Why Buying a House Might Not Be an Investment - Expert Edition Episode 64
Today, we dive into the topic of homeownership and real estate investing. Inspired by a friend's question, we discuss whether buying a house is truly an investment or just part of the American dream myth. We explore the history of homeownership in the US, how past policies shaped today's market, and the financial realities of owning a home.
—-
Please join me here, and follow me on social media, Instagram, and Facebook.
Need help getting started on your path to financial freedom? Start Here
Join the Financially Intentional Community
Oh and please subscribe and leave a review on whatever app you're using to stream this podcast.
Get my book Smart Money
Subscribe & Review
Love this episode? Please subscribe and leave a review on your favorite podcast platform.
TRANSCRIPT:
Naseema: [00:00:00] So I had a friend reach out to me today. Shout out to you, joy. Thank you for giving me inspiration for this podcast episode. But she asked me today about investing in real estate as a rental property. And mind you, she's not new to the real estate game. She has a couple of real estate.
Properties in California and out of state, but she was like reaching out just to check in was she tripping? And she was thinking about buying a property in Northern California in the area that we live in. And looking at the interest rates and how much housing prices were, and she wanted to know was she tripping, but before I get into what I told her in response to her question, I wanted to just talk about home ownership in general, and then home ownership as an investment.
And a lot of times people tell me that the reason why they want to buy a house is because renting is throwing away money. [00:01:00] And, buying a house is the ultimate dream. And, that's a form of investment. And I just wanted to come on here, not to squash your dreams, but to just shed a little bit of, Information and education around that because a lot of people just don't know, or they are like trapped into this American dream like fallacy that we have.
So I wanted to just dive into where did this buying a home as an American dream come from? And so I did some research. And I found out that the American dream of owning a home traces back to the early days of the United States. Especially in the 20th century, it gained a lot of fuel due to several things.
So first in, the 1800s, there was the homestead act of 1862, which provided land grants to settlers willing to cultivate and improve the land. And that is what encouraged Westward expansion and home [00:02:00] ownership. Then post World War II the GI Bill provided favorable mortgage terms and educational benefits for returning veterans, which also facilitated home ownership and economic stability for millions of people. then there was suburbanization. So the rise of suburbs in the mid 20th century, coupled with government backed mortgages, like FHA loans and BA loans made home ownership more attainable for middle class families. And then there just became like this cultural mindset that.
Owning a home is synonymous with achieving success, stability, upward mobility, gaining, it's just ingrained in us and ingrained in the psyche and it's perpetuated through media advertising and societal norms. And for some reason, home ownership became viewed as a means of accumulating wealth, securing financial futures, just because it's been.
An avenue for [00:03:00] a lot of people that you deem as successful. I know growing up, I didn't know about investing, but I knew that my grandfather and my uncle owned property and they were deemed as. Successful because they own property and they were able to buy property working for the city or working as a contractor very blue collar jobs, but we're able to buy property in Oakland and the San Francisco Bay area, and we're able to raise families.
my grandfather had four kids and so they were able to do that in those homes is what, owning those homes is what allowed my grandfather to be able to retire comfortably.
Overall, the American dream of home ownership reflects a combination of historical policies, economic condition, cultural values, and societal aspirations that continue to shape the housing landscape. Let me just. Put a little bit of a caveat on [00:04:00] this yes, on the broader scheme of things, these things have perpetuated like that American dream, right?
Naseema: But all of these programs, please be clear, we're not going to do that. Actually afforded to a lot of black Americans, the opportunities for home ownership that shaped the American dream were not equally available to black Americans due to systemic racism. And discriminatory policies.
So black Americans, face widespread discrimination in housing, including red lining was systemically denied them access to mortgages and homeownerships in certain neighborhoods that were deemed risky by lenders. Many neighborhoods had covenants or legal agreements that prohibited the sale of homes to black families, limiting their housing options programs like the GI bill and FHA loans which facilitated home ownership for millions of white [00:05:00] II often excluded black veterans and borrowers due to discriminatory practices, and then black neighborhoods often experience disinvestment and neglect from both public and private sectors, which exacerbated disparities in housing quality and affordability. So these have a long standing effect on wealth accumulation and economic opportunities for black Americans contributing to the persistent disparities and home ownership rates wealth accumulations compared to white counterparts.
And, even though progress has been made addressing these inequities, they still remain. I have a podcast episode talking about how. In buying this house, I faced discrimination and filed several claims with the fair housing administration about that. If you guys want me to dive back into that, I can, or I'll just reshare that episode.
But yeah, it is a crisis. So I would be remiss to [00:06:00] not share that when having this conversation. So let's talk about houses. As an investment, and a lot of people get pissed when I say this, but your primary residence is typically not an investment. People be like, oh the value appreciates, all of these things, but a lot of people don't factor in the cost of maintenance, property taxes, all of those things, which as an investment.
Really lowers how much you're actually getting. But everybody needs a place to live. And a lot of times we take out a mortgages on houses and most of the time, most Americans that own houses are house poor and being house poor means that Your housing costs take up more than 30 percent of your take home pay and that makes it very difficult to afford your basic everyday expenses, not to mention, do other [00:07:00] investments, saving for retirement, paying for your kids, education, all of those things.
And while people are chasing this American dream, they're often doing it, and causing or delaying the other financial goals. It's just something to think about. While most primary residents are not like income generating assets. And that's what we think about when we think about investment properties.
So most investment properties, like a home isn't an investment unless you like buy it as an investment. You're buying it, knowing that the money that you're putting into it is going to generate some kind of return. For example, like, when you house hack when you house hat, you're putting money into it, knowing that number 1, you need a place to live.
But if you can buy a house where somebody else is supplementing the housing costs and drastically decreasing or eliminating your housing expenses, it is [00:08:00] definitely going to be an investment. I talk about how I plan to use my daughter's brokerages accounts. Their first property will be a house hack.
And then after that, whatever they use their money for, and if they decide to sell the house or keep it like that's on them, but their first property, they are required to buy a house hack. Where they are buying a property as an investment where they will rent out rooms to their friends. If they go to college, their classmates, whatever, and they will heavily cover if not all the way cover the mortgage.
And so that's my plan. Anytime I buy a home, I buy it with an extra room knowing that I will have that room available to a travel nurse. That's just how we roll. That's how I'm going to continue to roll. I really feel like that's a definite hack for getting into housing. If that is your first house. And then I want to share.
I have a really good friend, his name is Brian Adams, and he is [00:09:00] an nurse and he works with me in the hospital. My main hospital that I work at and he is a real estate genius. So let me tell you what Brian does. He is. So smart when it comes to real estate, he is from Shreveport, Louisiana, but he works in the San Francisco Bay area as a nurse.
So a lot of people are like, Oh my God, it's so expensive to work in the Bay area. Like you have to make this crazy amount of money, but let me tell you how Brian pimps this. So Brian lives in sweet port and he is the epitome of owning a block and I'll share more about that in a minute. But what he does is he comes out here.
He is an ER nurse. He works between two different hospitals and he has an apartment that he rents out for very cheap. It's a one bedroom apartment and he shares it with another person. And in the San Francisco Bay area, this one bedroom apartment, they were able to find for a thousand dollars a month, but he only pays.
500 a month, [00:10:00] because he shares it with one other person and they're never there at the same time. So they coordinate their schedules. So when BJ is working, the other travel nurses out of town, and so they share this apartments with the cost lovely. So he's paying 500 a month to come out here. And when he comes out here, he's making 5 figures a week easily in between his jobs where he is staff, but he is per diem.
So he. Gets to do what is called geo arbitrage where he's making this bay area money and he is taking it back home Now he was smart about how he is using this money because he is using this money to buy Properties so he has gotten to a place where he has buy properties for really cheap He has contractors and just the staff to go in and renovate these properties so I encourage you to check out his instagram.
I'm going to link it You In the show notes, but check out his Instagram and he just buys properties for really treat is she is sweet, poor Louisiana. It's a red state. They are a little bit [00:11:00] more property owner friendly there. He has been able to create a portfolio of short term rentals, midterm rentals and buying holes where he owns 60 percent of a neighborhood.
And when it comes to buying homes, that's the way, I look at a positive way to be a real estate investor. So he is, my role model when it comes to real estate investing. So again, I'll put his information, his Instagram in the show notes, cause you guys need to check him out.
He's amazing. Let me just get back to the way that I answered this question for my friend. Basically, she was like, am I tripping because these housing prices are crazy and basically to buy a house right now the housing prices have went up substantially the last, she brought a house like a couple months After I bought this house and she was able to get a really good deal and a really good interest rate So she was like, oh if I can mimic this deal you know I think it'll be a good [00:12:00] opportunity to have another rental property out here But she was house hunting this weekend And basically she discovered that it would be about six thousand dollars on a mortgage and she was just like, oh no I don't think it's worth it.
But maybe I'm not thinking about it, right? And then I was just like girl you are not trippin You I don't think right now California is the place to buy an investment. If you're buying a primary home, it may be different. But here are my general rules of thumb when it comes to buying real estate period.
I don't believe in timing the market. I believe that the right time to buy is when you can afford it rule number 1 rule number 2 when you can't afford it means that you are able to come up with the down payment and your mortgage, including your property taxes and everything that's impounded is less than 30 percent of your take home pay.
All right. So I hope you guys found this episode interesting. [00:13:00] Let me know if you have any questions, if you agree or disagree with me. And then again, I'll share BJ's Instagram in the show notes. All right. See you guys on Thursday.
Hi, everybody. My name is Zuri, and I'm going to be one years old on the 24th, right? And my name is Aya, and I'm five years old, and um, and and, and, and, and, and, and I'm going to be one years old on the 24th.
Aya: Oh, it's a honeymoon.
Naseema: No New Year's Eve, right?
Aya: [00:14:00] Yeah.
Naseema: Alright.
Tell everybody bye. Say thank you for listening to my mom's podcast. for listening to
Aya: my mom's
Naseema: podcast.
Aya: Say
Hey there I’m Naseema
My dream is for everyone to know that financial independence is attainable with a little intentionality. Learn how I can help you finally break the cycle of living paycheck to paycheck.
Join the Facebook Community
Join the Financially Intentional community and get access to resources to guide you on the path to Financial Freedom.
Watch these Videos To Learn How to…
Keep Listening
Here are some more episodes you may enjoy…
We dive into the challenges of the traditional credit system and why financial literacy matters.