Module #1 - Rent vs Buy

If you are thinking to buy your first home or considering the next step in your home ownership, consider renting vs buying in terms of an investment strategy.  In other words, can you utilize homeownership to earn a financial return over time? 

Before we get into the specific strategy, let's review 2 important terms: Assets and Liabilities

The easiest way to understand the difference is simple: An asset puts money in your pocket. A liability takes money out of your pocket. Anything you own that pays you money every day, month, or year is an asset. Anything that costs you money every day, month or year is a personal liability. 

To become wealthier, buy assets and reduce liabilities.  Once your assets pay for all your liabilities, you are financially free! 

Housing Cost is a Liability

No matter where you live, the monthly amount you pay is a liability, because it costs money every month.  It's an important mind shift to consider that your primary residence is a financial liability, because it does not produce income. Whether your are renting or buying, housing cost remains a liability.

The difference is one option gives you the control and opportunity to convert the liability to an asset.  The long term strategy for your home purchase is to convert it into an income producing asset. The immediate goal is to trade one liability for a better one.  In other words:

Trade your rent payment liability for a mortgage payment liability.

That being said, if possible you do not want to increase your housing cost liability when you buy. Instead, we aim to match the liability of your rent payment in the same amount for a mortgage payment.

For example, let’s say you are currently renting a home for $2,500 a month. You are thinking about buying a home. You’ll want to trade in that rental liability with a mortgage payment that is about the same - $2,500 a month. To do this, you need to secure a loan that allows you to get the right fixed rate and terms to achieve that $2,500 a month payment. 

Sagareus Difference

It is very common for real estate brokers – who are looking to get you to buy the biggest home with the biggest price tag possible because that increases their profit margin – to tell you to buy up. That is, they will tell you to list the first property that you own and sell it and then apply the equity gain to your down payment on the next home.

Here’s an example. Let’s say you buy a home for $200,000. By the time you are ready to sell that property, it is now worth $225,000. Most real estate brokers will encourage you to take that new value – the added $25,000 – and add that to your down payment. That makes sense and is a common approach, but a bigger and better home with a bigger price tag means that you are increasing your liability. Your income did not go up in this scenario. You have not increased your available income to pay towards a bigger home’s mortgage payment. 

When you work with me or another Sagareus Advisor, we will recommend you live in this property until you save up another down payment, then buy another property, and here's the kicker-- KEEP THE FIRST ONE as a rental property.

You can do this exact strategy every year for 10 years; Save up for a new house, move and keep the last one.  In 10 years, you will have 10 rental properties! 

Ok, but that sucks

This is where I start to lose people.  Who wants to move every year, save up all their extra money to live in no so impressive homes, just to set up a real estate portfolio that will massively pay off in... wait for it... 20 years?  The strategy described above is just 1 of many you can deploy to achieve whatever objective you desire.

I have clients who moved every 2 years, acquired 2 rental properties, and finally settle into their primary home to start a family. I have a client who utilized a more aggressive housing hacking strategy, acquired a 4-unit property, then a townhouse in Greenwood that he shares with a roommate. 

Everyone has a different approach based on their goals, needs, and current circumstances. 

Once you decide what you're trying to accomplish with your real estate ownership, we can start developing your specific strategy based on other factors (such as current finances, lifestyle needs, etc). So what do you want?  Some goals my clients have had in the past include:

1. I want to match my active income with my passive income so I can take 1 year off and travel the world.

2. I want a sound financial base to start a family.

3. I want to justify buying my $2 million dream home.

For me personally, I simply didn't want to be worried about money all the time. I like being able to do what I want, with who I want, whenever I want.  There is only 1 way to achieve this freedom: Ownership. 

Once you decide what you're trying to accomplish with your real estate ownership, we can start developing your specific strategy based on other factors (such as current finances, lifestyle needs, etc). So what do you want? 

For me personally, I simply didn't want to be worried about money all the time. I like being able to do what I want, with who I want, whenever I want.  There is only 1 way to achieve this freedom: Ownership. 

Contact our office today to get started on your real estate ownership plan + securing your financial future.

425-357-7520  |  hello@sagareus.com

Don't wait to buy real estate; Buy Real Estate and Wait!