Some people regard their retirement savings as their holy grail. What if you can diversify that by buying a house? Yes, touching your retirement or funneling away from your retirement savings plan can be terrifying and a non-starter for many people. But your host David Sidoni promises you that if you listen to this episode, you will find MORE smart ways to save safely for your retirement. You don’t know what you don’t know. Also, listen in as David answers some listener questions and gives some random thoughts. Diversify your retirement savings today!
How to Use Your Retirement Savings to Buy Your First Home the SAFE Way, and Deep Random Thoughts
First Time Home Buyer SAFE Tips On Diversifying Your Retirement Savings By Adding A Home Purchase
I believe if done properly and safely, history shows your home can be looked at as an investment and part of your total estate portfolio. You didn’t think you had an estate. It’s not just for the rich people who live in the Hamptons or Downton Abbey. I don’t think it’s safe to buy and sell houses like cryptocurrency unless you know what you’re doing, just like with crypto. Is there a happy medium to co-mingle your safe retirement savings plan with your homeownership plans and get you into a home sooner than you think? Hell, yeah. What do you think I’m going to talk about in this episode?
If you’re new, welcome. Thanks very much. Let me explain to you how this show works. Because I’m such a baller and have such an influencer lifestyle, I’m here in my big dark office while everyone else has gone out in the world tearing it up. I’m here to discuss the financial nuances of retirement planning. Can I be more boring? To try to prove to you, who am I kidding? I’m not trying to prove to you. I’m trying to prove to myself that I’m not a floor monkey.
What’s that? Don’t you know what a floor monkey is? I looked up a loser on Urban Dictionary and discovered that a floor monkey is a synonym for a loser. As in someone at the club who has to dance on the floor instead of hanging out in the dope VIP bottle service area. By looking that up on Urban Dictionary for the show, I proved my point that perhaps I am a loser.
We’re going to start with some random thoughts. There are some nuggets of wisdom in here for you, but I’m going to wrap them up in a fun little way. I’ve got tons of notes in my notes on my phone or voice memos every time I think of something that I would like to share with you guys out there. Every time I’m working with a first-time buyer, we’re running into something new and I’m like, “I should share this with everyone.” There are nuggets of how to buy home wisdom, truth bombs of love and some of these are going to be some reader questions and comments.
After I do a few of those to prove to you that I’m not a complete floor monkey, I will get into the expanded version of this episode’s topic. Using your retirement payments like your 401(k) in creative ways to expand your wealth and doing that by maybe you getting a home even faster than you think without sacrificing any of the safety or security that you desire. I’m no risk-taker. I’m not trying to sell you some get-rich-quick scam seminar. I don’t sell squat. The goal here is to educate the masses, not to be messes.
First random deep thoughts. I saw that this old SNL, a little quick-hit video series. It’s making the round on TikTok. They’re called Jack Handey’s Deep Thoughts. I don’t know if you’ve seen them. It’s an old thing from the SNL when I watched when you were not old enough to stay up that late on Saturday Night. It’s a picture of a glowing meadow or some serene scene and then there are some random thoughts that scroll by with the mellow voice.
[bctt tweet=”Your home can be looked at as an investment and part of your total estate portfolio.” via=”no”]
It’s a writer on Saturday Night Live. His name was Jack Handey. That’s why it’s Jack Handey’s Deep Thoughts. He’ll say something like this, “To me, clowns aren’t funny. In fact, they’re scary. I’ve wondered where this started. I think it goes back to that time I went to the circus and a clown killed my dad.” Now, you got to picture the music underneath it. It’s like a piano.
Some of you, Gen Z and Millennials, are going to get the pure joy that we Gen X-ers got originally on Saturday Night. Here’s my own How to Buy a Home deep random thoughts to start us off. Don’t expect punchlines at the end. At best, you’re going to get awful dad jokes or an obscure ’80s reference. These are more random than deep. Here we go. This first one isn’t even from me. It’s from an old reader, Madison, one of my first-time home buyers. She said this, “Giddy unicorn bubble and budgeting all day long, that’s how you buy a home in one sentence.” There you go, deep thought number one.
Deep thought number two and this one is going to get me in trouble with some realtors, but I don’t care. “Some realtors won’t show homes offering low commissions to a buying agent, even if it’s the perfect home for you because you are a transaction to them, not a relationship that will grow and last forever. They just want to squeeze as much juice out of you as they can in as little time as possible. You’re like a lemon for their halibut.”
Deep random thought number three. This one came when I was working with some first-time buyers. One of them was a fireman and I asked him a question. When you’re a new fireman, you spend countless weeks and months training at the academy before you even get the job. In your first year on the job, you have to be a year behind a captain or a senior guy. By that, I mean a year you have to follow someone right behind them before you go into any fires. It’s a mandatory probation period after you’ve already busted your butt for a long time at the academy. You’re never going to fire by yourself, not for a whole year. You’re right behind a captain or a senior firefighter.
The city doesn’t think that’s a good idea for you to go in by yourself, but the real estate industry does. They send rookies out with almost no training, no long academy period and no probation period. That’s funny because the number one phrase you hear from realtors about all the difficult things that happen when a home is under contract is that they’re putting out fires.
Our final deep thought before we get into our topic is, “Fight-or-flight is a human emotion and we are ecologically programmed to avoid pain. As technology made us soft, you rent and your rent sucks, but do you feel the pain every month? Here’s a tip to help feel the pain to help motivate you to the reality of the wasted money. Make your rent payment difficult to do. Stop the auto-payments that you don’t think about. Make it hurt.”
“Ask your mom and dad what a checkbook is and then each month, write a check. Feel the money oozing out through the ink in your pen as you write a check and remember to write in cursive. Pay it with a money order. Drive to a sketchy part of town and make it scary like Grand Theft Auto. Spend the extra time, energy and money to make it feel super painful. Once a month, flog yourself into submission to end this cycle.”
Moving on to this episode’s main topic, retirement funds and you. That’s like a John Oliver episode. We did a little few random topics and thoughts at the start. Now, we’re going to get a deep dive on one big topic. It’s like John Oliver, except I’m not British. I’m not funny. I can’t afford a Russell Crowe divorce movie paraphernalia and I don’t have a team of writers to help me out, as you can tell by those first few thoughts.
We’re going to cover this big topic and then I’m going to finish after we go over this with a few more reader thoughts and questions. If you’re reading but you don’t have retirement funds, you should start young. I didn’t necessarily start young. I absolutely did not, but I highly recommended it because if you do start young, then you can retire young with a whole bunch of money. You can get plastic surgery and be the coolest MILF or DILF on the block. If you haven’t started yet, you should read this and figure out how to start anyway.
First, one must understand that any retirement funding is not a savings strategy. It’s a wealth strategy. It’s not just saving that you don’t have to think about. That sounds wonderful. Everybody loves that. If you’re doing that, you’re taking 10% of your paycheck every week and putting it in a jar or under your mattress. That’s what saving you don’t have to think about is. A 401(k), IRA, other tax benefits or retirement funds are wealth builders.
There’s an old principle that I will guarantee to make anybody wealthy if you start young enough and truly live by it. I’ve mentioned it before. It’s from a book called The Richest Man in Babylon and it’s very simple. You live by the 70-10-10-10 rule. You survive on 70% of your income. You put 10% of every month of your income into savings, safe and secure. You put 10% into investments with higher growth potential and then you put 10% into charity.
The book believes in cosmic karma and you reap what you sow in all aspects of life, including giving. It leads to a happier and more fulfilling life. If you’re not about that, rock on. You can go 70-15-15 and enjoy your life here on Earth, being emotionally fulfilled with material goods and living that soulless life of greed and excess, but whatever. You do you. Seriously, it does feel damn good to have some extra coin to help others out. Give it some thought. You want to start with ten.
If you do the 70-10-10-10 and you start young enough, I guarantee you’re never going to go hungry when you’re old and you can’t even pick up a fork. That’s because you can pay some nurse to spoon-feed you a galactic super goop or whatever the heck it is we’re going to be eating in the future. Wherever you are in your home buying process, you can use this formula to help you get options for when you finally do buy. We’re going to talk about options in another episode someday because that keeps coming up over and over with my buyers.
I see this all the time with first-time buyers. They scrape up what they can do to make it happen and I applaud that. That’s awesome that you got there, but if you’re spending your last year leasing, you can improve your options by living 70-10-10-10. Seriously, you will be able to have tons more possibilities if you buckle down and live that way.
[bctt tweet=”Any retirement funding is not a savings strategy. It’s a wealth strategy.” via=”no”]
You can adjust the formula any way you like, but realize when you take from any of the tens, then you’re losing the eighth wonder of the world. That’s the time of compound interest. Maybe if you’re buying another appreciating asset, like a home with some of your tens, you’re still building with a plan towards ultimate wealth. Hear me out on this. It will make sense.
What does that last twelve-month lease look like if you’re going to use the 70-10-10-10? It’s not going to be 70-10-10-10. It’s going to be 70-10-18-2. The 70% will be your living expenses. You’re going to be eating ramen and streaming movies for a year. No more pub crawls or nights at the club. The 10% will be savings because this is not a sketchy risk plan. You still would need to do ten to savings. The 18% goes to down payment savings and the 2% goes to charity because, whatever you believe, I don’t want you to go to hell or I don’t want universal karma to be working against you.
The bottom line is you all got somebody. Your dumb brother, sister or roommate could use a little help and deep down, you love them. Do you want to go nuts? How about going 60-10-28-2? That’s tough because you only got to live on the 60, but if you’re doing it with a partner, there’s nothing like living dirt poor together for a year or two and then the feeling of moving into a home, walking around that glorious big space. It’s something you can touch and feel with your hands, unlike a retirement spreadsheet. It might not be the mansion that those ridiculous content creators live in. Thanks to their stupid YouTube channel, but at least you know that your job has more stability than Myspace. Whatever happened to Tom, he is probably living on an island somewhere with his retirement.
Using The Formula For Retirement
Speaking of that, let’s get back to how to use the 70-10-10-10 with this episode’s topic, your retirement funds and funding. You probably figured out how that fits into it, but if you’re funding a retirement, that’s going to be one of your tens. If you’re funding a retirement, what is the purpose of doing that? You have a goal. What is that goal? For most, it’s to grow wealth without having to think about it so you can retire safely and securely. You use that money to spend in your old age, so you don’t have to work until you die.
There’s no judgment here. If you want to work as long as you want to until you die because maybe you love what you do, awesome. Live a rad life. Do whatever you want. If you choose to work forever bitching, then your retirement fund can be for better vacations and to spoil the hell out of your grandkids or your dogs. You can choose to have all that money and live in a big mansion but keep working or maybe you take another job, be a Walmart greeter in your golden years, mostly just to have a bitching people have Walmart Twitter account when you’re 78.
The goal is to fund retirement without having to learn to play the stock market or become an investor because those things can be risky. Some of them have simple historical ways to do it, but maybe you don’t want to deal with and learn all that. You just want a nice, simple and safe retirement. What age is it that you want to retire? Is that 10, 20, 30 or 40 years away? Whatever it is, there are safe and practical retirement strategies.
They work on anticipating a 3%, 5% or 8% annual return on your investment so that you can use the aforementioned eighth wonder of the world. It’s not me who said that. That was Einstein, compound interest. This works and I completely agree with anyone out there starting early using a 401(k) or another traditional retirement planner. I’m down. I’m going to give you a little secret because it can work better than the traditional safe way even without buying a home. It’s from somebody else smarter than me. It’s not my idea.
Your retirement is down in these traditional safe investments in a historically proven way for you to not have to work until you croak. It’s a fund for your future. For most of you, your home is going to be that too. Historically, it’s going to go up and you’ll gain equity by paying the mortgage monthly, like you gain returns and dividends on your retirement and savings when you put them into a 401(k), IRA or something like that. It’s that simple.
Diversifying Your 70, 10, 10, 10
Let’s discuss how to diversify your 70-10-10-10. The tens are not all into one retirement, bucket, piggy bank or whatever image works for you. Each ten, whether it’s saving, investment or charity, might go into a few different places. Many people like to use safe, no-thinking and auto-contribution systems. The 10% goes right into a savings account, 10% goes right into the 401(k) and then maybe 10% goes to your absolute favorite charity. Some of you might be taking that end and spreading it out a little. Let’s take a look beyond that system of auto-pay.
As we move into this, if you’re starting to question the division of the tens, remember the source. That’s me. I’m the source. Was that not clear? At first, I didn’t understand this stuff at all. I learned about it, implemented it and then made it my life’s goal to educate people on this. Notice if you ever listen to my show, it’s a real estate show, but I don’t ever preach about flipping homes, how to invest in homes or how to build wealth buying other real estates. I get it. That works, but that’s a completely different thing and I don’t want to confuse anybody. I preach, “You already pay a stupid rent. Why not get an appreciating asset that you need that’s going to go up in 20, 30 or 40 years as you own it and you can use that to build your wealth?”
Before you pooh-pooh me, speak in the unthinkable about perhaps diversifying your retirement away from the safe stuff. Let me ask you this. How much do you know about your retirement savings? Do you know how it works or do you just sock it away without thinking about it and trust someone to manage it for you? When it comes to adding wealth, by subtracting rent and adding a home asset, I feel pretty good about having a numbers nerd off with anybody. Those are the things I know.
Prioritizing Your Home Payment
As I said, I know it. In this part, I failed at it and then I tried again. Now, I’m teaching others how to do it safely with very little risk. If you’re socking money into that monthly retirement and you believe in the numbers of owning a home, think of contributing to your home as another long-term investment. Here comes what’s going to sound like the risky scam investor seminar sketchy advice. This is the whole meat and potatoes in one sentence. Decrease your monthly retirement contributions and put that money into increasing your monthly housing payment.
I know you’re freaking out. Breathe and hear me out. The philosophy behind this is all you’re doing is diversifying your portfolio. The only difference is you will understand this part of your portfolio. Do you comprehend how your 401(k) works or do you put in a monthly contribution, let the money management company handle it and thank God you don’t have to figure that crap out? Most of you do it this way because you got a lot going on in your life and you want to be safe. You want to know that it’s going to pay off. You do it that way because that’s how it’s done.
Don’t get your Spanx in a bunch. I applaud you for doing it that way. A no-thinking contribution is quite often the best way to save and maybe even grow your wealth, but if you want to grow wealth, the numbers matter. The big numbers we’re looking at here are very simple. I’ll break it down to this. Wasted money on rent for years and wasted years of home equity appreciation because you didn’t get started earlier. Don’t forget you get to live in this monthly contribution.
[bctt tweet=”Think of your home as another long-term investment.” via=”no”]
Here’s the breakdown for you. If you put $1,000 a month in your retirement funds, what if you diversify that contribution by splitting it into a retirement fund and a home payment. Now, you run your numbers and you realize that for the next several years, you’re going to get a 3% to 4% return on home investment. This will be a fixed monthly payment that you already make, but your rent payment isn’t fixed. It moves.
You diversify your $1,000 into $500 to retirement. The remaining $500 that you would have put in your retirement, now you put towards a higher monthly housing payment. When you’re looking at the numbers of how much you can afford a month and you think, “That’s too much.” Now you’ve got $500 more, so you’re not going to feel that pinch, but you can start owning that home earlier, which builds you more wealth.
If you’re in the beginning stages and you haven’t even looked at homes yet or talked to a mortgage broker to understand how much $500 a month in payment can buy you, do this. Go to Zillow right now and look up homes in your area at one price, not the first-sale homes. Listing prices don’t matter. Look at the sold prices in the last three months. Do the same search and add $90,000 more to the price. That’s how much more a home you get with an extra $500 a month put towards the payment.
You’re upping your quality of life and ability to buy. If you believe in the numbers, you will understand that you’re not taking away from your retirement. You’re simply diversifying your retirement portfolio. With that diversification, you get the benefit of living in a part of your retirement fund for all those years before you retire. If you consider your home at least a ten-year investment, then you can think of its part the same way that you think about your 401(k). It’s safe and not sketchy. You get to enjoy it while you’re young or younger because, eventually, you can keep enjoying it as you grow.
That’s when you buy. What about before you buy? Can you use the same theory? You bet. Don’t be afraid to fund your retirement a little bit less at the same time as you’re trying to save up and funding your down payment savings account because, eventually, both those pieces all go to the same place, your future wealth. We use the same principle, so now you can do something like this. You do 70% to live on, 5% to your retirement, 23% to down payment savings fund and 2% to charity. That’s using your monthly contributions as a way to use your retirement funds to diversify how you are growing your wealth.
Funding Your Down Payment With What You Saved
This next piece is using what you’ve already saved, whether it’s in your 401(k) or IRA, to fund your down payment. Why on earth would you ever want to do that? You hear terrible things about it, “You’re taking away from your retirement. There are going to be tax implications.” For all the reasons stated in episode 57 about buying now or waiting as well as episode 40 where I said the same thing. Realizing that the show lasts forever, these formulas were created at the end of 2021. This could be different in the future, but buying now instead of waiting, it’s probably still in your favor, depending on how far in the future that you’re reading.
This part where I talk about utilizing your 401(k) and IRA to help fund your down payment, it’s a creative solution back from the How To Financially Prepare To Buy Your First Home. This is from episode 22 in July 2019, pre-pandemic. If you took this advice back then and you did what you thought was scary and borrowed from your 401(k) or IRA, even through a freaking global pandemic, you would be up in your house big. The median home price back then was $268,000. Now, it’s $375,000. It’s a $107,000 profit for making this move and paying your mortgage like you paid your rent.
I’m going to make a little side note here. If you’re new to this, do not think that I’m saying, “Buy a house. You’re going to make $107,000 every two years.” Do the math wherever you are. If in your area you’re closer to $300,000 or $600,000 for a house, whatever it is, I’m not saying that you’re going to make $200,000, $300,000 or $400,000 every couple of years. That’s not what I’m selling. This period caught a good run-up in prices. Know your history and math and compare that to the long-term historical math of a 401(k) or an IRA. Even in the average years of homeownership, you’re still going to be matching, if not exceeding, the 401(k) and IRA returns.
The way that you do that is you borrow against your retirement funds to get a down payment, something that mathematically makes sense in a rising housing market. For this piece, I ask you to consult with a tax pro and your money manager. Most of the time, depending on who the money manager is, they have different programs, but most of them have programs that work with these numbers. It’s not necessarily a simple formula that everybody understands or comprehends right away, but I’ve had buyers do it for fifteen years.
The numbers are this. If you’ve got a 401(k), most money managers are going to allow you to take 50% of what you’ve got in there or a max. Usually, that’s up to a max of $50,000. You can pull it out as what they call a non-taxable event if you’re using it to purchase your primary residence. If you’re using it to buy a home, you can get up to 50% with a max of $50,000. You’ve been saving forever. It’s there for your future.
The same principle is reducing your contribution monthly. You’re diversifying your long-term retirement investment and gaining wealth. That money you have is gaining wealth in the stock market, but now you’re going to be gaining wealth in the stock market and the housing market. You’re replacing your largest monthly output, your housing payment and you’re putting it into something that grows wealth as opposed to into something that you get no return on. It’s that simple. Talk to your money manager. Talk to a tax pro or get a tax pro and talk to one of them.
The tax penalties are the biggies that everyone freaks out about. This is another example of people being afraid of either old philosophies or people now being afraid of stuff they don’t know. Retirement savings is not a horror movie. It’s not a script of scary monsters lurking in the shadows. There’s not a dude with a hockey mask and a knife waiting to stab you with an IRS form. For a primary residence, most don’t get a tax hit or penalties if you pull early from the 401(k) or other retirement vehicles if it’s going towards your primary residence. They encourage you to do this.
I know it seems too good to be true but think about it from the money manager’s point of view. They don’t just do this out of the kindness of their heart. They realize homeowners are 45 times wealthier than renters. They know that so they encourage you to get out there, buy a home and get some stability, so then you’ll have more money later. You’ll give it to them to manage and then they make more money off you. They let you touch the untouchable 401(k) without penalty.
The IRS I was talking about can do this too, but it’s at lower numbers. Check with a pro, but usually, it’s about a $10,000 cap. Just because I don’t know doesn’t mean it’s not worth it for you to explore it. That’s what I’ve heard from other people, but tax laws change every single year, so it could be different by the time you’re listening to it.
[bctt tweet=”Decrease your monthly retirement contributions and put that money into increasing your monthly housing payment.” via=”no”]
Traditionally, there’s a 10% early withdrawal penalty, but that’s not there if you’re using it for a home purchase. There are restrictions and some taxes you still have to pay, but I’m not a taxman. Isn’t it worth a call to find out if you can get a little extra money that you already have saved up without a huge tax penalty instead of having to eat ramen and mac and cheese every day for months while you save up for your down payment?
Beating The System
Let’s ponder this thought together. Do you log onto your retirement account, savings account or investment account and look to see how it’s doing? If you diversify and use some of this for your primary residence, you can keep doing that but with a little twist. Now, you can look at the computer screen or your phone and you can track your investments while you’re lying in bed and sleeping in another one of your investments. You get to use it.
What are we all trying to do? We’re all trying to figure out how to do the best we can. If we’re thinking about it, we’re trying to figure out how to beat the system. Your greatest tools to beat the system are two things, knowledge and leverage. If you’ve got a 401(k) and you don’t have a bunch of other investments out there or gold lying around your house or you’ve not invested in crypto-crazy currency, you might want to start thinking about diversifying. You might want to beat the system that way. Knowledge of how to do that and then leveraging with low down payments is a great way to do it. Play it smart. Get into the game while the getting is good.
I got to give you a little bit of a grandma and grandpa alert. Do not try to discuss this with anyone. I would put the minimum ten years older than you because they’re going to freak out. Definitely, not 25 or 30 years older than you. Understand that, potentially, you’ve got 50% of your 401(k). That’s tax-free without penalties and you can use it to diversify your long-term wealth. Don’t fear it because conservative old people frown on it and look at you funny. The key is it was different back then.
Here I am. I’m the dude banging on the old generation, not understanding how insane it is to try to get ahead now. I’m on your side. Everyone has to be creative now. People before us didn’t have flat salaries versus the cost of living. They had increasing salaries. They didn’t have outrageous student debt and these super-low savings rates. When they put stuff in a savings account, they get a return, but that’s not now. It’s not in the 2020s and here we are. It is what it is. It’s time to adjust and be ready to forge a new path towards financial freedom.
Speaking of 401(k)s and retirement, I’m going to do that quick little side note I mentioned to. Some people hate doing this. They hate thinking about having to save for their future. It’s like car insurance like, “I listened to Flow or that little GEICO lizard. I picked one and I don’t want to have to deal with it.” You blindly sock it away because it’s an easy way to feel safe and make you feel like you’re adulting. If you’ve done that and you don’t understand how it works, but you still feel like, “Someone else takes care of it and I feel better,” take the weekend off of social media or live in your best life and do a little research and reading.
I highly suggest a book called Unshakeable by Tony Robbins. I know I’ve said this before. I know you’re still like, “Seriously, dude? Tony Robbins, the motivational guy? The guy who was banana hands from the 2001 Jack Black and Gwyneth Paltrow movie that possibly should be canceled now in the 2020s for fat-shaming?” “Yes, that guy, the motivational dude.” It took me someone I respect telling me that he had some legitimate financial advice before I would even believe it.
Even then, I still had to listen to him being interviewed by this guy, Gary Vee, who I respect. I discovered through the show that this guy had some incredible insights, mostly because they weren’t Tony Robbins’ insights. It’s not a diss on him. The dude is genius and smart enough to interview the brightest minds in finance and share their wisdom. This book blew my mind. There is so much money being wasted and not used correctly and not building as much as it could in traditional 401(k)s and traditional money managers. It’s a total game-changer. I recommend it, Unshakeable. It’s on Audible.
The Last Random Thought
We’re going to wrap up this episode with one more random thought. Finally, I’ll give you a little reader comment and question. Random thought, I was listening to a local podcast and a local famous radio show host here in Southern California said that she rented for $3,000 a month for thirteen years in LA. Now because you can do radio remotely, she is going to be moving to buy a home in Maine. If I had been doing this show years ago, maybe things would have turned out a little different. Her friends and family all told her that renting for that long for $3,000 a month was the dumbest thing she ever did. I’m not here to judge, but let’s give some numbers.
If you own a home for ten years, you’re always going to make money. Housing is going to go up and down. The worst crash in history happened in 2008 and it took four years and then it started to come back. The worst crash in history was in 2008, 2012 and housing came back. Why? Because people got to live somewhere. Years ago, if she moved to LA, rented for her first year, paid the rent, and then saved to buy and in 2009, bought a home. It would have sucked for the first three years because her house would have dropped 20%, but over the years in LA, real estate has appreciated 114.72%.
Even if you suck in Math, you can figure out that dropping 20% and going up 114.72%, she almost doubled her money, but because she never looked into it, she is taking her savings and buying now in Maine. There is nothing wrong with moving away from an expensive area if you want to, but moving away from an expensive area because you have to, that happens when you keep paying that expensive rent so you can live your dope life rather than working the formula.
Maybe having a little bit of a downgrade and to start saving for a down payment and buying something maybe a little smaller than you would like. You could start putting that $3,000 a month towards an appreciating asset that will allow you to move up in the same expensive area because you’re getting equity in the home with each payment instead of a monthly rental. In her case, double whatever she paid in 2009. It probably would have cost $750,000 in 2009 and then it would have dropped down to about $600,000 over those first three years because it dropped 20%.
That means you could have sold this now for $1.2 million. She would have bought historically one of the worst times ever on paper and yet now she is going to be moving to Maine with her $3,000 security deposit. Even at the worst time ever, if she bought in 2009 for $750,000 with 5% down, the home would have dropped $150,000 to $600,000, but then it would have gone up 114.72%. Here’s the exact Math. It’s $1,288,320. She would only have a loan left of $550,000 because she would have been paying for thirteen years and would have paid down $200,000.
At the end of thirteen years, because she rented the whole time, she moved to Maine with a $3,000 security deposit minus the cleaning fees instead of selling the home, paying off the loan and having a profit of $738,000. Don’t think I’m judging. How could I? I did the exact same thing in LA in the 1990s. That’s why I started the show. If this sounds like you or maybe you’re heading this way or maybe you don’t want to start heading this way, let’s get you off that train.
[bctt tweet=”The best tools to beat the system are knowledge and leverage.” via=”no”]
Answering Listener Questions
Let’s get to the reader question that I got. I thought it would be fun to share with you. The reader says, “I never understood how houses are bought. What is a mortgage, lender, LTV, PMI or any of that stuff? No one ever told me how to buy a house, so I figured it was super hard, but your show explains it right out of the gate and puts it into the simplest concrete terms.” You need a certain percent of the cost of the house in cold hard cash and that’s it. There are credit scores, PMI and all kinds of stuff, but at the end of the day, that’s the basics.
I thought, “How will I ever afford a $350,000 house? How will I ever get $350,000?” That has taken it back to real basics. She thought she would have to figure out $350,000. No, we can work that out. We’ll go on to question number two. She asked, “Could you please send me the doc that explains the tax breakdowns after owning a home?” In episode 9 in 2019, I did talk about increasing your deductions on your W-4 style paycheck. That’s where those little acronyms and initials are. They take out a certain number amount for your taxes. That’s based on how many deductions you claim when you first fill out your tax form.
Most people claim 0 or 1, but there’s a whole system that you can use with your tax pro to figure out how much more you could get with each check if you had a big annual deduction to offset it. Your mortgage interest, that payment that you make every month that’s mostly interested at the beginning, that’s pretty hefty in those first few years. It’s one of the ways that you can increase your deductions and get more money back every single month.
Again, I did explain this in some early episodes a few times. The tax laws have changed with a standard deduction. You got to check with your local tax pro or a unicorn mortgage broker to see how the new laws are going to work for you. For most people, the last time I checked, it was under $750,000 primary residence. You can still get at least up to a $10,000 deduction. You can apply that towards your annual refund or if you and your tax professional work together, you can spread it out so you can get pieces of that monthly so you get a bigger paycheck all day long and that new payment doesn’t freak you out.
The next question she asked was, “Could you send me a super-unicorn referral for someone in my area?” That’s a beautiful segue. Some readers do indeed use this information from the show to find a unicorn on their own and that’s super rad. That’s totally why this show is going. I’m throwing out the free knowledge to you and hoping that you can help use that to find pros who care. I want you to beat the system and not get screwed.
As word has gotten out, as the show has been on for a few years, a lot of my unicorn friends and other great realtors in the United States and Canada, I started matching them up with readers. In 2021, we’ve had 48 readers find a unicorn and buy their first home. I had another sixteen that reached out to me and were in Southern California. I didn’t sleep for most of the summer, but they all closed on a home too. It’s totally up to you. It’s your call. Read for free, take the info, find your unicorn on your own, make it happen or you can reach out to me and we’ll see if we’ve got a unicorn in your area.
As of October 2021, we are up to 180 unicorns all over. Find me on Instagram @DavidSidoni. That’s where you can shoot me a DM and I’ll get back to you. If you want to laugh at me, TikTok @HowToBuyAHome. If you want to contact me, the best way is DavidSidoni.com or HowToBuyAHome.com. There’s a contact form on the bottom. Fill that out. I’ll hook you up with a unicorn and you can try them out. See if it works out for you.
This reader said one more thing. Let’s get into that. They said, “I make pre-tax $47,000 a year and I’m seeking to buy a home in the $175,000 to $200,000 range.” Maybe more contingent on the tax breakdown, she doesn’t want to be house poor while they’re still attending school. She graduated with her Associate’s Degree in Accounting. “I’m on my way to achieving my Bachelor’s very soon.”
“Let me give you a very general breakdown with those numbers, Ms. Accountant Person. $47,000 for a $175,000 to $200,000 home is basic. It takes way more than this to get the actual number. I’m doing the basics. You can’t figure this out by clicking it on an app. You got to get everything you know to a mortgage broker. This is assuming those basic numbers. We’re not taking into account history of employment, the amount of debt that you have, credit scores, along with a bunch of other things.”
“$47,000 breaks down to $3,900 a month. A $200,000 home with a 5% down payment will cost you about $10,000 at closing, 3.5% down payment and about 1.5% in closing costs. You’re bringing in $3,900 a month. Put $10,000 down, get a $200,000 home and your new payment is $1,250 a month. Now, $1,250 happens to be 32% of $3,900. That is right in line with the guidelines and income qualification that you need to qualify for a loan.” She is trying to figure it out. “There it is. The basics, you’re close. Instead of wasting time, get out there and figure this out.”
Finally, the reader said this. I’ll see if any of you can relate to the gushy parts. That was her words, not mine. “Your show is amazing. I started looking into home buying after our devil of a property manager has been giving us and our neighbors such a hard time. I popped into Apple Podcasts, searching home buying and yours was the first one to come up. Shout out to all your followers for the great ratings and reviews.” Another awesome segue. You, out there with me. If you haven’t already, please take five minutes and write a five-star review. I’m one dude out here trying to change the world, one reader at a time. If you do that, more folks can find us.
Back to what the reader said, “I didn’t think my family or I would be able to purchase a home until much later in my career. That’s based on the salary that I got going now. I love your show because it’s honest, encouraging and engaging. Your passion for what you do is so apparent and I’ve been bingeing it.” I say, “You can do this with you at the end of every episode.” That’s great. It sounds like a great way to end this episode. I’m going to have you all say it with me, including this reader. I’ve got a little secret here that might shock some of you. I used to be a dancer and I’m married to a choreographer. I’m going to count you in as a choreographer would. We’re all going to say it together. Ready? “5, 6, 7, 8. You can do this.”
- The Richest Man in Babylon
- It Will Cost You Much More To Wait For Things To Cool Down – Previous episode
- Should I Buy My First Home Now, Or Wait? Question Of The Week – Previous episode
- How To Financially Prepare To Buy Your First Home – Part IV – Previous episode
- Audible – Unshakeable
- How Much Money Do I Need To Make To Buy My First Home? – Previous episode
- @DavidSidoni – Instagram
- @HowToBuyAHome – TikTok
- Apple Podcasts – How to Buy a Home
This podcast was started for YOU, to demystify things for first time home buyers, and help crush the confusion. After helping first timers for over 13 years, I knew there wasn’t t a lot of clear, tangible, useable information out there on the internet, so I started this podcast. Help me spread the word to other people just like you, dying for answers. Tell your friends, family, and perhaps that random neighbor you REALLY want to move out about How to Buy a Home! A really easy way is to hit the share button and text it to your friends. Go for it, help someone out. And if you’re not already a regular listener, subscribe and get constant updates on the market. If you are a regular and learned something, help me help others – give the show a quick review in Apple Podcasts or wherever you get your podcasts, or write a review on Spotify. Let’s change the way the real estate industry treats you first time buyers, one buyer at a time, starting with you – and make sure your favorite people don’t get screwed by going into this HUGE step blind and confused. Viva la Unicorn Revolution!