Stacking Benjamin’s Feature: Home Ownership

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I was enjoying my first FinCon and someone came up to me and told me that my article on home ownership became a topic of discussion on Stacking Benjamins between Joe Saul-Sehy, Paula Pant, Tom Drake, and Len Penzo. I was excited to listen…and thanks to Paula for the shutout of never using an iron again! (Pssst to Joe and Len, I’m a dude, it was funny every time you said she)

So what questions came up from the panel?

Did I know I would only be in the house for just under four years? No. I wouldn’t have gone through with buying if I were certain. We were on our path to financial independence (and had just crossed the seven figure in net worth mark), but I did not have plans concrete plans on leaving my job. I was enjoying my job and who I worked for, plus it was well paying and I was still considering pursuing the next level in my corporate career.

Holding a house for a short period of time is a losing proposition! Paula pointed out that transaction costs of home ownership are expensive and spreading them over more years brings down the annaul cost. A mortgage is usually cheaper than rent, but the shorter your holding period is on a house, the less time you have to spread out the 6-8% of transaction costs. Unfortunately no holding will help if you overpaid for a house. My longest home ownership experience was my largest loss and I’m not alone. I recently met Adam at Minafi, a fellow 2019 early retiree who lost 20%+ on a house he held nearly ten years!

Did I just have bad timing on my moves? Maybe. I would like to just “blame the market” for my housing struggles, but overpaying for a home when we should have rented is my responsibility. A personal residence is still only worth what it could earn in rental income plus a small premium a homeowner gets for control plus various government incentives (30yr govt backed fixed rate financing, local homestead exemptions on property taxes).

There’s only one of my four moves where I could say “if I waited a year to buy and a year to sell” it could have come out significantly better. This most recent purchase was entering home ownership at more than 200x monthly rent for a house that also carried a low five figure property tax bill! At the time I bought, the reason the price was so high was the raise & rebuild activity around the house. Builders were buying the 1950s homes, tearing them down, then replacing them with seven figure homes. This translates into price speculation and not a prudent investment choice.

We did move a lot and a consequence of the moving may have been a tougher go on housing. This isn’t meant to be a sob story about losing money though, relocating was profitable for my career. Over the course of fifteen years, I was able to increase my income nine-fold. This would not have been possible without moving multiple times for the company.

Should I have sold this FSBO? Absolutely. In hindsight, I absolutely should have sold this property myself. Our first two offers came through the neighborhood based on putting out a “coming soon” sign. One pushed hard to see the house early, the other made an offer as soon as it was listed. We did list the house $20,000 higher in an attempt to offset the agent’s fees. There was no “hype” generated by our realtor, only one small realtor’s open house a couple weeks in after fumbling the opening weekend offers. The address was also messed up in MLS which could have reduced the initial activity. No staging was recommended (which in hindsight I believe the house needed).

Paula mentioned that not everyone should sell a home themselves. Its complicated and not for everyone. This would have been my fourth house sale and I was in a related business to real estate and familiar with the real estate closing process. I could have managed this with the help of a friendly real estate attorney.

So why did I hire a realtor? Time. The panel touched on this at the end and *we wanted out*. This meant trying to unload the home during the spring selling season. I delayed quitting my job and early retirement for eight months and we were ready to be done with Texas, the oppressive summers, and the expensive area which wasn’t ideal for our early retirement. The carrying cost of keeping the house and staying vs. moving was easily five figurse. My rush to move also caused a second mistake, not interviewing multiple agents and trusting a positive experience with the agent on the purchasing side.

My sense was the housing market was at or just past its peak and didn’t want to miss the window to exit home ownership. The houses in the block seemed to sell either quickly on opening weekend or sit for a long time. I thought a real estate agent would help me capitalize on that opening weekend hype. Instead agent gave us advice (not accepting a cash offer equal to 98% of listing price) that fumbled our opening weekend offer. We also felt bullied by the agent into offering concessions on seller paid costs, claiming it was a “normal sellers expense”. Later on I calculated that her commission was paid off the gross sale price, so there was a monetary incentive to drive that price as high as possible while pushing me as the seller to make concessions below the line.

Should I have included opportunity cost? Absolutely and I was glad to see the panel agreed. Buying a house involves locking up equity that would otherwise be invested in alternate investments. I even sold an index fund to make the down payment and can still see the graph go down in my Fidelity account balance section. One of the panelist accurately pointed out if you’re *expecting* to buy a house that money should probably be invested in something with less volatility. We were okay with our rental situation, but thought we would buy if the perfect house came up. Investing the funds was a slight negative based on when we sold index funds to generate the down payment.

Where should I have invested money? Staging and moving out for the first 10 days. My realtor did nothing for staging and didn’t even reschedule pictures when the weather was crappy on listing day. We are pretty frugal and our house didn’t look like the restoration hardware showroom that buyers are looking for. I also highly recommend anyone selling a house to get an AirBNB nearby for the first ten days, especially in a market where opening weekend must be perfect. The stress of prepping and re-prepping a house while living there is not worth it.

Wrapping up:

“The decision making process is more important than one specific anctedotal result”. – Paula. Thank you for this comment and the facepunch. My home ownership decision-making process on the front end was the error that generated the loss. I thought this was a “foolproof” purchase based on location and the demand for the land by builders. That thought process amounted to price speculation and not a sound home purchase decision. Paying two hundred times monthly rent and picking up a five figure property tax bill on a three bedroom house is unequivocally a bad decision. There is no amount of “falling in love” with a house that can compensate for paying too much on the front end.

The comment about not beating myself up was appreciated. Fortunately we are past that point of beating ourselves up and accept that sometimes you make money and sometimes you learn life lessons. We only get one run-through at life and must live as best as we can.

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