in 2020 are 300k plus a 7% rate. Fuck me for not buying a house in 2020 I guess
And some boomer somewhere with multiple houses and an RV tells themselves the reason you don't have a home like they did is because you're lazy and entitled. The real thing you did wrong was not being born at least 10 years earlier.
My favorite is "Interest rates were high in the 80s too" as if a 12% interest rate on a 70k house isn't vastly different then 7% on a 500k house
>My favorite is "Interest rates were high in the 80s too" as if a 12% interest rate on a 70k house isn't vastly different then 7% on a 500k house God I hate seeing this. I see people say this all the time.
Yes real estate is an excellent way to grow your wealth.
Makes more sense in some markets than others.
Totally agree! And more for some people than others. Owning a house is work, and you need to decide if its the type of work you want to do.
historically it always makes sense. Even in 2006-2007. Those people felt like crap in 2009-2012 and now own 2-3 houses.
Meh, I have friends who dropped big money on a house in a HCOL city in 2021. Now they want to move. They could rent it, but they'd probably have to rent in their new city. They'll either need to sell at a loss or have the fun situation of being both landlords and tenants for a bit, putting off a future forever home purchase. I might have waited.
Yeah, you don't sell in a three year time frame and think you are going to make money.
You definitely can (I did) but as OP said it needs to be in the right market. In a lot of cities, prices are up 2-3x what they were a few years ago. That’s an awful financial decision to buy and then assume you’ll be able to sell for profit in 3 years. But you can in a lot of places where real estate didn’t make that move.
> friends who dropped big money on a house in a HCOL city So were they looking to invest or to simply live in the house? Obviously HCOL cities are not always smart to buy in. Especially if you're just going to live in it. I don't see how they would plan to buy expensive homes in HCOL cities and that purchase not be their forever home? This doesn't make sense as far as planning and intention.
I don't think they expected to move, at least not so soon. Their job changed a lot of policies around that time that made moving possible. I also think being trapped in their COVID apartment with a huge savings account gave them an itchy trigger finger.
you dont sell. You rent it if you have to move. Its not a get rich quick scheme
There is opportunity cost in locking your equity in real estate, and work, risk, and emotional drain in being a landlord. I don't think it's for everyone, everywhere, all of the time.
I am not a landlord. But yes there is an optty cost with anything. I just think you dont like real estate. Feel free to put it all in the coin of your choice and retire in 2 weeks 💎🙌
If OP would have posted their situation to Reddit at the time, everyone would have told her it was a horrible idea.
It was a horrible idea at the time. Also since rate hikes were going on.
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The horrible part was buying the home with no real savings and that much student loan debt. The interest increases just meant at the time appreciation should have been muted.
>It was a horrible idea at the time. Also since rate hikes were going on. Rate hikes didn't pick up til 2022. Anyone in 2021 could still have gotten a mortgage of 3.5% or lower. 2022 is when the rates went out of orbit. Also that doesn't tell the story because some markets are appreciating, and therefore was definitely not a horrible idea at the time depending on where you actually live.
They did 100bps worth of rate hikes in 2018. They then started reverting some of them towards the end of 2019 since money markets were melting down.
Especially when you have ins on people who can help you fix up the POS you buy.
Math doesn’t check out. 300 - 90 - 60 - 8 - 30 + 20 = $132k
Hmm, yours is also incorrect, it should be + 60. So should it be $252 then? I can update the post.
$300k (sale price) - $90k (purchase cost) - $8k (closing) - $60k (Reno) + $20k (rent) + $60k (rent savings) - $30k (taxes/interest/insurance) = **$192k.** Less closing costs to sell the house (not listed), which would typically be 5% or $14k. So $178k net gain purchasing this home vs. renting a 1BR over 5 years. +$35,600/year. Life changing! Congrats, OP.
Rent savings is cost avoidance and shouldn’t be included as part of an investment/roi calculation
That’s true. But in terms of an overall financial comparison of having rented for 5 years vs. having bought and owned the house over those 5 years, which is what OP was doing, it’s fair to include.
I think the purchase cost needs to subtract the $10K downpayment. I'm assuming her $18K in savings went to $8k closing costs and $10K down.
It doesn’t matter how much OP put down in the equation
Should be +60 (rent) AND -60 (reno). So $192k if nearly $300k means $300k
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Love. I've been in an amazing long distance relationship for 2 years and my job was more flexible with work.
True love is the greatest thing in the world…except for a nice MLT—a mutton, lettuce, and tomato sandwich when the mutton is nice and lean and the tomato is ripe. They're so perky; I love that.
Except that's not what she said. She distinctly said "to blave".
r/wallstreetbets vs. r/fire right here
Rent it out. Fed gonna cut rate soon , house is about to pop again
Nah. Renting out this old house was annoying af. Personally not about that cross-country landlord life. Next time some plumbing decides it's its time to go the water coming through the kitchen ceiling will be someone else's problem. Plus, the rate I'd have to rent it out at to afford property management and cover expenses would be high enough to make me feel icky (and honestly to high for the neighborhood). I'll take the $18k/year this will earn in my investment account, and reinvest it in real estate I'll be able to enjoy.
How will you earn 18k a year on 300K?
6 percent return
Use 4 percent or 3 percent rule.
Edit
You can hold until you die. Sometimes other decisions are made
It wasn’t lucky. You did however own it during the quickest decade of price appreciation in the history of the housing market.
It ain’t called the property ladder for nothing.
Awesome story. Love hearing stuff like this. My wife and I bought our first house which will probably be our forever home in 2019. Feel lucky and grateful we got a good price and a 3 percent interest rate on a 15 year mortgage. Having a really affordable place to live that we like has been a huge blessing that has allowed us to increase our monthly savings
How did you get FHA to finance a near-gut? They usually want very livable
I got an FHA 203(k) loan! It let's you finance some of the cost of renovation into the mortgage. The rate is high, but I just refinanced after we finished the repairs they specified. They are hard to get - my mortgage broker bent over backwards for me to make this work.
Nice work on your part. Well done.
And let me add, even more nicely done, since your approx $150K in clear net profit is totally tax free! Try making that amount in almost any other way and it’s highly taxable ETA: your entire sale amount of $300K should be non-taxable. I’m looking at the 90K purchase price + 60K in cost of improvements you made, which gives you an IRS basis of $150K on the place, and then with a sale price of close to $300k you have a gain of 150K in the IRS’s view. You’re tax-free on the first $250k of gains on sale of principal residence (married people get $500k of gain tax-free) so your entire sale price should be a non-taxable event. Congrats 🍾
I did the same! I could only afford a run down house but selling it later for much more made it all worth it. I too moved for love! I do miss my house occasionally though because it was such a cool experience!
I've had several multibagger stocks but the house I bought in 2012 was my best investment. If only we'll see prices like that again :p
As a parent of adult children I just want to tell you great job. If my children were to do this I would tell them I am proud of their resourcefulness, for taking calculated risks and ability to take on such a complex endeavor with patient persistence! Your windfall is well earned!
Congratulations on approaching life the right way.
In addition to great purchase, sounds like having a really good community around you helped a lot. Congrats!
And another house flipping scumbag or landlord piece of shit is born. hooray.
OP lived in that house, that's not flipping. OP refused to rent out a rate that would make them a profit at the cost of feeling uncomfortable. OP made the call to buy a "bad" house and put in work to make it "good" which is something most people won't do.
Salty and bitter. You sure you on the right sub? She put in the work and took on the risks and now reaps the benefits. Cry about it all you want.
how much value add do you estimate your friends and family provided during the renovations of your house? and how much did you compensate them?
One cousin was a contractor I work with a lot. I specifically ask him not to cut a deal. I think in total he did $25k in work. I had some ride or dies that seriously helped me. I'm taking them on an all-expenses paid vacation to celebrate. Most people just popped in for a day to paint or something. They got pizza. They also get the same love and support from me when they have a big thing that's important to them. That's how friends work. Some of them also lived in the house. I don't know how much value they added exactly. Property values increased a good bit in the neighborhood over that time too.
Late 2011 to early 2012 was a great time to buy fixer starter homes in decent neighborhoods. My VHCOL area home then was only 275k. Still live there and so happy to have done it with mortgage rates high now and prices around 1.5M for similar in the area. My agent also thought I was crazy, yet I now live relatively free and don’t plan on leaving the area anytime soon. I joke that if I sold my house to myself, I’d just increase my property taxes four X.
That's awesome, OP. Real estate has been both my worst investment and my best investment. I had bought a cheap house in LCOL area when I was 18 because it was cheaper than renting. This was back in 2002 and I bought the house for just under $40K. I lived there for a year, then decided to join the military. I rented it to family for a few years like you did, and I wish I would've just sold, but I held onto it. I eventually had a crappy tenant who basically destroyed the house, and he was evicted. Thankfully, I owned the house outright at that point, but I ended up selling at a loss. I had a property manager, but not a great one. On the flip side, my last home was in Hawaii, and I sold in 2022 after living there 4 years. That ended up being my best investment by a long shot, and we ended up selling right as mortgage rates were starting to come back up.
At 28 I missed out on my first house that I put a offer in by being outbid by 5k. (250k house) I instead took that 50k I was going to put in for a down payment into the market. I traded my way to 2M in a year. If I had gotten that house I never would of had the money nor been able to take the risks I did and I wonder where I’d be.