The Science of Flipping - To Buy A House or Not? That is the question.

Episode Date: March 23, 2021

To Buy A House or Not? That is the question.

Yo, yo, what is up? What is up, everybody? Welcome back to the Science of Flipping podcast. I am your host, Justin Colby. And on this episode, we're going to talk about buying your personal home, the pros and the cons, and quite honestly, why most people make a mistake. Stay tuned. Now, if this is your first time to the podcast, then you also should know I have an incredible YouTube channel. Go to youtube.com forward slash Justin Colby. make sure to subscribe. I drop a video a day, a video a day pertaining to all things real estate investing, business, and entrepreneurship. If you enjoy those topics, make sure you go to youtube.com forward slash Justin Colby, subscribe to my channel. Make sure you like some of my videos. YouTube really favors that. And so also,

it'd be really cool if I can see you guys do that. Obviously, this is a podcast. You're listening to this on iTunes or Spotify or Stitcher or wherever. I would love for you to not only hit subscribe, but then comment in one of my videos that you have subscribed. I think I'm going to do a giveaway. So if you go hit subscribe, comment in one or two of my videos saying I just subscribed. I am thinking about a giveaway to do. So that just came to me right now. Go to YouTube, subscribe, like some videos.

Let me know you subscribed in the comments and there could be a giveaway coming. So anyways, with that said, let's jump in to today's podcast. And I go back and forth with this with a lot of different people about should you be buying your own home? And the general answer is, I understand. So I guess my answer is I think too much of an investor and I don't believe a home is in a good investment. Now that might've turned a lot of people off right there. You may be like, Justin, you're insane. It's about building wealth and equity and all these different things. And trust me, I have this conversation a lot with my accountant. But one reason why I'm shooting this episode is because I believe a lot of people are trying to

take advantage of the low interest rates, which is, you know, listen, that's the smart thing, right? As an investor, you're taking advantage of an opportunity to get an incredibly low interest rates in the twos, right? Which is great. But what is happening is a lot of people are buying a home at a higher price point. And some of that just has to do with supply and demand, right? Like I just did a Instagram story story about how Phoenix alone increased 25% appreciation in just one single year, literally almost a hundred grand in appreciation. It went from like 350 average price point to like 429 or something like that. And that's insane. And so some of the reason why people are paying more for homes is because supply and demand, there's just nothing out there. There's insane. And so some of the reason why people are paying more for homes is because supply and demand.

There's just nothing out there. There's appreciation. So when people do list it, they're listing it a whole lot higher than they were last year. So that's kind of where the impetus of this episode is really, guys, I respect people who buy their home. I mean, I'm not like hardcore against it. However, there's some things I think people don't think through. And I think so much like an investor that, you know, buying a personal home has its advantages. Obviously you get the tax right off of your interest. Obviously you get the tax right off of your taxes. And, you know, while the first,

I think, you know, seven years or so, the mass majority of your mortgage payment is, is interest, right? If you have a, like a 30 year loan, I think the first seven to 10 years is like a huge percentage swing, right? Meaning you're like 85% of your payment is interest and the other is print, you know, 15 is principal. So I understand that. I understand the tax write-off and this is where my accountant continues to beat me over the head and, you know, all these things. But where people go wrong is they don't understand typically reports show, and this is coming from Realtors Association, that there's typically roughly 1% to 3% of the cost of your home goes to maintenance every year. Every year. Now, maintenance is not a remodel.

I hate to break it to you. Maintenance is not putting in a brand new you. Maintenance is not, you know, putting in a brand new pool. Maintenance is maintenance. It is your air conditioning, your roof, your plumbing, your, you know, foundation. It's the windows. It's the lawns. It's the landscaping. It is, you know, maintenance of the pool. If you already have an existing, like it's maintenance and studies show roughly one to 3% every year, homeowners have that cost and where people are going wrong right now is they're taking advantage of a low interest rate, which is awesome, but they're really only being able to buy a home that they can afford the mortgage payment based around the interest rate. If the interest rate ticked up at all, they wouldn't have been

able to buy the home. So what happens now when you're buying a home, let's just say in Phoenix, I believe the median price point now is like four, I think it's 435 or 450. So 1% right is four grand. 2% we're talking eight, you get all the way up to three, we're at 12. Like, there's just not many people that are buying homes right now. That if that, that thing happens, let's just call it a replaced roof. And you have an eight to $12,000 roof that you like, how are you paying for that? Because you've got the mortgage based around you being able to pay for the mortgage payment. And most people are kind of like they're pushing themselves to get there. Right. That's, you know, and this is why I disagree with a lot of people who are buying homes. Now, like I've said, I, I do understand the benefits of, you know, the interest write-off and the tax write-off.

But what I would tell you is like, if like I rent a very luxury, very nice high-end condo, and I do it so I can buy rentals and utilize my cash for other things, typically investment properties, flips, rentals, et cetera. Cryptocurrency is giving me a great return. Like my cash is better utilized in creating more income than I'm getting taxed. Does that make sense to you guys? I'll say that again. My cash is better utilized in creating more income than getting taxed,

meaning my tax savings of buying a home and writing off the interest and writing off the taxes saves me whatever that is. Well, between the down payment and the maintenance every year, I'd rather take that money, reinvest it, let's say into my flips, let's say into my rental portfolio, let's say into cryptocurrency, let's say into stocks, and get a much higher return on my cash, which makes the tax savings irrelevant. I'm just making

more money, which means I can grow more wealth, which means I can have more rentals, which, by the way, is another tax strategy that we don't have to talk here. But I know some of you are just shaking your head. I mean, I've literally pissed people off while saying this. People are adamant you need to buy your home, such as my accountant. But I think too much like an investor. And I think too, I'm pretty pragmatic. You know, one thing people always say is, yeah, well, it's appreciating. Well, it's unrealized gains if you don't sell it. And let's

say you bought your home last year in Phoenix and it appreciated that 25% and you sell it. So now you just got a 25% return, right, on your investment. Well, now you have capital gains tax. You're not going to avoid that. So I think there's always a counter argument for all the people that want to say, you need to own your own home, blah, blah, blah. The other thing is I forget where I saw it and I might butcher it. So you might want to do your own diligence. For sure you should.

But there's some high percentage of people and families that don't stay in that home for over seven years. And studies and statistics show that it roughly takes seven years to break even on buying a home between the maintenance, the costs, you know, the tax savings, when you wrap it all together, it takes about seven years to break even. And the further study shows is the vast majority of people don't live in the home for seven years. So I actually would really love your feedback here. And I think the best way you can give me some feedback is kind of what I said at the beginning here. Go to my YouTube channel, hit subscribe. This won't be on YouTube, but I do a podcast every week on YouTube. Go to any of the videos, watch some of the videos, but I want your feedback about this topic.

Why do you believe besides our grandparents did it, that homeownership is the way to go. And I've already explained, I know the tax write offs, and I know appreciation, but it's unrealized gains. And then the people that make that argument aren't selling. So who cares? And then if they sell within two years and they have the capital gains, I just, it wipes out the gain. So I want to hear your, your comment here. I like taking my cash.

I like reinvesting it and making a whole lot more than the tax write-off I'm saving. If you guys have been investing your cash in flipping, we've been crushing it. If you've been investing your cash in marketing for your wholesaling business, we are a 5x return. So if I'm spending 50 grand a month in marketing, what's 5X 50 grand a month? You're telling me I'm worried about a tax write-off from my home? Incorrect, right?

Not caring. You're telling me the investments I made in crypto and now I have hundreds of percents return on my investment and I'm worried about a tax write-off. Anyways, guys, would love to hear your feedback. The best way to do that, and I think I'm going to throw some cool bonus or something pretty cool.

I want you guys to subscribe, like a video, and then let me know how you feel about homeownership and the value of it because Because I'll be honest, most people can't even afford the one to 3% maintenance, let alone if, you know, something really bad happens, right? Where they got to replace all their windows or AC or roof or pool needs to be redone. I mean, my, you know, my friend is redoing their pool after the home,

you know, the home's built in the seventies. It's an original pool. It's going to cost them like 80 grand to redo the pool. So love to hear your comments. I hope this helps. And by the way, if you're interested in talking with me and my team about coaching and you want me to help you level up your game, whether you're just getting started or you're trying to get more profitable, go to the science of flipping.com, fill out a form, let the, on the form, let us know that you heard us on the podcast and then we'd love to talk to you. I'm more than happy to coach you personally. I will coach you. It will be me. And you know, we have a couple open slots now that we're ending the first quarter. So go to thescienceofflipping.com,

fill out the form, and look forward to seeing if I can help. Talk to you guys soon. Peace.