They’re the wise words of wisdom every budding narcotics entrepreneur will happily share: “Don’t get high on your own supply.” Why? Because if you smoke your own product, you can’t sell it! Then you don’t make any money. That’s business 101. While that lesson seems obvious to drug dealers, many of us make the exact same mistake when it comes to real estate!
For most new real estate owners, the first ever purchase we make is our own primary home. And we go BIG. After all, it’s an investment! But here’s the problem. No one is paying you for this product. It’s your own supply. And it’s only an “investment” in the hopes that someone will pay you more for it years later. But during that time, you’re responsible for maintaining the investment. And those cost are big: mortgage interest, property tax, maintenance, insurance, realtor fees, etc. On average, homeowners lose money on their primary home to the tune of 2-3% of the home cost per year.
But INVESTMENT PROPERTY is quite different. Because there’s INCOME. Someone is paying you rent. You have that same benefit of appreciation, but you also have INCOME the entire time. Owning investment property is how you build real, actual wealth from real estate.
So to recap:
Primary home: Costs you money
Investment property: Makes you money
So minimize the size and expense of your primary home, and focus your dollars on building wealth via investment properties! (And of course index funds)
As always, reminding you to build wealth by following the two PFC rules: 1.) Live below your means and 2.) Invest early and often.
p.s. Don’t do drugs kids. I don’t! I’m just using the drug dealer thing as a funny example.