Homeownership and Tangible Assets

Many believe owning a home as soon as possible is the American dream. At some point, you do want to own a home. That viewpoint is shifting today amongst the younger generations. 

Millennials and Gen Z are not quite so enchanted by the idea of home ownership. We have created a more mobile country, and a social value system. Overall, there are fewer people who feel like there's an adamant reason to own a home.

Nevertheless, home ownership is still desired by many. Unfortunately, we are in a time where home ownership has become very difficult, if not almost impossible, for younger generations.

Home Ownership

The COVID stimulus money has increased valuations of all assets, including real estate, creating massive bubbles. The rapid rise in interest rates has also made financing real estate and home ownership almost impossible for many. Hence, we are becoming a nation of renters. 

Going back to the 1980s…  Why did I have that long stretch of about 13 years where I only bought investment properties and not a home? 

While studying investments, I realized early on that tangible assets like real estate or businesses outperformed other assets, including the stock market.

Not to say you shouldn't have money in financial products and stock market mutual funds, if that’s what you want to do. Some diversification is valid, but I like to understand the factors that affect the assets that I invest in.

I like the control feature of tangible assets. I like that I can evaluate it. Today, I'm much more passive than I was back in the 80s and 90s where I had my hands on virtually everything I was doing in real estate. I was a dentist, but I was also an operator in real estate. 

Don’t necessarily recommend that same path today. It's not easy. I didn't have a child until I was 36, so I had some free time and energy to do this.

The Case For Not Owning A Home (Yet)

I realized by my studies early on that a home, where it's valid to have one, and you could say it is in some regards an asset, is actually more of a liability.

Today, it's cheaper in most cases to rent. If you've owned a home, there's a lot of additional cost. You've got to fix it. You've got to maintain it. Not just minor repairs and maintenance. Roofs eventually give out, heating and mechanical systems eventually give out, older homes eventually can have sewer line and plumbing problems, electrical problems, all kinds of things have to be fixed and maintained, and it's not cheap.

When you buy a new home, it's usually bigger than the last home you lived in. Or if you’ve rented and you are finally moving into a house, you want to fix it up to make it your home. You can do things to your home that you can't do to a rental property. Which most people say, ”Well, that's just part of homeownership,” and so it is.

But those added costs are why I held off, and I had to hold my wife off for some of those years, because we were married for 10 of those 13 years, until 1993, when we actually took title of a home. We had many conversations where I would ask, “Hey just wait, be patient, I'm doing this for a purpose.”

Now, you can only do that so long. Before we had a child, and we were still working on our career path, and adding to our education, we rented an apartment for a few years.

But then, I used the skill sets I was learning in real estate to creatively finance the acquisition of my first primary residence. I was about 28 years old at the time. I negotiated a lease option on a two-year-old home that was a few feet off the water in a really nice location. Had I purchased the house in a conventional manner, I would have had to put a large sum of money down. This was a $265,000 house. That was a sizable amount of money back in 1987, almost forty years ago. Twenty percent down would have been a little over fifty thousand dollars.

Fifty thousand dollars that I couldn't put in other investments. 

Not having my money trapped in home equity was very important to me.

Back then interest rates were around 8 ½%, so the interest on that mortgage would have been over two hundred thousand dollars, which would have been significant.

My lease payments (which were all inclusive, I didn't have to pay property taxes or insurance, I didn't have to fix or maintain anything) were about 2 ½% of the total value of that house, 2 ½% when interest rates and mortgage interest rates were about 8 ½%.

That's what I call financial arbitrage. Now again, it took a skill set to do that. I learned how to do that. I learned how to negotiate. I learned what to look for when finding that kind of an opportunity, and that served as our home for about the next 10 years.

We lived there while I continued building my real estate portfolio.

Then when we had our first child in 1993, it was time to move on. That was the first time I took the title to a home as a primary residence. I actually still live in that home today. It's been paid off for a long time. I don't need to move. I don't need anything more. But in that meantime, I was able to focus on building my wealth.

The Compound Effect 

In 1980, when I was just starting dental school, I started out with nothing. I had debt. And through the compound effect of making these small, but important decisions, early in life, I am where I am today.

It's the small, seemingly insignificant decisions you make that can have a huge impact. 

The problem with getting into a career path where you start making more money (which is often the goal – focusing on generating a high income). The problem with that is we typically elevate our lifestyle with the rise in income. 

It’s the American dream. It's what society says you are supposed to do. Buy the bigger house. Get the better cars. I never did that. I always kept my lifestyle burn rate low. Even today. I could afford to move to a bigger mansion if I wanted that.

I could have a bunch of cars etc, but that stuff doesn't move me. You know what moves me? Freedom to do what I want and serve how I want to today, live the way I want to with a schedule that is flexible.

If I could impart one lesson: don’t let your lifestyle get out of hand. Just because you can afford something doesn’t mean that you should. Even though you're credit worthy and you can expand your lifestyle, and you can still pay those bills. Lifestyle expansion becomes a treadmill really, really quickly.

When I talk to younger people, that's the thing I tell them, don't let your lifestyle rise to the level of your income. It is a trap. 

The way you get ahead in life, no matter what the marketplace is, no matter what the economy is doing, whether it's a recession or a bull market or whatever cycle we're in, is to expand your margin.

If you are disciplined enough to expand your margin, meaning you're not pressing your lifestyle burn rate, and you're instead investing in assets, whatever they are (I personally love real estate, but whatever yours are, study those assets, understand what they're about and that's what's going to give you freedom).

This was the path to achieving Freedom way sooner than that mystical retirement age that people talk about that is supposed to be in your 60s.

It's all about you focusing on your freedom and how to get there and that's one of the key aspects that I did early in my life that paid off in spades.