This month’s column was inspired by a conversation I just had with a young lady that I’ve known most of her life. She and her husband have just relocated back to Naperville and asked me to help them purchase their first home. Like most first-time homebuyers, Kathleen and Drew are about to face a dilemma where the home they can afford is probably not as nice as the quality of housing that they have had in the past. Perhaps their parents’ home had a number of nice features or a prime location that would cost a large sum of money in today’s market to duplicate. If a potential buyer is living in a new apartment with a modern kitchen, large master bedroom with a full bath, a small modest older home may not seem like a desirable alternative.
Reality dictates, however, that you may have to take a step backward in order to become a homeowner. We live in a world of HGTV and instant gratification. People want to own their dream home now. Is this practical or even possible? Most people probably took 25 years and a series of upgrading from one house to another before finally purchasing the home desired by many first home buyers.
Home ownership works like a stepladder. You must climb from one wrung to the next. Buy whatever you can afford. Fix up this home. Take good care of it. Sell it when the market demand is high. Use the profit from this sale to buy a better home the second time around.
Another alternative is to buy a home that does not have all the features you want, but it does have a great location. Buy the house now and make additions or improvements to the house when your budget allows. My wife and I did this three times when we were first married and we have now lived in our dream home for more than 30 years!
No doubt, it’s difficult to save money. Homeownership is one of the most effective means of accumulating wealth. It is really a form of forced savings. You have to make the monthly mortgage payment in order to keep the house. These payments, over a period of time, help reduce the principal amount and allow you to hold the house long enough to give inflation a chance to increase the resale value well above your original purchase price.
ADVICE: Although it may appear to be a temporary step backward, consider buying a lessor home than you really want in order to get on the first wrung of the homeownership ladder. It has the possibility of paying big dividends in the future.