Ep. 15 – How To Save For Your First House with How To Money Guy Joel Larsgaard 

 June 13, 2019

HBH 15 | First House

Adulting is hard and saving money sucks, but with the right advice from the right people, you may just find a better way to have what you want in life. Joel Larsgaard, the co-host of the super successful podcast How to Money, pops open his love of craft beer as he talks about his podcast and how they take financial matters in an approachable fashion. In line with our resident How to Buy a Home Guy, he also dives into the importance of saving money to help you achieve your dreams and buy that first house. Supercharge your savings and your ability to meet goals quickly with Joel and discover budgeting hacks and tips on investing in real estate.

How To Save For Your First House with How To Money Guy Joel Larsgaard

The How To Buy A Home Guy Interviews The How To Money Guy

We’ve got Joel Larsgaard. 
Thanks for having me.
Joel has an awesome podcast called How to Money. It’s him and his best friend, Matt. They’ve got almost 100 episodes. They’re up to 93. They started in December of 2017. When I was searching on the internet to try to find information for you who are thinking about buying a home, Joel and Matt popped up. Joel, I got confused because the first episode was talking about you guys because you like biking.
We’re huge fans of riding bikes. That’s the number one money savers you can do, is to ride your bike more frequently.
That’s how that started. I can truly attest to this because we moved the time of the interview because he doesn’t want to get caught in the rain. You rode your bike to work.
I try to ride it as often as possible, usually 80% of the time. That’s my goal.
It’s tough to get a house and you’ve got to save. Joel doesn’t just talk this. He lives it. They do some great stuff. It’s you and Matt. You talk about things. You also drink craft beer on your show. Tell us how that started.
There are a lot of financial podcasts and shows out there that do a lot of good, help folks. They’re also hard to relate to and it seems like they’re all about deprivation. It’s like, “How can I save every single penny or figure out how to make my life miserable while I’m trying to get my financial ground game together?” The craft beer in our show represents that willingness to spend money on things that matter to us, and not just purely thinking about the future, although that’s important but prioritize living a rich life in the here and now at the same time.
One of the first guys that I met when I started this podcast is a young guy who works at Disneyland. I help a lot of folks who work at Disneyland. We closed our 70th transaction with them. He didn’t think he could buy a house. He talked a lot of trash to me on the internet and said, “You’re crazy. I liked my landlord to fix everything.” After he sat down with me, we figured out it was going to be a year before he needed to buy a house. He said, “I’m going to save when I get back.” I said, “What do you mean, ‘When I get back’?” He’s seeing all Disney parks all around the world over the next few days, living like what you’re talking about. Have you heard of Beer Geek?
Is that a beer by Mikkeller out of San Diego?
They make some awesome beers. I’m a huge fan of theirs.
I’m a stout guy, so I’m going to try the one called Breakfast. There are a whole lot of people out there talking about how to live your best life and I love that. The issue is a lot of times, they talk about everything. You guys use your focus on money. That’s the cool thing. You’re coming at it from a perspective of, “This is stuff we did.” Is neither one of you a financial planner?
That’s correct. We’re normal dudes that found out as best buddies that this was the subject that kept coming up. We are small-time real estate investors. We like talking about saving money, investing and thinking about the future. Because it was something that we discuss all the time, we’re like, “Let’s create a podcast over a beer. We’ll talk about these issues and hopefully help some other folks at the same time.”
[bctt tweet=”If you’re willing to think outside the box, you can accelerate achieving your financial goals.” via=”no”]
You’ve got to listen to it. It’s Joel and Matt. They start the podcast with a beer. You guys are genius. First of all, you get free beer, so that’s awesome.
That’s pretty great. If the podcast was only to be able to get free beer, it was worth it.
They open the beer. They talk about money. At the end of the podcast, you guys review the beer. You guys know your stuff.
We’ve been drinking beer for a number of years. Matt has a little bit more of a refined palette than I do. There are so many good beers out there and so many small local breweries that people have been kind enough to send us beers from. We’ve been fortunate to try beers from all over the place. I will drink almost any craft beer. I’m thankful that we get to try some good ones because there are some good ones out there.
You guys do some great stuff on the podcast. One of your mantras is, “Frugal versus cheap.” I love that because you’re letting folks know that you can do things and still have your craft beers. At one point, you guys talked about the Acorns app. Do you remember when you guys talked about that and the guy who went on the golf trip using the Acorns app?
Yes. He’s a mutual friend of Matt and I. He talked to his wife two years before that that he wanted to do this trip with some buddies. He wanted to take a golfing trip to Ireland. His wife was like, “If you can come up with the money.” He downloaded this app called Acorns, which is cool. It rounds up your purchases to the nearest dollar. It creates these easy savings. It puts it on autopilot so you don’t even have to think about it. Over a couple of years while he’s planning for this trip and his wife is like, “It’s probably not going to happen,” Acorns comes through in the clutch. It turns out he has thousands of dollars in the savings account after this couple of years. She’s like, “You can go on this golfing trip with your buddies.” Acorns is one of these cool ways that you can save money without having to think about it. For lots of people, there’s a behavioral hurdle. It’s like, “I’m not going to be able to force myself to save money.” If you can have something working in the background that’s automated and that forces you to do it, it’s a great way to handle it.
Imagine Joel and his best friend drinking beer but dropping sweet knowledge nuggets like that. I’ve learned a little bit about Joel to know that one of the things that he saves for is cool art. My wife’s fabulous Thomas Kinkade is the exact opposite of your taste.
I like urban folk art. It’s weird.
My guys are going to have a goal, buy a house. Your goal is to give your family a little space. Yet, you don’t deny yourself stuff. Talk about folk art.
It’s been important to figure out what I call the why behind money. It’s like, “Why am I doing this? Why am I saving? Why am I spending on the things I’m spending on?” It’s taking a step back and seeing, “What are my priorities? How can I be mindful about spending money in those positive ways that move the needle and bring a measure of happiness in my life?” Buying folk art is one of those for me. Buying craft beer is one of those for me. Taking a fun trip with my wife and kids every year is important. I prioritize those three things the most highly. I try to cut back ruthlessly in any other ways that don’t move the happiness needle in the same way for me. That means driving older cars and biking to work as often as possible, which I love now. There are all these other ways in which I try to cut back the cheapest possible like cell phone service. I could go on and on. These are the things that we talk about on the show. If you can sit down, do some real soul searching, find your why behind money, prioritize a few things that do move the needle for you in regards to happiness and cut back in those other areas, it’s going to help you save for those goals that you have in mind, like potentially buying a house. At the same time, you’re going to be able to partake in the things that you do care about and not say that you’re going to travel twenty years from now when you retire but do some of those things in the here and now.
My brain is remembering everything from the podcast. Go to How to Money. I’m remembering so much about that why. There are so many podcasts out there. A lot of you reading are freaked out about adulting. What Joel and Matt do in that podcast, near the beginning, explains why you are doing it. The priorities were so great. It was different for each of you. That’s why there’s no one size fits all. Dave Ramsey was a great introduction. At this point, maybe you’re not listening because it feels like a one size fits all. 
We’ve talked about Dave before. He’s good when it comes to the topic of getting out of debt. He has helped countless numbers of people. The impact he’s had is impressive. When it goes beyond that topic, there are other people out there that can probably help you more on other topics related to finance. Part of it is his tone for me. The way Matt and I try to approach the show is to create a friendly, casual and easy to understand tone. That’s a big problem when it comes to people being able to learn about money. There are a lot of complex topics. We need people to simplify them and come down to our level. It’s one of our goals with the show too is to make it easy for folks to get started and give them the little tips and tricks like Acorns. It’s like, “I’ve been told I need to save, but how do I do it? How can you help me make it easy?”
I’ve listened to a lot. I’ve been doing this a long time. A few years ago, my wife said, “You’re super happy when you work with first-time buyers. Why don’t you focus on that?” I said, “No one does it.” She goes, “That sounds like the right idea to do it then.” It’s been great. I’ve been listening to people talk about budgetary mindset on such a grand scale. What you guys did is great. Pick your why and prioritize. It’s different for each of you. You took three things. While you’re still biking to work, using Acorns and rounding up, not to mention the 783 other tips they get from your podcast, instead of thinking about, “I’m saving money,” you guys focus on these priorities. It’s these little gifts to yourself, whether it’s folk art or whether it’s, “I saved enough from Acorns that I could take half of it towards my big goal. The other half is going to buy an awesome six-pack.”
The word budgeting has gotten a bad rap. We’re trying to take that back and say, “Budgeting is not a four-letter word.” We’re trying to help people see that budgeting can be positive. Budgeting isn’t about deprivation and cutting back as much as possible. Budgeting is about seeing what comes into your life when it comes to income and directing it in ways that are going to help you achieve your goals and boost your happiness. That’s what I think of when it comes to budgeting. Being friends with Matt and doing the show with him has helped me come around on budgets a little bit because I used to be pretty anti-budget.

HBH 15 | First House
First House: Budgeting can be positive. It isn’t about deprivation and cutting back as much as possible.

I used to not have a budget. For some rare people, you cannot budget and it could be okay. Most of us need a budget, especially if we’re trying to get on the same page with our partner. They’re one of these necessary things. If we can get the right perspective when it comes to budgeting, we can take that word back and say, “I’m going to budget. It’s going to be good because I’m going to be able to make my goals. I’m going to be able to change my life and my future and save for that house or take that trip I wanted to take, whereas before, money was slipping through my fingers. I didn’t know where it was going.” Budgeting is a positive thing. I’d never thought I would have said that a few years ago but it is.
When you listen to this podcast and you get to know them, it’s true. When you guys got to housing, you had the same thing. There’s a lot of one size fits all information out there. You work at your office. For you, when you were buying a house, it was a house. For Matt, he had a different perspective. It was more of a home, someplace that he was going to be in more. You guys even looked at buying a house differently.
Matt works at his house. He needs different things from it. He and his family are there all the time. They only have one car because he works six days a week inside of his house. He prioritized having a good workspace. I prioritized buying a small house, something that was incredibly efficient so I could save more of my money and route that towards future desires and reaching financial independence. Living in a smaller space was important for my family. We even did what we call house hacking, which means that we live in a part of the house and we rent out the other part of the house so that we could save even more. That’s what I prioritized. Your priorities shift over time too. We’re getting to the point, and I’m 35, where my family is growing. We’re pregnant with our third kid. We’re ready to stop the house hacking game and take back over our whole space. It’s been good while it lasted. It’s helped us achieve some of these goals that we had much more quickly than we would have if we had prioritized buying this nice home for our family to enjoy. It feels like we waited until the proper time to make that move.
I love the house hacking episode. I scrolled through and did everything that said, “House.” I did listen to a lot of the old stuff. My podcast is How to Buy a Home. It’s focused on first-time buyers. It’s pretty much divided itself up into three segments. The first segment is to reach and talk to people that don’t think they can buy a house. Every one of the 81 first-time homebuyers that I’ve had could have done it a couple of years earlier. They already knew where they wanted to go and were geographically settled. They rented for those last two or three years. Around here, it’s about $2,000 a pop. $24,000 or $48,000 was wasted. That’s level one.
Those people can learn from all of this stuff in your podcast where you’re talking about the basic budgeting and not fearing the budgeting word. The Excel spreadsheet can terrify some people. It’s great to me, the house hacking. My Disney clients, so many of them bought houses and rent a room Airbnb because the world wants to come to Anaheim. One of my first clients who house hacked started in 2011. In 2015, he invited me to this rad house warming party he was having. The entire backyard was redone. It’s super decked. I was like, “What is this?” He goes, “This is what I call 47 BnBs over the past five years.” I was like, “Cool.”
If you’re willing to live life a little bit differently, if you’re willing to think outside the box and if you’re willing to even be a touch uncomfortable, you can accelerate achieving those financial goals that you have in your life. Maybe that means renting a smaller space while you’re looking for a house so that you can funnel an extra few $100 every month toward that down payment fund or whether it means buying a duplex or triplex or renting out a spare room in the house that you do buy. There are all sorts of ways to supercharge that savings and supercharge your ability to meet those goals more quickly.
There’s a great guy. I found him through a Southern California friend of mine. I’ve been consuming everything he does. I don’t know if he’s national or not. His name is Adam Carroll. He does financial planning for people on college campuses. He does 50 campuses a year. His whole thing is great. He talks to everyone about, “When you get out of college, the duplex is the great first-time purchase because you’re still you, you’re fine and you’re single.” Are you guys already getting into real estate investing?
I’ve got three single-family homes in a duplex that I rent out. My goal has been to buy an investment property every two years. I slowed down a little bit, but it’s worked out well for me so far. Real estate investing is a great way for folks to go who are interested in it.
Tell the story to my folks who might be concerned about real estate investing like, “I can’t be a landlord. What happens if something breaks?” Explain to them how a refrigerator fits into a Mazda 5.
I did have to put a refrigerator into a Mazda 5. It’s probably not the ideal way to transport a refrigerator but it worked out. I did it all by myself too. I was able to lift it and have a dolly. You learn some techniques and do a little trial and error when you are a landlord. The stories of the difficulties of landlording can be overblown. They can make people frightened to even think about investing in real estate. We try to demystify some of that stuff too over on the show. We did an episode about screening tenants. That is the number one thing that you can do in order to ensure that landlording isn’t that hard. If you listen to that episode and you put those things into practice, you become a landlord that screens tenants well. You are going to eliminate 99% of the issues that would arise and you can self-manage your property.
I’ve been a landlord for years. I have never had a 3:00 AM phone call where the water was going all over the place. That happens, but I own multiple properties and I never ever face issues like that. Do I get emails that something needs to be fixed? Yeah. Do things pop up and I need to tackle them? Sure, but it’s not the same as it’s made out to be. In pop culture or in media, landlording is the most difficult thing. There is a lot of effort involved. It’s not passive income like other people make it sound in the real estate community. Investing in real estate, for what I’ve put into it, I’ve gotten amazing results. I’ve been thankful for investing in real estate.
It’s clickbait. It’s headlines. Everyone tells their story about their crappy tenants, what a nightmare it was, how they use squatter’s rights and stayed in there. Do you remember the SATs when they said, “This is to that as this is to that?” A good tenant screening equals no landlord stories, just as hiring a bad ass real estate agent equals great first-time buying home experience.
That’s completely true.
The whole reason for this podcast is the real estate industry is completely broken. The threshold to get your license is pathetic. In California, it’s 180 hours and 160 that is open book. If you can’t do that first 160 hours in ten hours, you’re illiterate because you just have to sit there. The last twenty hours, you have to study for a little bit and go take a test. It’s 3,000 hours to become a cosmetologist in California.
[bctt tweet=”People should be more intentional about saving their money and being careful about the house they’re going to purchase.” via=”no”]
That is one of the problems when people do go to buy a home. Finding a good real estate agent is difficult. If you do find an agent who is completely green, wet behind the years and doesn’t know what they’re doing, it can lead to a miserable home buying experience. It’s important not just to take the recommendation of your neighbor or your grandma’s best friend, but also to do your research. Make sure you’re doing business with an agent who has closed a lot of deals and preferably a lot of deals in the area in which you’re looking, where they know that neighborhood well.
You guys had many episodes about helping people buy a house. The difficulty is I’m starting this podcast to help people all over. We’ve got 4,500 downloads.
That’s great. Congrats.
It’s fifteen, sixteen episodes, but twelve people have already called me from Hawaii, Atlanta and Chicago. They’re folks that have needed help because what they’re finding with the industry is they’re not getting the help. They’re out there looking for it. On your podcast, when you talked about renting versus buying, you talked about a lot of stuff that was awesome that helped. You guys discussed that appreciation generally follows inflation and don’t believe that it’s going to go up forever. You are telling folks, “Your home is a home. It’s not an investment.” That’s what you guys believe.
It’s been sold to folks that buying a primary home is this great investment. That is typically the word that is used. Most people don’t treat their primary home as an investment. What they do is they buy this home. They’d been told that it’s a great investment. They do renovations out the wazoo. They put money into it that doesn’t feel like investing money. It feels like money to make your life better, richer or whatever, which is completely fine. I have a house. We’re about to paint the exterior soon. We’ve been waiting to do that for years. I am not kidding myself and thinking that that is an investment. It is protecting the house to a certain degree. Painting the exterior is important every few years. It’s important to maintain the property that you live in. When we’re told that buying a home is this great investment, it’s not always the case. It’s not even usually the case because of the way most buyers look at the home buying process. They’re thinking of it as a place to live, a place to enjoy. Investing is something different than that. We should be careful when we’re using the term investing in regards to buying a primary home to live in.
You guys talk a lot about your monthly items. Matt’s the Excel guy. You’ve come to love budgeting.
I’m more to go with the gut guy, but when I come to respect budgeting, my wife helps me out a lot with it, which I’m thankful for.
We could do a whole other podcast on that, learning to love it but also learning to work with your spouse. You mentioned that the saving rates are once again in the toilet because, God bless Americans, in 2008, there were no lessons learned. If your largest line item is your home, helping to turn the mindset, it’s where you think of your home as an investment, that this largest line item can go from rent into something. Over a ten-year period or not over a three-year period, don’t watch HGTV and think that you can flip this house. It’s understanding that largest line item goes into a long-term goal. If you’re going to fix it up, the mindset is that’s more for your quality of life unless you’re going to sell it in two minutes. It’s like stocks. “I have an extra $5,000 in my Apple stock.” Did you sell it? You don’t have it. It’s just sitting there and it could change over the years.
Even as a buyer going into buying a primary home purchase, if you will crunch the numbers and think of it as an investment, you can make a better decision. Typically, over the years, you’re going to build equity in a home. It’s this forced method of savings like you’re talking about. There’s an aspect of that to it. On the other side, a lot of people consider renting to be throwing away money. I don’t think that’s the case either. In either case, you are looking for a roof over your head. You’re looking for a place to live. Renting offers you other alternatives too that home buying doesn’t give you. It gives you flexibility. It gives you the ability to not have to repair anything. You can say, “My lease is up at the end of November. I’m out of here. I’m moving on with myself to a better neighborhood, a better place and a different city for work.” A primary home purchase does tie you down in some ways. We wanted to be tied down. We love the home that we bought. I own five houses. Buying real estate is and can be a good move and a good investment.
People going into buying a home, especially first-time homebuyers, they hear the word investment and they think, “It’s a good idea to do this because it’s an investment in my future.” If you don’t approach it with the right mindset, with the right solid underlying financials at play and also with the idea of staying in the house long enough, it could turn out to not be a good investment. You could lose money on a home purchase, just like you could lose money investing in the stock market if you’re looking at a short-term window. The same is true if you buy a house and you’re looking at a short term-window, especially considering the transaction fees involved. I always say to people that you shouldn’t even buy a home if you’re not planning on staying in it for a minimum of five years, probably more than seven years, based on the transaction fees involved in real estate.
Joel and I had been trading emails. It’s been super nice. I told him that I might want to fight him on this. He’s so cool. I have learned so much from him. I respect him so much. You guys talked about renting is better when you’re geographically getting to know an area. I completely agree. Don’t move from Atlanta to Los Angeles and think that you’re going to live the life of dreams and buy a house when you get there. You guys didn’t even mention it, but I see it. When people are trying to buy a house, they usually fly in and they have a week, “That’s awesome.” Make the largest financial decision of your life in a rushed eight hours looking at houses with me.
I can’t tell you how against that I am. You need to know the neighborhoods, down to streets even too.
You guys said, “You’ve got to know the traffic.” I was like, “Genius.” I didn’t even think about that.
It’s knowing more about neighborhoods, streets and schools, places that you end up visiting often. There are all these things to take into consideration, the specific location that you want to live. We’ve honed that in over the years. We’re exactly in Atlanta where I want to live. Even one neighborhood over can make a big difference sometimes. When people move to a new city, a new location, renting for the first year is a good idea. You get your bearings and you’re like, “I want to live there.” That’s when you start to hone in on the house buying process.
HBH 15 | First House
First House: We should be careful when we’re using the term investing in regards to buying a primary home to live in.

Here comes the battle. Based on interest rates, everything that works for buyers, I don’t use the phrase, “I believe.” I use the phrase, “This works for buyers or it can work for buyers.” Based on interest rates, if you’re in a situation where you’re talking about someone who wants to pick up and leave or doesn’t know, maybe they will. You move to Atlanta where you guys are. You got a good job, but there’s a chance that, in three years, you might get transferred. The fees are probably going to outweigh if they have to sell the house. Let’s say you get the standard inflation number, a 3% increase every year. That’s 9% that you’re going to get for those three years. Where are we in the cycle? If we flatten in the next year, which is a very good chance we can, your home has only gone up 3%, the job does come to you and say, “Atlanta was awesome. Now you’re going to make a ton in Seattle.” They can’t sell the house and go.
You’re a real estate investor. What if their rent or their mortgage is the same as what they could rent the property for? Instead of paying those fees, they go to Seattle and they get a tenant in there and they become an investor. Maybe they don’t buy in Seattle. Maybe they rent for a year and try to figure out what they’re going to do. If there’s a break-even cashflow on that first property, what we’ve done for them is for the last three years, they didn’t rent. They purchased, which means that’s three years of money going into something. The main crux of why they might not want to rent is not a factor because they can turn around and have a good tenant screening session and be a landlord. That’s purely based on the fact that the numbers are even based on interest rates.
I love the idea of buying a house, living in it for a couple of years, moving and renting it out. That’s exactly the pattern I followed in Atlanta. My first house, I lived in for two years. I moved to another house and rented that first one out. I did the exact same thing. I lived in the next one for two years, moved and rented that one out. It’s a good pattern for someone who does want to become a real estate investor. There are a couple of potential issues with what you post. One, most people have to sell that primary residence in order to get the cash out for a down payment on their next house. Most people don’t have the savings rates at their disposal. They’re not saving enough their income to have enough for a great down payment on this next house and get into real estate investing. There are also a lot of homebuyers that aren’t interested in becoming landlords. That’s not something they desire or want to do. If that’s your case, don’t do it. If you think it’s going to be too much of a headache, if it’s something that doesn’t interest you at all, I would stay away from it.
That second one struck home with me. 
One other thing I wanted to say is that long distance landlording is another potential issue in that scenario. You might need to hire a management company to maintain that property. Also, I don’t get out of bed to break even on my money. If I’m renting that house out to cover the mortgage, it’s a bummer to me. I’m going to probably painstakingly fix up the issues that go wrong. I want to jump out of bed in the morning and say, “This is going to be a great day. I’m going to fix this stuff. I’m going to make my tenant happy because, in the end, I’m making money on this investment as well. There are a few potential issues there. For the person who can make a little money and doesn’t mind long distance landlording and being an investor, it’s a big check mark. Even though I’m only going to be here three years, if it’s a good investment, underlying the investment anyway, buy the house and live in it.
I think I’m just too wrapped in it. If landlording is never your plan, I look at the numbers and go, “It’s two or three years of rent.” I have backed away from the phrase, throwing it away, based on what you were talking about. That does make sense.
We should convince more people to get into real estate investing and to realize that it’s not as hard as people make it out to be. If you’re not willing to be a real estate investor because you think it’s a difficult thing, it’s not as hard as people made it seem. There are some great resources out there that can help you learn how to become a decent real estate investor. A little bit of research, a little bit of reading and a little bit of podcast listening helps you become comfortable with that concept too.
There are a lot of big real estate investors that when they’re talking about all these big terms in real estate investing, your cap rates and your ROI on what you’re doing, so much of that comes from, “You’re going to make your money in the slum lording.” You can. You could be a good guy and make money in those areas. What’s interesting is if you take the giant philosophical thought process about making money for your own family as a real estate investor, it’s what got me into helping first-time buyers. Somewhere, there’s an eighteen-year-old that can’t buy a house. Somewhere, there’s a 21-year-old that wants to move out and is not ready to buy. Wouldn’t it be awesome if that person had somebody that said, “Let me teach you what you can do next or here’s a place to rent?” It’s not always renting. You don’t have to rent to these crazy horror stories. If you’re at a place in your life where you can own a nice little house, what would be awesome is to rent to the ten years earlier version of yourself, the guy that wasn’t ready to buy yet or invest. Keep doing that over and over again. Not only do you make money, but you also make the universe a better place.
When I’m looking at places to buy, I need to say, “Do I feel comfortable living here in the neighborhood, in the actual house? Once I’ve picked it up, would I live there?” With almost three kids on the way, some of these properties that I’m looking at, there’s a duplex that I’ve got, my family wouldn’t move into that. I, several years ago, would have lived in that house. It’s nice. I go on that level. I think about it like, “Would I live there?” If I would live there, I feel completely comfortable buying it because I know I can find other semi-decent human beings like myself that are willing to live there too.
I understand why you want people to put 20% down. You come from a place of protection. There were 1.76 million first-time homebuyers out of the 5.34 million homebuyers. The average down payment was 6% for those people. I do not think we’re going to have an ugly crash like we did last time. What we’ve been helping people with is getting in a lower down payment. If you’re 3.5% and you have to save to 20%, you might be trying to save that 16.5% for five, six or seven years. If you’re in a higher priced area and your rent’s $2,000 a pop every year, that’s $24,000. For you trying to save from a 5% down even, on a $300,000 place at $15,000 that’s your down payment, if we wanted them to get to 20% to get to $60,000, they could be saving five to seven years to get there.
It’s if they talk to someone and understand the whole big picture and understand that they’re not going to move in five years because they don’t have enough equity to cover the transactional fees, which are approximately 7.5%. It could be as low as 5.5%, including the real estate and the title and escrow. That’s a lot of numbers for my readers without a whiteboard and me explaining it. If they’re going to stay for ten years, that’s a lot of money. I hear you and you come from such a good place about throwing money away. If it’s seven years of $2,000 a pop and they can get in at 5% with a fixed mortgage rate and they know that that’s their first step from a nice townhome in Southern California or Seattle to getting to a house in ten years, how does that grab you?
You make some good points. It’s best for people, if at all possible, to try to save 20% to put down on a house. That is because you’ll avoid private mortgage insurance. You’re going to get the best rates possible if you’re able to put 20% down. It’s important for people to strive for that. When you’re putting 3.5% down or 5% down to buy a home, we’re talking about getting to the scary points of leverage at that point in time. Leverage works both ways. It can be helpful when buying a home. It can get you into something a little bit more easily than you could otherwise. You wouldn’t be able to get into a home for using these massive amounts of leverage by having small down payments. If there is, you can ask a lot of people who are therefore buying houses from 2007 to 2008 when the markets do change and shift. That was a once in a generation downturn. That leverage works the other way. A lot of people got hurt by doing that. People should be more intentional about saving their money and being careful about the house they’re going to purchase.
I do think that it is okay to purchase a house with a lower down payment amount if you’re willing to extend the amount of time that you’re willing to be in that house. It’s like a ten-year window. It’s important. If you’re going to put 5% down on the house, you do need to extend that window out to ten years. You’re willing to be in the house on a 30-year note. If you’re buying a house with 5% down and you’re going to be there for four or five years, it would be something I wouldn’t advise anybody to do. If you are planning on putting 20% down and you’re going to be in the house for four or five years, you’re probably going to be okay. People need to be careful. They need to take into consideration all of those extraneous factors. There are a lot of situations in which getting people into a home at 5% down or something like that can make sense if they’re planning on being there for the super long-term.
Here are two quick thoughts on that. Number one is your leverage is like credit cards. It needs to be used correctly. You and I both know the stats at how terribly Americans use credit cards.
[bctt tweet=”Buying a home provides a sense of permanence and community.” via=”no”]
Just because someone’s willing to give you money or willing to lend you money does not mean that you should take advantage of it. Just because you have a credit card with a $20,000 limit does not that mean you should run it up. Just because your lender says, “You can afford a home that costs $300,000,” doesn’t mean you should be buying a home that costs $300,000. Maybe, for your budget’s sake, you should be buying a home the cost $175,000 or $225,000. It’s for your own mental sanity and your own ability to save for other things that matter to you as well.
That analogy extends from the small to the gigantic. That exponentially is times 100. People don’t think of it that way. You don’t push a $10,000 credit card. People have trouble learning that. You don’t push a $200,000 loan. That makes great sense. When we’re talking about that potential 20% hazard and having that cushion, the longevity of being able to stay there is the most important. The deal is it takes a little time to do the math, to realize and look at, “How long am I going to stay here?” If you end up staying there for a shorter amount of time, you are going to be in a position where the sale of the property is not going to be as much. The other big piece that goes into this is maybe in a few years from now, maybe after your podcast and my podcast has been on the air and has a shelf life, by that time maybe people will take a chip and download it into their eyebrow and read everything.
It’s possible. I don’t put anything past Elon Musk. He might have meant that.
If he gets that and the train for us out here in California, San Francisco, I’ll be so stoked. That Tube, I can’t wait.
Boring tunnels are going to be good.
I’ve also been hearing about a Vegas to LA train since I was 21 and barely old enough to gamble, but that’s another story. Hopefully, in general if people learn to save better, they’ll be able to have that bigger picture and know there are many times when renting is not throwing money away. You and I can agree that the years of doing it should be as short as possible because you’re looking at the long-term. That makes sense.
If you have the desire to own a home and the desire to stay in one place, trying to buy a house of your dreams is a great thing to focus on. It provides a sense of permanence, a sense of community. We were buying a new home every two years and moving. We said, “This is the place that we want to be.” It’s right here with these neighbors, a walking distance to these things and a biking distance to work. We’re not moving again. The financial portion of that isn’t important enough to disrupt the community and family, things that we have going on in this house. There are all these other intangibles that come into place. If you’re willing to stay put, you love that house and you’re willing to be there for a long time, trying to focus on figuring out how to buy a house and do it with solid underlying financials backing you up is the way to go.
It’s Joel Larsgaard from How to Money. Anyone reading this, I’m going to tell you where it fits. If you found the How to Buy a Home podcast and you found it because someone told you, “You can buy a home way sooner than you think,” you start with me, but your next 93 episodes are Joel and Matt because your biggest thing is learning frugal versus cheap. It’s learning Acorns. It’s learning all the quick budgeting tips. A couple of years from now, you come back to us. We talk about hiring a great realtor and you’re on your own. Go have fun.
The thing about financial advice is that it gets a little hairy at times.
That’s the thing. It’s all about packaging. That’s why I love what you guys are doing. If you’re close and you’re serious, there are many podcasts I do without stout beer. We go deep into finding that team, the real estate agent, the lender and all those things. We can focus on that. It’s a misnomer, people calling it a money pit. How to Money is going to be beneficial to a first-time buyer after their purchase. Joel, you’d agree that that first couple of years owning a home and having the safety net to know, “I can’t call my landlord and have him drive me over a refrigerator,” got to be helpful to a new homeowner.
You need to have a fund set aside for repairs when you’re buying a home too. It comes into play when we’re talking about the amount of down payment you’re able to muster up.
You said you guys jumped from 20 to 30.
It feels ridiculous or unattainable. You need to make sure you have a certain amount dedicated to fixing things up. There are some things that you’re going to know on the front end. If you’re buying the house and you saw the inspection report, you know these HVACs need to be replaced within the next 24 months or whatever. You’re going to know some of these things up front. The other things, you don’t know. Your fridge might bite the bullet. It’s only seven years old and you have to buy a new one. There’s no landlord to buy it for you. If you are buying a home, you need to be conscientious about how much money you have in savings to pay for potential things that are going to break in the house because you’re responsible. It’s your house. You’re happy to do it. You just have to have the money to do it.
While you were talking, I got the idea for our next venture. It’s going to be the top 15, 20, 30 tips for the first year of owning a home. 95% of people that own a home in their first year are going to have a good home warranty. The fridge, the washer and dryer, the dishwasher, all that stuff is going to be covered. They’ve got a year where they’re not going to have those landlord issues. I’d love for you to break down Acorns and all the awesome tricks. We can get every single first-time buyer that I work with to save $5,000, $10,000 by the end of the year with a bunch of savings that’s out there that they never even knew about.
HBH 15 | First House
First House: It’s best for people, if at all possible, to try to save 20% to put down on a house.

That would be a good pairing.
Joel, you’re the best. This has been such a fun episode.
Thanks for having me, David. I appreciate your thoughtfulness in the space and giving the chance to go back and forth and talk about some of these issues. Hopefully, it’s helpful to a lot of folks out there that don’t want to buy a home.
You guys are great. You’re the first person I don’t know that I’ve reached out to for this podcast because you guys come from such a good place. It’s such an approachable place and it’s real. It’s cool to know that you guys want to get this information out, but you figured out we have to do it in a way that’s digestible. You went, “That’s fun too.”
It’s so much fun. It’s having a podcast, seeing people, hearing the shows and making changes. That is the most fulfilling part of it, connecting with the people that listen and that are like, “Something’s happening. Something’s clicking.” I love to see people taking back their own lives and saying, “I was in credit card debt and I’ve made a change or I didn’t know how to save and now I’ve got this great emergency fund.” There are all these cool stories that we hear. That’s worth all of it.
Everyone thinks the best time that we have is turning on the mic. The best times that we have is opening up our email. Go to How to Money for Joel. Make sure that you listen to his podcast. You’re going to get a bunch of great tips, not just for buying a home but all kinds of other things. The fact that I said that sentence pretty much the same thing twice lets you know how much fun their podcasts is because you get to drink beer.
It’s a beautiful thing.
Joel, thank you so much. For everyone else out there, you can do this.

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About Joel Larsgaard

HBH 15 | First HouseJoel Larsgaard’s passion is to help people live a rich life on less. Based on how he saw money handled growing up, he believed that extreme frugality would be necessary in order to be able to live a life free from the plaguing fear of financial insecurity. He’s still a fan of frugality but had to overcome real mental obstacles in order to achieve a more positive relationship with money. That’s what got Joel so interested in helping others see the life-changing power of handling money well. He’s now been in the money media space for over a decade and co-hosts the popular podcast How To Money with his best buddy Matt. Every week they seek to make personal finance relevant to normal folks who weren’t taught about credit, debt, saving and investing during their formative years. If your money skills are severely lacking, How To Money is the perfect place to turn. Money issues can cause anxiety and harm your relationships. Handling money well can give you freedom. Let’s strive for freedom together!

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