Home! Sweet Home!
There is a special place for this piece of real estate in everyone’s heart. Whether you love it or hate it, this is one aspect of real estate that will touch you at some point in your life.
We have seen the mad rush for buying a home in 2021 and early parts of 2022, before the Fed raised the interest rates to slow it down.
I was in the market (rather half-heartedly) trying to purchase my second primary home in Austin, TX. I knew the market conditions were absurd for a buyer, but I had set my financial goals to move to a bigger home by 2022. It was part of a real estate investing strategy to convert my current primary into a rental, since buying a new rental property in hot Austin market did not make sense as an investment.
When I started, I promised myself to be logical and stay away from the crowd behavior. It is all good what you read in the real estate books’ advice to wait for market cycles, find a good deal, do not overpay etc. But reality (as it was then) is very different, as I was rightly pointed out by my realtor.
I also realized as I started taking action to find homes and making offers, I was drawn into the same emotional roller coaster as everyone else. My head was screaming me to slow down and not care about what others think but my heart was racing with FOMO – fear of missing out. The homes are running out, I have been overbid by other buyers and the worst of it all – I am not taking action towards this goal.
Finally after 3-4 months of emotional turmoil – getting excited, making offers of $50k above asking price, then pulling out of the offer when I won the bid, upsetting my realtor – I took a deep breath and paused.
God was telling me something and more importantly, my younger daughter wondered why am I desperate. “Dad, we already have a home and what you are buying is the same one with 3 times the price”.
Sometimes, when it comes to money and financial goals, we grown ups are the biggest fools.
So what did I learn from this? Several lessons.
- It is okay not to meet a financial goal if the conditions are not good.
- Listen to non-experts (my daughter), they still hold the common sense.
- The cliches are still true – what goes up must come down, nothing lasts forever.
- You have other financial goals to meet.
The last point is the most important. The recent study from HomeLight says it all.
One of the factors that stopped my adventure was also the numbers in my budget.
Here is a simple comparison of how my budget would have impacted all financial goals.
| Category | Current % of income | Later % of income (if I had bought the home) |
| Income | 100% | 100% |
| Home (Mortgage, taxes, insurance) | 20% | 40% |
| Expenses | 40% | 40% (increased to 60% now) |
| Investing for retirement | 20% | 20% |
| Investing for my child’s education | 10% | ?? |
| Savings | 10% | ?? |
So I had to get a raise of more than 20% in my income to be able to keep my other financial commitments.
Yes it will happen over the next few years but I can wait patiently.
Meanwhile I was able to invest the down payment in a falling stock market to boost up my portfolio.
It also gave me scope for building a more diversified investment portfolio than being just house rich.
Conclusion
When you plan to buy your first or next home, look at your overall financial picture.
Make sure you are not buying a house of cards for your long term financial situation.
