Is Your House An Investment?

Hello everyone, Minh is here to learn about the evolution of money. In today's video I will help you answer the question:

your

house

and

your

investment

? So if you search the internet you will find many different opinions on this topic. People are very adamant that their

house

is definitely not an

investment

. In fact, one of my favorite authors of all time, Robert Kiyosaki, talks about this a lot in his book and says that his house is not an investment, nor an asset, and I still like his definition. today of what he defines as an investment versus a liability and he says that an asset is something that puts money in your pocket every month and a liability is something that takes money out of your pocket every month, so if you think about the house we have You're going to live in that house, it's probably not going to be putting money in your pocket every month, it's taking money out of your pocket every month, but here's my take on this and why I think your house could still be an investment and that's what You have to live somewhere you know, so you'll either own a home and start building equity in your home, something I'm a big fan of, or you'll rent and put money in your pocket someone else's because it's your investment so we're going to talk about that here in today's video and I've actually been doing a couple of videos on real estate investing here lately just because your home purchase is probably going to be your biggest purchase. big. what you're going to do in your life and whether you're going out house hunting for the first time or you're upgrading or downgrading houses, there are definitely some rules that you should follow, in fact, that was actually the last video that I just finished. to record here where I talk about some rules of home buying and we'll put a link right below the video here today so you can watch it.

We also have excellent resources on the evolution of money. Hub where you can download some PDFs and get access to some bonus videos and stuff like that so if you haven't been there yet, check that out too, but here today I want to talk about you know how. you can think of your house as an investment even if it's the house you live in, you know, so we'll assume you've already seen that other video and we'll assume you're following some of those home purchases. rules, but here are a couple of things to think about when purchasing the house.

Number one is: could you rent out that house and make money on the purchase price you're making? And I think especially if you're just starting out and you're buying that home for the first time, one of the things that I think you can do as a house hack is if you make that first home purchase, something that could definitely fit the demographic of a future rental property, so think about it this way, you walk into that house, you make the purchase, you make the down payment and then instead of selling that house like most people do, you take that equity and you go buy.

On a larger house, you take out the equity in that house and use it to buy a new house that you're going to move into, but you keep that existing house and view it as a rental property, you know, and we probably do too do some other videos on rental properties, in fact I also did one here not too long ago where I talked about investing in the stock market versus investing in real estate and I start talking about the different ways you can make money with investment properties, but we will eventually do some deeper dives to crunch some of the numbers on real estate, but you want to look at that and say you know, could you rent it out and as a general rule, this is what I like to do.

You are going to buy a house for $200,000 and this is a very easy thing since you are making that purchase just to have it in the back of your mind and your real estate agent obviously can not only give you the trade-offs of what the other houses in that neighborhood it's worth it, but they can also give you the rental comps, you know, so as a general rule, I like to focus on whether I'm going to buy this as a rental property. I want to see that I can get at least 1% of that purchase price is calculated monthly for a gross rental number, so 1% of two hundred thousand is two thousand dollars a month, so you can very easily get into that house and knowing if I'm going to pay two hundred thousand dollars for This house and the rental market supports at least two thousand dollars in rent, that's something that maybe in a couple of years I can sell or rent that house instead of selling it, You know, so number one is, could you rent? take out that house and make money on it from a cash flow standpoint if you were to do it right now, so the second way you can think about the house you live in as an investment is to think about the equity that you have.

Hopefully, it will add up over time or the appreciation the home will have, according to the Shiller Housing Index. House prices since 1928 have grown about 3.7 percent a year, so what does that mean if we do some simple math? that even just using what we've talked about before about the rule of 72 which tells us that house prices are going to double about once every 20 years or so, it's a matter of long-term capital appreciation now, said this, yes reason why some time periods will grow faster than 3.7% and other time periods will grow slower than that, in fact if we go back to 2008, especially depending on the area you lived in, some Real estate markets experienced a pretty drastic decline, so you know we want to. make a good smart home decision, but it does not completely eliminate the risk that we could lose money.

The only good thing is that as long as we have purchased a home that is affordable, within our price range and we have used some of these rules. what we talked about in the other video as we make that purchase and we don't overpay, as long as we can still make that payment, hopefully we should be fine because we're still making the payment and eventually, hopefully, house prices will go up . it may take some time but eventually home prices go up so the way we can look at this as an investment is at the time of purchase and I talked a lot about that, looking at the price per square foot and maybe looking at the rehabilitation you need.

You might need to put it in a house, but particularly if you find what I sometimes call an ugly house, something that maybe has really good bones, but maybe has that shaggy green carpet that's still left over from the '70s and you know. , has yellow paint. on the walls and flower wallpaper in the kitchen and all those weird things you see when you walk into a house, most people walk into a house like that and they just come back and say this is horrible, I don't want to spend time or money to fix up this house and that's why that house doesn't have that appeal for a lot of buyers and a lot of buyers can't get over the fact that it has that green carpet and the floral wallpaper in those houses tend to be a little bit cheaper so If you look at it, you've calculated the price per square foot, maybe you've determined that the house is in a particular neighborhood that you're looking at would normally sell for $300,000 if it were in mint condition. but if you have a house that's listed for 250 and it needs some work and maybe it's been on the market for a while, that's another way you can get into this and maybe find something that's a little bit cheaper maybe. time. a seller who is getting a little more desperate if that home has been on the market longer, that's something your real estate agent can help you with; they can look at the days on the market, so you could say, hey, maybe there's a $50,000 gap.

You went in and you determined that maybe the house needs twenty-five thousand dollars of work, so you could go into that house, buy it for 250, maybe put in twenty-five thousand dollars of work and you think it's going to be pretty close to that. The same quality of house that would normally sell for three hundred thousand, maybe you even come here because you think the sellers are a little desperate, they've been sitting on the market, you negotiate a little bit and maybe you come in and say, "Hey, I'll make you ". I'm giving you two hundred and twenty-five thousand dollars for that house and now your potential equity that maybe you'll have almost from the beginning is not twenty-five thousand dollars but maybe fifty thousand dollars and, again, that's maybe extreme, but you get the idea.

I hope you can find deals on real estate because it's not as efficient a market as the stock market, where you have thousands and thousands of people bidding on the price of something every day, in fact, every minute. Today, houses tend to be much less efficient in terms of purchasing. Here's the really cool thing about this, so we talked about maybe getting that home equity and let's say you bought this house and we got $25,000 in equity there, we're not even going to count the potential increase, hopefully, if that house went from 300k maybe to 310 in a couple of years or 305, but you have that $25,000 equity there, maybe you know.

You also have your down payment there, you can withdraw that $25,000 equity and potentially use it to buy the next house that you're going to live in and then rent that house out if you decide to hate, we just want to cash out. of this house, the IRS has a very good rule for people who sell their primary home. If you're single, you can have a capital gain of up to $250,000 and pay 0% taxes on that, so it's a phenomenal deal, it's probably one of the best aspects of the tax code, it's one of the biggest benefits if you're a married couple, that number doubles to $500,000, so this is something especially and you think about someone who can be very helpful who likes doing the work, maybe likes it, you know? because probably no one likes to take down wallpaper, but if you're handy that way and you don't mind taking down wallpaper and painting walls and maybe not closing the walls and doing a little bit of plastering and stuff like that, you could put some of sweat in this and that.

It could be a way to earn some extra wealth, so maybe it's a twenty-five thousand dollar bill to get that house where it needs to be, but maybe if you do the work, maybe you can do it. part of that work and save five thousand dollars, so think of it like you know people talk about side jobs and things like that, so if you do part of the work and say five thousand dollars because you were the one who spent Saturday painting the kitchen and remove all the wallpaper which will go directly into your pocket at the time of sale, so there are many different ways to do it and of course you can also access the equity in the house through a loan to be able to take out money from the house, so in two years maybe we'll say: we like this house, we've got it fixed up, well, we'd still like to go and maybe get a rental property or do something else with that money so you can refinance and if you have enough equity there, you can take out maybe that $25,000 that you've accumulated there or 50,000 and take it out as a loan and then use it to do something, hopefully, smart with that that you don't want to take out the money and go buy an RV. or another vacation property or something like that, you want to use that, hopefully, if you're going into debt, we call it good debt and bad debt.

Good debt is defined as something that will hopefully help you put money back in your pocket and bad debt is something that just becomes another expense, so if you know how to come up with the $50,000, go buy a big RV, Well, you don't have that 50,000, you have a payment now and On top of that, you also have the expense of maintaining a motor home, whereas if you use the 50,000 to buy a rental property, that will maybe generate a cash flow of a few hundred of dollars a month and hopefully you'll get some appreciation on that and it will kind of repeat itself. this process over and over again, that's what we sometimes call good debt.

In fact, Robert Kiyosaki talks a lot about that in his book. If you haven't read that book, it's a great book. I think I'll probably watch one of these videos. Do a little review of the book, but the original book is Rich Dad, Poor Dad, but I think there are seven or eight or maybe, who knows, twelve books in the series. I've read almost all of them, I think I was a big fan. from it when it first came out and a lot of good ideas and information and actually a lot of different ways of thinking about things and I think that's one of the hopeful things that you're getting from these videos is just opening your Look up, You know, hey, you know, I don't have to follow some of that conventional wisdom, there are other ways to do this, so maybe the way even your parents did things or the way your friends do things that you know are doing.

They buy this starter house and maybe they do it with little down payment and then the house appreciates a little bit, they cash in on that house, they go buy a bigger house and then they start having kids and then they just go into more debt and never really move forward financially. , but if you start this early, you can really set yourself up for, hopefully, a good financial future. Anyway, I hope you got some good information from this video. I hope this all makes sense again. Watch the Evolution of Money resource center will have a link atthe description.that's why and I will see you in our next video and don't forget to subscribe and see you soon thank you.