Don’t Just Buy a Home

Don’t Just Buy a Home

My last E-Note, “How Much is Your Rent Again” generated feedback. I like feedback. (Well, I like well-thought-out feedback.)

For 20 years while running Homebuyer Associates, I coached boys J.V. and Varsity basketball. My last stint involved girls J.V. basketball. Whether boys or girls I always encouraged players to provide feedback to their coach but they had to follow three rules:

1. They had to think before they spoke;
2. They had to pick the right time to do it, that is, learn to assess the situation;
3. They had to do so respectfully.

The year I coached the J.V. girl’s team, one particular night the Varsity coach was unable to coach the game. I first coached the J.V. game and then moved on to coach the Varsity game. That night the clock read 10 seconds and we were down by 1.

Keep reading there’s some real estate in this tale somewhere.

I called a timeout and diagrammed the game-winning play. When I finished, Katie L. said, “Coach, I think we should run Princeton because they’ll be playing tight defense.” (My offensive sets were named after Ivy League schools.) Katie met the 3 conditions for feedback so as we broke the huddle I said “Let’s go with Katie’s idea. Run Princeton.”

The ball was inbounded and numbers on the clock disappeared – 9 – 8 – 7 – 6 …. I’m not sure which I enjoyed more – the victory or the idea Katie spoke up with her idea. I think I liked the idea that Katie spoke up. Katie’s idea led to a back-door, game winning layup as the buzzer sounded.

I try to limit my writing to 650 words which means I can’t cover everything. Thankfully I have two friends (the Katie L’s of my professional world) willing to provide feedback – one a Licensed Investment Advisor and the other a former Mortgage Broker.

Regarding ”How Much is Your Rent Again” my Investment Advisor friend noted: A homestead should be looked at as a purchase, not an investment. An investment (rental property, business, equities, bonds) has expected revenue in the form of net cash flow and capital gain. A purchase (homestead, precious metals, art, and commodities) sometimes has expected capital gain but most times does not.

The Mortgage Broker rightfully noted (interesting in that he worked in real estate for 30 years) that one does not live by real estate alone. Other equity, bond and diverse investments lessen the risk of an all real estate portfolio. I concur with the Investment Advisor and Mortgage Broker.

I consider real estate a piece of your portfolio. Your homestead becomes a forced savings account while providing a place to live in lieu of rental payments – not an investment. Beyond the starting point of home ownership you should have a more broad set of investments to lessen risks and increase your potential for creating wealth.

Investing is not a science. For Michael D. Holloway it all began with the purchase of a home and then the purchase of an investment home, followed by investment in passive index funds across asset classes for the long term, all the while attempting to keep expenses low.

So yes, creating wealth is more than simply buying a home, so thanks for the good feedback from two professionals – outside the real estate business – providing winning advice just like Katie L.