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Own your damned house, people, if you want to be rich

My story of home-ownership

Like many folks who did not have a trust fund (I am thankful to my parents for raising and educating me but they were never in a position to give any more money than that), my wife and I when we first started to live together, we rented an apartment in Connecticut.  In those days in the late 1990s, the rent was about $900/month for a 2-bedroom unit.  We lived there for over two years, and when we added up how much we had paid the landlady over that period, our jaws dropped.  Nearly $25,000.  Wow!  That was a lot of money.  Yes, we had a roof over our heads, but that is also so much money.

So when I got a job offer in Massachusetts, and we had to move, my wife said that let us simply buy a home.  

How we bought our first home?

We looked around and found our dream home.  However, we did not have enough money and since this was 2001, the banks were very liberal.  They did not insist on 20% down payment and just asked us for 5%.  So we bought a median home around $400,000 and had to come up with just $20,000.  With the savings we had and investments we had made in the stock market, that was fairly easy.  So we became homeowners.  Since we had too much debt, we decided to expedite payment on the two mortgages we took out, and eventually paid off the second mortgage in just about 7 years.  Now, all we have to do is to pay just about $1,200 a month in mortgage (and of course, pay property taxes, have home insurance, and pay for maintenance) but half of it goes towards payment of the principal.

How much has our home appreciated?

I don't want to mislead you because prices keep fluctuating, but roughly it has appreciated by about 50% during the time we have lived here, nearly 20 years.  Obviously, we have lived here but that appreciation matters (plus, remember than any profit you make on selling your primary home does not incur any income tax).

It is also important to understand that real estate is very local, but we can look at the S&P/Case-Shiller Index to review home prices in the country.  Can you see what a great investment it is to buy a home and just live in it?

Case Shiller home price index appreciation chart

So how can you get rich by owning a home?

  1. Have a realistic dream.  Don't get too hung up on owning that dream home.  Just get a roof over your head and it will also be a great investment.  Too many people want to stretch themselves to buy that home that would wow their friends and family and that is fine if you are rich, but if you are not, it is best to compromise.  Any owned home is a much better investment than renting a fancy apartment.  By renting you are simply making sure that your landlord is getting rich.
  2. Don't keep buying more expensive homes as you make more money.  While homes are great investments overall, if you do what many people do, that is, buy a bigger/expensive home as soon as you have more money, you are now working to simply pay that bigger mortgage and that leaves with you no savings to park in the stock market.  You do not want to have all your net worth tied in real estate either.  So, do not fall into this trap that you need a bigger home simply because you want to start a family or have extra rooms for guests or want a bigger kitchen, office, laundry room, whatever.