Getting Rid of the “Ole Money Pit”

Hello fellow bloggers and followers, 

I want to begin by saying thanks for coming to check out The Dividend Dude’s Blog! Please subscribe if you haven’t already! Recently I made a big move toward financial independence, and it didn’t involve moving in with my parents!! Not at all. It involved eliminating a “money pit.”
When I told my dearest friends, I was selling my home or The “Money Pit” to supercharge my Journey to financial independence; I was met with stark resistance. I’m sure you have heard by now that renting is “paying off someone else’s mortgage” or, even worse, “throwing your hard-earned dollars down the drain.” Is this true?… Or is this a statement blown out of mythical proportions? Let’s put those emotions aside and let the mathematical equations tell us the truth.

In 2017, I purchased a 24-year-old home for $475,500 with a $52,000 down payment in an upscale neighborhood where the Tesla, Volvo, and Mercedes Benz drivers zipped around in their shiny cars flaunting to others how much money they have, and the occasional sighting of a Range Rover or Jaguar speeding to the grocery store or the local school. The sidewalks were crowded with stay-at-home and work from home parents exercising most hours of the workday. The sound of mowers and edgers from landscaping companies trimming the grass and bushes of adjacent homes, I would only catch a glimpse when rushing home to take a 10-minute lunch break before busting ass back to work to make another payment on the “ole money pit.”
Who has the best yard, home, car, clothes, extracurricular activities? Who gives a shit? I sure don’t! Does this sound familiar? Does this sound like most middle-class suburban neighborhoods?

In 2020, just three short years later, after a new divorce, home repairs, and minor verbal altercations with neighbors, I was able to sell the home for $545,000. To the unskilled investor or conventional thinker (those who think a home is a good investment), they may say, wow!!!! You profited 70,000 dollars, Not a bad score considering it was only three years!

Let’s take a step back and see the breakdown.

That’s a savings of $3208 per month by getting rid of that “money pit” or annually $38,497.33. Now, do you still think homeownership is a significant investment? I believe that homeownership can be a good investment in certain instances, but only when you follow the takeaways below.

With each passing month, I will invest this cash into dividend-paying stocks that will generate passive cash flow and should propel me to financial independence in a few years. As you can see, you may be paying for someone else’s mortgage by renting. Still, in specific scenarios (if renting is cheaper than buying (20x) rule), it allows you to allocate more free cash into other investment vehicles that will yield a more astounding return year over year. Thoughts? Comment below.

My take-aways about purchasing a home…

1.) Use The 20x rule–Take your annual rent and multiple by 20 to find out what home price you should buy (to save money instead of renting).

Example: My annual rent is $7200 a year x 20–I should keep renting until I find a home for $144,000 (which isn’t happening in this shitty city area)

2.) Don’t buy a home until you are certain you will be there for at least 10 years.

3.) Avoid PMI insurance (if at all possible)

4.) Buying isn’t always better than renting (as you just seen above).

5.) Consider the age of a home (homes older than 10 years old will require costly repairs at some point).

6.) Do what’s best for you and don’t listen to other people (especially if they still keep their life savings socked away in savings accounts yielding less than 1 percent a year).

7.) Never buy a home larger than you will need. Actually, a family of four only needs a home less than 1800 square feet.

Just for shit and giggles, Let’s play this last scenario out. Let’s pretend it’s 2017 once again, and instead of buying my home and losing over $40,000, I would have rented with the same living situation. Let’s assume 7% returns based on the historic S &P 500. Wow! I would have invested over 196,000 dollars in just three short years, which would yield approximately $650 per month in dividends (assuming a 4% average dividend yield).

Image credit: Money Chimp

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