I heard someone ask, “What is something that most people believe that you know is incorrect?” I thought about it, and this is what I came up with:
Buying a house is not a good investment.
Here is why:
I believe that everyone’s financial goal should be to get to the point where passive income is greater than fixed expenses. And buying a house does not do that for you. Maybe you get lucky and your home doubles in value. Odds are not in your favor. What you can bet on is that you are going to owe your mortgage payment for the next 30 years. And you need to think about the cost of the down payment, and how that money can be making you money somewhere else.
The real question is where to invest your money where you will start generating passive income. And that is a great question. Before we get there, you first have to start saving money so you have something to invest. Then invest it somewhere where you have a very strong understanding of the process, value and cash flow.
Here are two areas that you could invest in:
If you really want to invest into a house, then do the following: Buy a multi family house. Live in one unit and rent the others out. Make sure that your rent roll covers your mortgage payment and then some. Now you are living for free, generating equity in a building, and kicking out some extra cash. When you have generated enough cash, do it again. But you need to understand the underlying financials. If you live in NYC like me, this is not an option. Prices are often too high to get started and you are not going to be bringing in more money in rent than the cost of your mortgage.
Is there a way to monetize something that you love and are good at? Maybe you are a master at crochet and you can make an educational video that you can sell. Get creative, and try to find something that will continue to provide income in the future without relying on you putting in more work.
In my own life, I stay away from any investment where I do not have a deep understanding of how the market/ business works. If I want to invest into something new, then I take the time to learn everything that I can about the investment. A good way to do this is to do some work for someone that is currently involved in such investments.
Hopefully we can all get to the point where we can buy a house and still be in a positive passive cash flow scenario. Thats what I am working towards.