I grew up around construction, but didn’t have a strong interest in real estate until my mid-20’s. My first home purchase was a studio condominium in a Southern California beach city. I bought it for $250,000 in 2007 and recall my realtor telling me it would be worth $350,000 the next year (didn’t happen). I only bought it because one bedroom rents were higher than my mortgage and I figured I’d hold onto it and rent it out if I needed to.
My father helped me convert the studio into a one bedroom and I probably spent close to $10,000 on improvements and repairs. Unfortunately, the housing market tanked when I was ready to sell soon after getting engaged to my wife in 2009. Knowing we needed the capital to buy a larger home, I sold it for a smidge over what I originally paid. I got out at a good time as the value dropped another $50,000 after I sold it.
We took advantage of the down market and bought our place for a great price and have been able to substantially increase our net worth in under seven years. Although we’re close to paying off the house, our original down payment was $130,000 and we’ve made other investments to help us accelerate paying it off. During this time, I also got my real estate broker’s license to assist with any transactions should I decide to buy or sell another home. Unfortunately, the market is so hot at the moment that I don’t currently see any real estate deals worth pursuing. Part of me wants to sell and cash out, but I don’t expect the market to take a large enough hit to warrant the inconvenience to my family. See below for a few recommendations based on my real estate experiences to date:
- don’t let a few thousand dollars stop you from getting a good piece of real estate. My wife and I once bid on a place we knew was an even better deal than our current home and let it go over a $5,000 counter-offer from the owner. Although we have done well with our current home, that home would have yielded us a $1 million profit by now.
- Don’t be afraid of Adjustable Rate Mortgages (ARM’s), especially if you want to pay off your place. Our current rate is 2.875% on a 7/1 ARM and the monthly payment is several hundred dollars less than if we went with a 30 year fixed mortgage.
- The housing market between 2010 and mid-2013 had amazing prices and I passed up a few great opportunities to buy more. Even as prices started increasing, I never expected they would have continued to climb as quickly as they did. By 2015, I still thought the prices were going to taper off but they have continued to rise. We would easily be worth another $200,000 if we would have bought one of the rental properties I looked at in 2012. Should this type of market ever come back, particularly in Southern California, I plan to hop on it.
- Although I’m happy I sold my first condominium, I still receive updates on its value on Zillow each month and it’s now worth the $350,000 my realtor told me it would be 10 years ago. If you know a good location and it has a good history of appreciating values, it will likely eventually rebound if you are patient (assuming no negative outside factors)–so don’t sell unless you absolutely have to or are getting into another good investment.
Note: The picture from this post is one of dozens of homes I looked at during the downturn. This one was going for $600,000, would easily have made me positive rental income with 20% down and is worth at least $900,000 four years later.