Your First Home Is An Investment
Two days after I turned 26, we purchased our first home. I remember the day like it was literally yesterday. We purchased a new construction home, and actually ended up closing about a week later than we were supposed to due to the builder taking a bit longer to finish up some details. I went over first thing in the morning before work because they let us start moving some little stuff in before signing off on everything. When I left that morning, I noticed a huge bolt and washer stuck in my back driver’s side tire. At the time I worked in Cool Springs, and we live in East Nashville. In hindsight, I definitely shouldn’t have driven all the way there with that tire, and thankfully, I made it to work alive. Spent the rest of the day dealing with the tire and finally signing off on our home covered in dirt and grease and a new tire later. Needless to say, it’ll at least help make the day memorable. Now- this story is completely irrelevant to what this about. However, it is a bit of a microcosm of buying, and owning, a home.
The average age of a first-time homebuyer is currently thirty-one years old. For our generation, this age has risen compared to our parents and grandparents. This is due to a few factors- student loan and credit card debt, more years in college earning degrees, and a more transient society that doesn’t necessarily want to settle down in one spot for too long during their twenties. That was the case for us. Post law school, Hillary moved to Clarksville (thankfully, or we wouldn’t have met) but knew that she didn’t want to necessarily settle down and buy a home there. When we moved to Nashville, we wanted to live in an affluent area of people in our same age range and demographic. For us, that was East Nashville and Five Points in particular. However, like most millennials that live in Five Points, there was no possible way that we could afford to actually buy a house there. On the street that we rented on right after we got married, every house carried a seven-figure price tag, surrounded by more streets that were in the same range. After a couple years of saving and budgeting to see where we could fit a mortgage in, we realized that we weren’t going to be able to buy our forever home with our first home purchase. I got into real estate to be able to better educate those around me on why that is ok- and is even a good idea.
In 2017, the most recent tax bill was passed. Whether you were for or against it (or I guess it’s more poignant to say whether your representatives did or didn’t support it), there was a really good real estate development that came from it. Cory Booker helped sponsor a Bill that created Opportunity Zones. If you’ve had your finger on the pulse of real estate in Nashville for the last couple of years, you’ve probably heard this term. I won’t go in to the lengthy description and benefits, but in short it helps create and spur ongoing benefit to investors to invest in “census-tract distressed” communities. Investors are given tax incentives based on where they begin new investments if they’re in a zone that needs, I guess you can say, a stimulus. It’s a government stimulus without actually being one, which is something the government should do more often to keep their hands out of pockets. Anyways, that was only a quasi-lengthy description. Now I want to go in to why buying into a home and an investment opportunity makes sense.
Say I am showing someone properties now that they’re considering buying their first home. Their purchase price they want to be at is $250,000. In East, for example, that can easily get you a two-bedroom, thousand square foot home. Decent starter home at that price range. Say that said person buys this house, and chooses to live there for a couple of years. In two years, they decide that they are ready to begin looking for a home upgrade. Over the last twelve months, Nashville home prices have risen about ten percent. It is looking like that isn’t going to stop any time soon. Given those statistics, that $250,000 home is now worth $302,500. In two years, you’ve probably paid off about $5,000 in the principal loan amount on your home (total guess). Go ahead and subtract closing costs and sales commissions, and you’re rolling into your next home purchase with over $35,000 ready to put down on the next place in just two years. If you got an FHA loan and put 3.5% down, you’ve gained over $25,000 in the span of two years. Please try and tell me an investment that you can make that has over a 200% return of investment other than going to Vegas and getting lucky by putting it all on black at the craps table. There isn’t one. You roll that money into your next home, keep your mortgage in a manageable range based on what you can afford, and over the span of the next couple decades it becomes a built in raise on top of your job.
As I stated earlier in the post, I think that the most important part of my job, and where I am able to provide the most benefit, is helping people see the value in home ownership. For someone considering selling their home, I can help pinpoint the timing to do so, what to do prior to listing to boost the sales price, and provide professional photography that gets people in the door so you’re not having to go through price drops. For buyers, there are a few factors that I think are important to look for in landing yourself in an area that is going to rapidly create equity and extra money to grow your wealth. For first time home buyers, buying in an area that might seem under utilized or under developed is not a bad thing. I can easily research areas that are going through positive changes (i.e. my article on hot neighborhoods) to see what could be a good fit. There are plenty of neighborhoods that have been in that positive correlation groove for awhile now- Green Hills, Five Points, Germantown to name a few around downtown. Those are probably going to be tough spots for young people to find good investments. However, there are plenty of areas that will grow in to major players in the metro area for years to come. Being one of the first to own property in these neighborhoods could compound positively throughout the rest of your life. (That sounds super Soap Opera-ish and cliche, but it’s true.) In my semi-professional opinion, it’s the best bang for your buck on ways to easily grow your money.