Can Buying a House Help Me? Here’s Some Good Advice.

Last Updated on April 5, 2024 by Arurhose

Full Disclaimer: I have four houses, live in one, rent out three, and plan to acquire more. I can afford it, and it’s worth it. 

I was ready to buy my first property the year I met my wife. Owning a property was something I always wanted. However, I had never taken the steps to make it a reality. In many ways, it was more of a wish than an actual vision or goal.

When I got the courage to go to the bank and inquire about getting a loan, the feedback I received wasn’t great. I was told that I needed three years ongoing as a contractor before a bank would see me as eligible. At that time, I was working as a contractor and had to continue another 12 to 18 months to hit three years straight contracting, which I did. Then, there was the wife situation, a girlfriend at the time. I remember I wanted to focus on buying a house, but I was given counter (good) advice from my mum. She asked me an important question:

“If you bought the house and you didn’t have her, would you be happy?“.

I do not believe happiness is life’s goal, but I responded to her question by saying “No, I won’t“. My mother followed up by saying to pursue what you want with her (girlfriend, now wife). She said nothing stops you from getting a property later, or the two of you, buying multiple properties together. She concluded that a house or home wasn’t going anywhere, but she could.

This was one of the best pieces of advice I ever received, and within the next five to six years, we had four properties. Who you marry has a direct/most significant impact on your financial journey.

Main Reasons for Ownership

Notable mention: I grew up with parents who owned where I lived. This was a significant factor in my upbringing and social conditioning. However, from the beginning, I sought to generate a passive income and support myself later in life. I did not want to worry about having a roof over my head because my mortgage would be completely paid off by then. My only concerns in the future would be the food I need to eat and the utility bills I need to pay.  

Passive Income

As a form of passive income, having a property is beneficial, not just the one you live in. Depending on how many rooms you have, you could rent out specific parts. Still, you can make a substantial passive income with multiple properties. This income increases with time, i.e. the older you get, the less expenditure and outgoings you have; these both reduce significantly in most areas of your life. The trend is older people tend to have reduced spending consistently as time goes on. Older people spend more on specific things such as health care, donations, and gifts to others. Still, holistically, spending goes down with age – without mention of rent increases and so on.

With an excellent passive income (an ongoing revenue stream) when older, you could cover all your basic needs and use your pension (a finite amount that will eventually finish) on healthcare, family, travel, and whatever you enjoy. This approach adds a big bonus to your pension. Most importantly, a passive income is consistent, and people always need a place to live.

Another popular reason for buying a property is the creation of a legacy and wealth for children and the next generation. I work hard and have been very fortunate and blessed to have many opportunities present themselves to me. I continued where others stopped, as we all do (some good, some worse than others). The aim is to know that my children would start their journey where I’ve ended mine. Another way of putting it is to make sure my life wasn’t a treadmill but a relay race. When I stop on step five, my children will continue on step seven or eight (adding some compounding). Every new generation faces challenges and is better equipped without concerns about necessities. 

Building a Legacy and Wealth Over Time

Regarding passing down wealth and the baton, imagine that most of your outgoing costs, i.e., rent and mortgage, are already covered. You only have to work to pay your utility bills. On a monthly salary of 1800 (roughly 25,000 per year), with rent at 600, bills, transport, work lunch and food shopping at another 600. That leaves 400 left a month (1800 – 1200 = 400). Now see this again with no rent, that leaves 1000 a month. At 35k (2400 per month – 1200 = 1200), the difference is 200. A person with a 25k job, can roughly have the same disposable income as a person earning 10000 more than them yearly.

What would you do? Many of us are on our financial independence journey (FAT or LEAN). How different would life be for most of us if we started adulthood at the end of our financial independence journey? We would make other life choices (not focused on FI and FI Numbers, etc.), and life would change.

Many of us on the Financial journey have had to give up on many talents. Some of us are musicians, architects, lawyers, artists, etc, but we live lives where we need to make paycheques. That means we are called into an existence that we may rather not live. Content but pinned to surviving and making money, a major driving force and decision-making consideration in all aspects of life. I want to reduce that.

Patience is Key

Anyone coming into property ownership should understand it’s a long game. Yes, there are some quick buy-and-sell ways to go about things. Still, my approach to property, like my approach to Financial Independence, is the long game. Trying to beat a market or economy is like winning at the casino. Overall, one usually ends up just as they came in, slightly better or worse. To build wealth (not get rich) and come out on top requires patience. Property ownership is an excellent form of wealth, which requires patience. 

Real Costs of Owning Property

If property ownership is part of wealth and building wealth requires patience, it goes without saying that plenty of maintenance is required. When owning property, we often only consider the significant costs: mortgage repayments, local (waste disposal, etc.) expenses, utility bills, etc. However, there are many hidden costs, Phantom costs.

What are Phantom costs?

Phantom costs are illusory, surprising, and not known upfront. These costs include interest increases, roof fixes, taxes, garden work, opportunity costs (job opportunities elsewhere, etc.), changing double-glazed windows, heating system fixes, mold issues, reinforcing, leakages, and so on.

You’ll undoubtedly be paying for things you couldn’t have foreseen before purchasing. Even with surveying before an acquisition, new things will arise over time. In a given year, an accumulation of phantom costs can be 20% to 60% of the yearly equivalent of a mortgage.

Eventually, though, as you pay off your mortgage, you earn more of your property, and if you’ve kept up with your maintenance, your Phantom costs start to go down. In time you know what to expect, and can plan accordingly; no more/less phantoms. 

Homes Are Family Members.

Having a home is like raising a child. You don’t know what you’ll get, even if you’ve already had children. Every child has its challenges and unique ways to learn and grow.

A puppy is for life, not a season. When the excitement goes down, you still have to care for your dog (all grown up now). When you have a property, you are going to invest a lot of your time into it. In return, you will see that investment yield back to you in value over time. This is similar to a child learning to switch from milk to solids, crawling toward walking and becoming a responsible adult one day.

 If you treat your properties well, they will yield back to you, over time. Like family members, we invest in our relationships and see the results over time. Ownership will equally demand a lot from you. It’s crucial to approach this way of building wealth with the right mindset and dedication it needs, knowing the return on investment is one of the best (rental or future selling).

Can I Afford A Property?

The answer depends on your goal. There are many benefits to not investing in property ownership. Most importantly, you have more disposable cash available – such as no bulk sums for a deposit, no phantom costs, and what you pay on rent (usually) is all-inclusive (minus utility bills). With your disposable cash, there are more investment opportunities you can immediately take outside of property ownership. Stock market (ETFs), bonds, starting a business, buying shares in private companies, buying land, and so on.

When Should I Start Thinking of Buying a House?

If you are young (20s to mid-30s), this is the time for investing. You benefit from time and compounding (slow wealth building and FI development). If you’re middle-aged (late-30s to mid-40s), loans are accessible, but life is less; a 25-year loan at 40 finishes at 65, and you won’t get another loan at 65. However, you can still invest (faster wealth building and FI development). If you are older (50s to 60s) or closer to retirement, you should focus more on a rapid development goal. Lean FIRE and FAT Fire are helpful articles to get you started on your FI development goals.

Other factors beyond age include your current/near-future financial state. Even at the right age, with the wrong preparedness, property ownership may not be conducive. Earlier in this post, I mentioned I prepared myself for 1.5 to 3 years before I was ready for my first property. It usually takes longer at that age -20s, because of less income and wisdom). At that time, I cleared all my student debts (not that much) to ensure I was ready for this investment. 

Based on your financial readiness and age, you should know the answer. Of course, you may be more business or house-flipping oriented (buy, do up, and sell—not keep), but if you intend to grow wealth slowly, securely, and steadily over time, owning properties is an excellent addition to your Financial freedom journey.

Many life opportunities present themselves visible to ready individuals, who are prepared people.