I want to talk about an article that I just came across on CNBC here and talking about millionaire real estate investor Grant Cardone. It says to not buy a house, and he talks about how homes are traps. They’re sold as the American Dream, but he actually calls them the American Nightmare, and he’s got some very strong language on this.
He says that homes trap people, they can’t move, they don’t ever truly own it because they keep having to spend money to keep it, to maintain it, to pay property taxes, even if you have your mortgage paid off. And he says to not think of your house as an asset but to consider it a liability. And he’s not the first person to talk about that.
The first time I ever really heard somebody really strongly talking about a house as a liability was Robert Kiyosaki, who’s the author of The Rich Dad, Poor Dad book series, which I’m a big fan of. I love Robert Kiyosaki. He’s got a lot of great ideas there. And he talks also about your house being a liability and not an asset, and Robert Kiyosaki’s definition of that is anything that takes money out of your pocket every month is a liability, and assets are things that add money to your cashflow every month. And so a house, of course, doesn’t add any value to our cashflow, even if our house is appreciating in value, we’re spending money to maintain that house in one fashion or another, its mortgage, its property taxes, its maintenance, and upkeep and everything on the house. So I thought I’d share with you a little bit about my thoughts on this.
Grant Cardone actually says that you shouldn’t own a house unless you have 20 million dollars in the bank. And again, I think that’s very strong. I don’t think that’s what I would necessarily agree with. I think there’s a lot of value in home ownership, and I think it is the right thing for most people to do. But I think we also need to be very smart about home ownership as well and make sure that we’re making the right decisions.
So first of all, if you’re going to buy a house, my first recommendation is to make sure you’re putting down at least 20% on the house. I know there’s a lot of ways that you can buy a house without having that 20% down payment, but you know, they can be very expensive. You know, so FHA loans and PMI, if you look at the true cost of borrowing that extra money for the down payment, those rates get up into the teens. It can get to 13% or higher on the cost of borrowing that additional down payment.
Number two is make sure if you’re buying a house that you are staying within your means. So even though a bank will lend you up to 28% of your gross pay for a loan, I like to keep that number a lot smaller. Keep that down below 25%. And if you have a lot of your income that comes from commissions or overtime or bonuses, you really shouldn’t be factoring that into your home affordability that much because those are not necessarily reliable sources of income. But even if your job gets a lot of its income from those sources, be a little bit more conservative with that because know that overtime and bonuses and those things can kind of dry up.
My third rule on this is that you want to make sure you’re living in a house for a while. You want to make sure that this is not something that’s temporary, that your job situation is pretty fixed, that you’re not gonna need to be moving across the country or even across the city because something changed with your job. I like to recommend that you stay in the house for at least five years, at least have the intention to stay in that, and really, it should be probably longer than that. And then the final two things to talk about how we buy the house.
Number one is we want to buy smart. So when you’re looking at buying a new house, whether it’s your primary home or even a vacation home, do a lot of research. You have to look at a lot of houses to figure this out. But pay attention to what is the price per square foot on the houses that you’re looking at. How long are these houses on the market? What has been improved or not improved on those houses? And after you’ve looked at maybe a few dozen houses, you’ll start to have a pretty good idea of maybe what’s a good deal and what’s not a good deal, and really, most real estate people will tell you that the money is made on the purchase, not on the sale. So buying smart is very important.
And then the final thing is that if you are going to be doing improvements to the house, make sure that you’re doing improvements that make sense for the neighborhood. Don’t spend $100,000 on a kitchen in a neighborhood where the houses are only selling for a couple hundred thousand dollars. You’re probably not gonna get that money back out. And if you are buying a house that you know is gonna need some work, factor those costs into the purchase price too, and think about, “Okay, I’m getting this house “at a pretty good deal, but I’m gonna need “to put this big chunk of money in,” and then you have a pretty good idea of how much that’s gonna cost before buying the house, and then you can know again whether or not you’re getting a good deal on that.
So again, Grant Cardone, has some very strong language on home buying and who should be doing it. I think a little bit differently here, but I think it’s also something that is very important to be smart about. So, once again, like our Facebook page, share our videos, give me some comments. Let me know what everyone’s thinking. And I will see everybody in our next video.
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