Perspective Of The Week

“Avoid Buying A Home Early To Build Wealth”

As you know by my name, I love dividends. And in addition to sharing on here, I write regularly in the investment platform- Seeking Alpha.

My goal there is to teach everyday investors about building wealth, so they won’t to need to work to traditional retirement age. I want to help you take control of your life, have F.I.R.E.

I’m a firm believer in renting instead of buying, at least in your early years. While owning a home can be lucrative, buying early can result in the inability to grow your wealth.

If you plan to own a real estate portfolio to build your wealth, then buying a home early may be a smart move.

But here’s why I say buying a home early can be a disaster. Serving 21 years in the Navy at various locations, military members would all talk about the idea of owning physical real estate to generate passive income.

But none of them ever talked about the high costs that come with owning a home. And if you buy at the wrong time, like in 2023 when interest rates were at their highest, you’re likely paying a lot in interest right now.

I personally know someone who bought a home in 2023 in California, one of the most expensive states. I mentioned to him that buying probably wasn’t a smart idea and to wait. Someone else mentioned how he could refinance once interest rates come down.

While this is true, no one ever talks about how the terms of your loan can start over when you refinance. Or that interest rates can remain higher for much longer than anticipated. Or that the Federal Reserve can manipulate short-term interest rates, but not long-term interest rates.

That’s the reason why when the FED did lower interest rates for the first time in September 2024, mortgage rates actually went up! And due to inflation, expenses like maintenance, insurance, and HOA fees have skyrocketed over the last few years.

I also have a friend who bought a home in 2020 when interest rates were low. After getting new orders, he decided he wanted to rent it out to generate cash flow. Long story short, after only a year he decided to sell. While he made a nice profit, his reasons for selling were rising costs. So, not wanting to deal with this, he sold.

I also know someone who owned & rented a property who was sued and lost because he didn’t have the property structured in an LLC or a trust. He had to cough up about $10,000.

And I have a friend who retired as an E-9 after 26 years. So, currently he makes good money. Even so, he’s still forced to work because he’s trying to pay off his mortgage after refinancing his home and having his loan terms restarted.

I never fell into the trap of buying a home like most military members. Instead, I invested in high-quality dividend stocks to generate passive income. No tenants, no toilets, no rising costs, no headaches.

Avoiding mortgage debt has also allowed me to grow my wealth in the stock market by consistently investing. I often take advantage of price dips in the market. Sometimes I invest hundreds, sometimes I invest thousands. But the point is I have the flexibility to do so.

If you own one home, it’s highly unlikely you have hundreds, let alone thousands of extra dollars to throw into the stock market. I avoided buying a home by design. Again, I’m not against buying a home, but don’t fall into the trap of buying a home because everyone else is doing so.

There’s a reason why the bank will approve a 20-year old for a home, but not a business loan. A 30-year mortgage can be a trap if not done correctly. And that trap is what keeps you working and from building wealth in the stock market.

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