How to Make $100,000 from your first home and everyone afterwards - (W5:D3) Debt Free Millionaire Podcast

Debt-Free Millionaire

Being Intentional: If you are intentional, you can make $100,000 off the next house you own. Here are some tips when buying a home.

1. Buy in an area that is just about to take off. We bought our fourth house in an area that, unbeknownst to us, was about to take off. The city had just passed a bill that paid the business storefront owners to renovate their building exteriors, and had new construction. A large box store complex was built less than a mile outside our residential area, and a new movie theater moved in. Our house doubled in price in 5 years.
2. If you are handy with a hammer, try buying a distressed home, one that someone moved out of and may have not kept clean, or taken good care of. Only buy a house with good bones, that mostly needs cosmetic repairs. If you put in the sweat equity, you may get much more out of it, then buying a house for full price. I’ve made over $100,000 on the last two houses I’ve lived in, after living in each for 5 years.
3. Buy small and grow into larger homes. Our first and second houses taught us a lot. We made money on the first, and lost money on the second. The third and fourth house is where we really learned. We bought a distressed home, in Alaska, for $180,000, yet it was worth $280,000 after some repairs and cosmetic work. We took the $100,000 and bought another foreclosure in Missouri, for $98,000 and our house was paid off. We sold the fourth house for $210,000, and bought another foreclosure, worth $300,000, with cash. We will never get another mortgage.
4. Don’t buy at peak market – The housing market goes up and down in value. If you buy a house at top value, just before the price adjusts, you are looking at owning a house, but owing more than it is worth. I have done that before. Watch the housing market. The rule of thumb is, take the last recession and add 10 years to it. If you are near, or after, 10 years from the last recession, do not buy. Rent for the next year or two, until the next price adjustment, and then buy. Housing prices always go up over time, and come down during a recession. Before President Bush, all recessions were within 8 years; his policies pushed it to 10 years. Trump’s policies now pushed it to 12 years. I predict President Biden will have a recession in the next 2 years, partially in part because of his policies, and partially because of the time that has elapsed since the last recession. We are due for a correction. Some would say that the COVID “recession” was our next recession, but as you can see from prices, there was no adjustment (minus a quick one, due to the stock market). Then it rebounded back to where it was before and kept going; so, no real recession happened.
5. Buy a house with newer appliances – Most of the time, you can find houses with newer appliances, within 10 years of age, but know that old appliances may be more reliable. Buy a house with that, or negotiate the price during inspections, and ask them to drop it $10,000 for a furnace, or $1,000 for a hot water heater, and change it out yourself. If you know what you are doing, you can save a pretty penny. Check out our Debt-Free Millionaire: Home Ownership book, before you buy a house.
6. Before you get a mortgage, save enough for a down payment. If you want a $100,000 home, save 20% ($20,000 - did you use the decimal trick I taught you, here?). If you want a $500,000 house, save $100,000. If you do not, you will pay much more. When you owe the bank more than 80% of the home’s value, you have to pay PMI – Private Mortgage Insurance - and that could cost you up to $100 a month, or more. That is basically free money to the bank, because you are at risk to not pay on your mortgage and that money will help make up the difference if you don’t pay. There are two ways out of it: 1) pay the 20% down payment at time of purchase; or 2) bring the value of the house up. Those are your two options. As soon as your house value is higher than 80% of the mortgage, call your banker and let them know you want to remove the PMI; they will not do this unless you tell them. They will call for a new home appraisal to find out if your house is now worth 20% more than your mortgage.
7. The greatest way to make your house an investment, instead of a savings account, is to pay off your mortgage. That’s right - either way, you will need to pay it back within 30 years, or sell it. Paying it off relieves stress, and creates an investment that will always be worth something.

If you want to pay off your house quicker, there are multiple ways to do so, including:

1. Pay your mortgage faster – If you pay more than is asked of you, by your mortgage lender, you will pay off the house faster. Try bi-weekly mortgage payments; when you get paid, you pay your mortgage. Each time you pay, it lowers how much you owe. Since interest is accumulated daily, when the monthly mortgage is counted, the amount you owe in interest is also less. The future interest payment decreases, because it’s less interest in the loan. You can also try paying an extra payment each quarter. Just this will cut a 30-year mortgage down by 11 years, saving you more than $60,000. If you have a 30-year loan and the interest rates are lower, refinance it to a 15-year loan. If the interest rates are equal or higher than your current one, act like you have a 15-year mortgage, and pay that amount each month. If you pay like a 15-year loan, you will only pay on a house for 15 years.
2. Buy a distressed house – This is my specialty. I flip houses on the side. Before you think you can do this, you need either of these two things: 1) the ability to swing a hammer, and experience doing the work; and 2) a good, trustworthy contractor who won’t charge you an arm and a leg. You need to know what you are doing, and if the house you are buying is a good deal, if you do the work. Check out the book Debt Free Flipper, and learn what you need to do to find the right opportunity.

Buy at the bottom of the market and then sell at the peaks - The easiest way to make a return is by playing the market, but be careful; if the market drops while you still own a house, rent it out until the market returns, and then sell it after it increases above the purchase price. I said it was easy, but that is only in the sense of what to do; you do not control the market and...