The market is changing, and fear has started to take hold of the general public. But it shouldn’t shake you in your plans to buy your first home. Take a trip back in time to see how David Sidoni royally screwed up in his 20s and wasted rent for way too long. Even in a declining market, he could have made money by buying instead of renting. As we near the top of this housing price run-up, it’s time to start looking at strategies to beat a changing market. So we’ll dive into David’s mistake to help you devise a plan to win and take advantage of what the market brings.
Time For A New Game Plan To Buy Your First Home – My Story
First Time Home Buyer Strategies For A Changing Market
My life as a first-time homebuyer educator means that my days are filled with answering the same question over and over again from people all over North America. There’s one question that’s dominating my inbox. That’s pretty much because the 2022 economy is slowly turning into a poop parade of madness. Everyone’s asking, “Should we jump in now and buy or should we write it out and wait to see how things happen later on?” Let’s get into the answer to that burning question with no sales pitch, no hype, no BS, just real advice. We’re going to be using the biggest screw-up of my life as a guide on what not to do.
What is up to my How To Buy a Homies? I’ve got a lot to say about whatever it is we’re going to talk about in this episode. It’s true. I do and it’s for a good reason. This episode is going to be one of those episodes for the ages. Hang onto it, save it and mark it because people are going to be referring back to this one again and again. As the market shifts, people are going to try want to find out what’s going on and what’s the right gameplan for new market conditions.
Is It A Good Time To Buy A Home?
I’m going to answer the question, “What’s good, homies?” Normally when I say that, it’s good but what I’m talking about is I’m going to answer what is good? That’s the big question. Is it a good time to buy a home? If I had $1 for every time someone sent me that question, I would buy your first house myself because I’d have a lot of dollars. As always, the answer to the question, “Is it a good time to buy a home,” depends but in a general sense, it still is a good time to buy a home but it’s not a great time.
If you miss that time, there’s nothing we can do about that. As soon as you accept that, be okay with that and understand that it’s still a good time to buy a home, you’re going to start to wrap your brain around the fact, “Wait a minute, what’s next?” It’s a good time but soon, it might turn into an okay time to buy a home. After that, it’s going to be a flat market. The market is going to be going down and you’re going to start freaking out. All of a sudden, the market is going down for a few years. You’re back to thinking, “It is a great time to buy a home.” See how this works.
It’s not just my readers thinking this. In a survey, Americans were asked if it was a good time to buy a house and at a record low, only 19% thought that it was a good time to buy a home. That makes perfect sense with the spike in mortgage rates and home prices going on a tear. In 2021, we went up 19% and continued into 2022. We’re up to 22%, 23% and 24%. It’s insane. All of those numbers follow the slow and steady climb up without a decrease for over a decade.
It’s very clear that people have been in taking the data about the high mortgage interest rates and the price affordability. It has changed people’s minds. Some people think that maybe buying a home now isn’t prudent. After all, we’ve always been taught to buy low and sell high. Before I get into the story of my individual renting that happened in my twenties when I could have purchased a home and how you can use that as an example for yourself, it’s time to reset the goal of the show.
Many of you are asking me about the timing of the market with this purchase of your home. Unfortunately, this is when you’re ready to buy a home and that timing doesn’t have anything to do with how old you are. This show is called How to Buy a Home but I’m concerned that many of you are spending too much time asking the question, “When can I buy a home? Should I buy a home?”
As far as this show goes, if you read the early episodes, especially Episode 5, known on the streets as the Sidoni Manifesto Against the Real Estate Industry, the main goal is to help crush your confusion, make the entire process less intimidating and help you find quality service with your best interest in mind, not your realtors.
Owning Is Far Better Than Renting
If you’re a homie, first of all, thanks. Second of all, share this show with the others. You could do it via text from your phone. Hit the three dots in the box with the arrow. Thirdly and most importantly is understanding the philosophy of my message, which is this. In North America, the United States and Canada, I sell a property and do all my research.
When you do the math as a young or maybe even a not-so-young adult, if you are renting, the math shows that owning can be far more beneficial for you no matter what the market is doing. If you keep that property for 7 to 10 years, the math is going to work in your favor. That’s the message of this show. The reason is that statistic has been true since the revolutionary war. We’re talking about world wars, the industrial revolution, dozens of recessions and the biggie, The Great Depression.
If you’re renting, I don’t say it a lot because I want you to understand what’s going on with the market but the best time to buy a home was yesterday and that’s in every economy. Does that mean that you can buy a home now? No, not everyone. That’s why the show is here to help you and everyone who rents work a plan so that you will be able to get everything in order and buy a home as soon as possible.
The yesterdays that are happening every single day will happen even sooner for you. Bearing in mind that a lot of times, those yesterdays are going to happen in a recession, a correction or even a crash. I’ve seen first-time homebuyers try to time to market for sixteen years. Thirteen years of that was me doing it on my own here in Southern California, where it’s so expensive that many people think that their only way to come out ahead is to try to time the market.
For the last few years, I’ve seen thousands of people all over the country, all my homies and show readers, trying to do the same thing. They’re looking at price increases and interest rates changing. They’re using that as the main factor as to when they buy their first home. I love all of you but this is not prudent. If you’re renting at the average price in your town, the best time to buy the average first-timer entry-level home in your town was yesterday.
That was true in 2005, 2012 and 2015. With the right plan, that’s even going to be true in 2023, ’24 and ’25. For the past few years, I’ve been speaking so much about taking advantage of the prices going up combined with the low-interest rates that we had at that time that I believe that this overall philosophy and message have gotten a bit lost. I will always drop the market knowledge on you. I will spit those facts and help you take advantage of whatever the situation is.
That’s what I’ve been doing since 2019 on my show. I saw a chance to enlighten those of you who didn’t think that you could buy and those who didn’t think that you should buy. I helped you understand that you should because you’re going to make mad profits quick, instant equity. I love to keep spitting that fact out to you but the game is changing. Maybe not now but sooner than we think.
Here’s what’s happening. Many economists are warning of a coming recession with the familiar precursors already here. What are those precursors? You’ve got the inverted yield curve. That’s nerd stuff that I explained in another episode. You got the Fed raising and the Fed interest rate. Inflation is at 8.5% and the GDP growth declined sharply from the 4th quarter of 2021, where it was at 6.9%, down to a shocking 1.5% in the first quarter of 2022.
If it declines two in a row, that’s what all the economic nerds are going to say, “Two quarters in a row of GDP decline.” That’s a recession but the good news is it may not affect your housing too badly, as housing has gone up slightly in the majority of the past five recessions. Housing forecasts still show that we are going to go up the prices more than double the annual average price increase for the rest of 2022. Seven economic agencies average a prediction of a 9% increase in home prices in 2022.
They continue to 4% to 5% for ’23 and ’24. The better news is that the philosophy of this show is market-proof if you follow all the plans and you don’t make the mistakes that I did when I was in my twenties. If you read the episodes where I go full Ted Lasso and I get into the belief mindset about making the numbers work for you, rent versus buy, buy crushes rent in that cage match every single time.
Sometimes it’s a knockout punch, a big flying knee or one of those where they jump off the cage, kick him in the face and he’s down fast. That’s what happened from 2012 up to 2020. When I started the show in 2019, buy was smashing rent. If you go back even further than that, from 2012 through 2019, 2020 and 2021, that’s a long time to be such a heavy favorite in the fight. With the potential changes coming and what’s happening, it’s time to switch this fighting strategy because you’re going to need that to win the new battle. It might be coming a little sooner than we had hoped.
In the big picture, the no BS and no fear-mongering analysis, we accept it. You missed the great time to buy. Though we see the signs of the slowdown, we likely won’t go from a great market to an awful market overnight. That’s a crash. This is not going to be a crash or a bubble burst. It’s not likely to happen. If you disagree with that, I respect your opinion, even though I disagree with you. I respect that you have that because realtors and lenders frankly suck at bringing you clear information to help you make an informed decision.
All this misinformation or lack of any decent information is all you have to go on so you’re going to think that. That’s why this episode is not going to be a 30-second social media post telling you the top 3 ways to buy a home in 2022. This is a big deal. You need to put some time in to make sure you’re doing this right. For all the bubble believers I respectfully disagree with, I hope you take some time to check out my research and see what you think.
A Home Purchase Shields You Against Inflation
I warned about a recession coming but it wasn’t the last episode. It was in 2019. I told you back then that there might be a recession coming but if you’re still renting with the low-interest rates that are happening, replacing your rent with a home purchase is the best thing you can do to shield and protect yourself against inflation. Those who heeded that warning and took the advice from the crappy 2019 episode that I was doing in my kitchen, they’re paying a fixed monthly payment. The rent hasn’t been raised in three years and they have thousands, if not hundreds of thousands, in equity to protect themselves for whatever economic onslaught is coming.
If you go back to August of 2021, the Google search for “is this a housing bubble” had gone up over 2,000%. I realized you give a thing about this. I did an entire episode explaining that it’s not a bubble. In that episode, I gave you an hour of data, metrics and historical analysis. The people read that show and bought then in August of 2021 would be up 12% to 15% with once again, a payment that is fixed for the next 30 years and no more rising rent.
If you want more bubble information, go back to episodes 50, 60, 62, 67, 68, 70, 72, 73, 74, 75, 78, 84, 89, 92 and 93. There’s a ton there if you want more details on waiting versus buying and the great bubble debate that kicked up. It started in 2016 and ’17 and the people kept saying it every year, hoping that eventually someday, they’ll be right. If you’re a first-time buyer out there, listening to those people and believing it, I respect the fact that you think that there’s a bubble because you’re not getting enough information from my sorry excuse of a so-called industry but barring and other global meltdowns, I have to disagree.
It’s not because I’m smarter than you. It’s because I’m pathetic. I spend hours and hours researching all this information that I then put into all the podcasts, gathering the data to put out those episodes and watching these factors daily. I don’t scroll through my TikTok looking at the fun stuff. I read real estate nerd crap. I have come to this conclusion based on that and I’m sharing it with you. Add all of that to the potential recession data I mentioned at the top of the episode. Be ready and accept that this is where we are. You missed a great time but you weren’t ready then so prepare to get ready.
We’re still in a good market, despite all the bubble trolls on the internet. Here’s why it’s not great but still good. First of all, demand is still happening. It’s slowed down from hyper-crazy insane to insane. It’s like your super crazy sister who married that still crazy guy or gal. As far as housing goes, it’s still an insane demand in the grand scheme of things, which means we’re not going to crash anytime soon.
The second factor is that the inventory is still stupid low but we are starting to see it slowly growing. Remember, at the beginning of 2022, we were 700% lower than the number of homes for sale before the last crash. Now we’re in the 600% lower range, still way off of a number that would cause a crash. The last one, get ready to punch me in the face when I tell you this. Mortgage interest rates are still low, even at 5%. They’re still relatively low in comparison to years and years of data.
Let’s focus on the mindset, except for the fact that glorious short-term gain days are over. We’ve moved into the long-term gain. You can’t say I didn’t warn you. Sink it in. It’s time to see your home not as a short, quick way to make some fast money but as a safe and stable long-term asset with math that beats the fear-induced thoughts about waiting it out. Somehow, that’s going to be financially better for you.
You missed great and aren’t buying at the bottom. If you buy in 2022, 2023 or 2024, you’re going to be buying either at the top or near the top. You’re going to be looking to ride out the coming corrections but you can do it with a locked-in low fixed payment that will seem ridiculously low in 10, 15 or 20 years, no matter what the interest rate is. That’s going to help build you, your family’s wealth or your plants.
If you’re not ready, maybe you’re reading this thinking, “I want to get in before good. I don’t have a down payment. I still need some time.” What happens if good goes to okay and okay is going towards a recession? That’s when I finally saved up my money. We’ll do another episode but this is the reason why this episode is the one I’m telling you to save and go back to forever.
Timing the market, up, down, good and bad is irrelevant when you realize the unpredictability of what’s coming next. You get your belief on. You need to believe that buy is going to pummel rent in that cage match no matter the market. Don’t stress about having to come up with a whole new strategy every time you hear a little blip or a change in interest rates or prices. I’ve been saying the recession has been coming since 2019 so I’ve got a plan.
Accept The Things You Can’t Change
It’s time to reset your brain and get real. Number one, accept the things you can’t change. You didn’t decide to do this in 2012. If you did, you’d have a buttload of money. You didn’t decide to do this in 2018, ’19, ’20 or ’21. You miss some fatty appreciation so accept it. We have to take advantage of what’s left for you and make no mistake regardless of the market. If you’re renting, the best time to buy was yesterday.
This statement is going to hit some of you guys the wrong way. I see haters on social media all the time. Anytime I post something, they’re always posting, “Realtors always say you should buy because they want a sale.” Here’s one realtor, me. I agree with that troll and their stupid, dumb voice. Some realtors do say that because they want to sell. Lots of realtors suck at their job and are desperate.
They’ll lie to you and tell you it’s good to buy or sell anytime. The worst problem, even beyond that, is that most of the ones with the good intentions are going to tell you that if you’re renting, it’s always a good time to buy a house but they’re not going to communicate the why behind it. They sound disingenuous, which is a fancy word for full of crap. They’re going to sound like they’re trying to get a sale.
For anyone renting out there in a podcast or YouTube land, there’s a bigger picture to consider. Let me clear up my intention behind this. I believe in my philosophy that all renters should explore buying and stop renting as soon as they can, no matter the market. Why do I think that? It’s not because I’m trying to sales pitch you but it’s because I strained my hamstrings multiple times, kicking myself in the butt for missing out when I was in my twenties and renting instead of buying.
I blew it big time and then I learned how bad I blew it when I got into real estate. I made it my mission to start a revolution so nobody out there gets lulled into doing nothing and ends up making a huge mistake I did. You’re either going to be freaked out because you’ve got fear of the process or worse, what is happening now? That means you’re going to be reacting to what happens right in front of you. People are putting on the brakes because the haters are saying, “The good times are over so don’t do it.”
Here’s a side note on that. I love how every time people claim that buying a home now is stupid. They hardly ever explain any of the math or the facts behind why they’ve come to that decision. They say, “People are sheep and following the trend. It’s going to crash so don’t be an idiot. Buy when it’s low, stupid.” They do that with no figures to back it up, end of side note.
Let’s get into my story to help you sift through the negative headlines, the trolls, the fear mongers, the impatient, negative and cynical people that are coming out of the woodwork all of a sudden to warn you of this impending doom. To see how this might work, let’s take the history of my twenties to see how ignorant and dumb I was. It sounds like fun and it’s called self-evaluation. In 1991, I was turning 21 years old. I didn’t have a clue. I didn’t even think buying was an option for me in any capacity, not even close.
I wasn’t afraid of the process because I didn’t even think it was possible. To say buying a home wasn’t on my radar. I would imply that I even had a radar for anything like that. The thought wasn’t even in my universe, nowhere near my brain matter. I remain blissfully ignorant and uninformed. Besides, I wanted the freedom to leave my life so I rented. Looking back on it with what I know now, I blew it. As an old dad and a dude, I realize that I missed the real freedom to live my life.
Everybody thinks that if you lose your freedom, you can’t live your life. I could have made hundreds of thousands of dollars with so little effort by doing the bare minimum. It’s exactly what I did paying my monthly housing bill, which I did every single month. I paid it to the wrong person. It would not have cramped my lifestyle. The condo I would have purchased would have been a lot sweeter than most of the many apartments that I lived in. It also would have prevented me from having to move every other year. I would never have to worry about rent increases.
It would have been no different in my pocketbook. I still would have been free to live my life and go wherever my whims desired, still could have had freedom but with the huge bonus of more financial freedom in my 30s. Instead, I kept busting my butt in my 30s because the only return I got from those years in Hollywood when I was paying all my money to the landlords was a $1,500 security deposit I got back.
Instead of cashflowing assets that could have provided huge returns to me in my 30s and beyond if I wanted it to, I could have begun to experience real financial freedom in my 30s and 40s. Many years later, I started a show out of sheer madness over the hundreds of thousands of dollars that I lost by not buying a condo in 1991 when I was a perfect candidate to buy a home at the very young age of 21. I started it because I wanted to help people and fight injustice.
This story is one of the two big reasons I started the show. Over a decade in the business, I saw how wretchedly savage the real estate industry treated first-time home buyers. I decided to start a people’s revolution, like an underground paper, trying to rally all the masses to overthrow a dictator. Number two, what we’re getting into the big reason why I started this is that it was my story. From all the years of watching all those time travel movies, I learned that when you do get a chance to go back in time, you’re probably going to have a very limited window to communicate with your younger self. I wanted to make sure that the older me could explain the big mistake I was making to the younger me so I would avoid this growth.
My plan was to make a show. I could simply leave younger me copies of the show to help make sure that they make the right moves in life since I’m pretty sure that it’s going to be a tight window when I do run into them and a time-space and everything is coming around. I’m probably not going to have much more time than I need to be able to look at them, handle the show and say, “There’s no time to explain.” Then I’m gone.
I understand it’s going to be confusing that I’m handing a show but I’m probably going to transfer it into a cassette tape or whatever I was using back in ’91. Now that I think about it, I probably should make another cassette tape called, “Don’t believe her when she said that guy who she says is her friend that she keeps hanging out with is just a friend.” There’s a lot I would probably tell early me.
Sad Story From The Past
Here is the sad story from my past that I’m happy to bring to you as a learning tool for all of us here in the present. I could have purchased a set of rent in my twenties. Here’s the kicker. The market wasn’t heading up. I don’t mean slowing down. It was flat in my twenties. It started to go down immediately after my 21st birthday, the same month that I put a $3,000 deposit down for my Hollywood apartment.
If I had Dr. Brown to take me back and he’d given twenty-year-old me the show or cassette tapes, whatever it was and I’d realized the market was going to drop when I moved up to Hollywood, maybe I would stay at home for another year or so and save my money up. I would have purchased the condo for $150,000. Let’s say I didn’t have him. I went ahead and instead of putting $3,000 down for an apartment on my 21st birthday, I ended up buying a condo for $150,000.
The first thing you’re going to say to me is, “You were turning 21. How could you commit to living there forever? What happens if that job ended and you got a job someplace else?” This statement has cost more first-time homebuyers a lifetime of financial freedom and security than I can fathom. I want to be clear. I am not an investment show. I do believe in real estate investing but I also believe that this show’s mission is to help the underserved. That’s you guys, the regular old first-time homebuyer.
After I interviewed that nineteen-year-old kid from TikTok, Courtland, there’s even an extra layer on that. For many of you, why even rent at all? For most of you, the answer is, “I don’t want to do that because when I’m 19 or 20, I need the freedom to move.” With the market changing, you’re stacking on this new excuse/reason with the concept of, “I’m waiting for the market to go down and thinking that’s the smart play.”
Here’s my story about not buying in a bad market, not a good market or an okay market like we’re in. If I had purchased all my 21st birthday, the market was going down immediately after that. It barely got back to break even in this scenario when I would have moved out in 1998. That means I would have bought and the market would have gone down, stayed down and come back upright in these few years.
Over those few years, I averaged $1,250 a month in rent. I had a roommate some of those times so I factored that in and calculated it all up. I paid $104,000 in rent. How would that $104,000 in rent compare to if I had purchased it? I did the math on that. It would have been about $125,000 in mortgage payments on a $150,000 condo.
Those payments would have reduced the principal taking it down to $110,000 in the remaining mortgage. Remember how I said the home went down and went back up? I’d spent $125,000, which is more than $104,000 but the home that I bought, even though it was the same price as when I purchased it and that was breakeven, I would have gotten back my down payment of $30,000 plus another $10,000 because I’d paid it down to $110,000.
Even though I broke even, I made $10,000. If you subtract that from the $125,000 that I spent, it takes me down to $115,000. The difference is I could have owned something that was the same price for $115,000 or I could have rented for $104,000 and got nothing. To the uninformed, that looks like, “I paid a little more and got something that doesn’t get me anything.” That’s the beginning of how this all works. That’s the simpleton math, though.
My twelve-year-old says I’m not supposed to call someone a simp anymore because it means that you’re too thirsty for someone. In my day, we called a simp a tool. I digress. In this breakeven asset, did I mention that the interest rate on this was 9.59% mortgage interest rate? That would have cost me $1,311 a month in PITI. That’s why it’s a little different than my average of $1,250 a month.
Here’s another side note. Some people hear this and they say, “Boomers, it’s easy to buy with 20% down when the home was so cheap and your pay was so little. Your generation screwed us so it’s impossible. Shut up with your back in the day we made your story.” First of all, I’m not a Boomer. I’m Gen X. I’m getting mad. Reality bites, Nirvana, Friends on TV, the first time, not the Netflix time and the emergence of gangster rap. That’s me in my twenties.
Secondly, I empathize with you. I do. This is why I started the show because you’re correct. I’m not going to go back to tell you stories and tell you to put on your grown-up panties and start acting like adults as we did. Are you listening to this story? I’m not that guy. I was prancing around living in YOLO from apartment to apartment. It was before YOLO, FOMO and all that was cool. In 1996, I bailed on my apartment. I got a subletter for four months because I wanted to go and live in Atlanta. I worked for Coke during the Olympics in 1996.
I’m with you. I know that now is different. I’m not telling you to suck it up as we did in the old days. That’s why we are here to help you beat this game. My message isn’t, “Stop being so entitled and stop whining.” My message is, “It’s getting near impossible. I see why you’re freaked out.” Near impossible is not impossible. You can do this. I have the cheat code for you. That’s me. Let’s join the revolution. Let’s go.
While the memes are yelling at the Boomers who had it easy, I get it. The sentiment is correct but in many ways, it is different for you and it’s harder. Mathematically, it’s not nearly as bad as all those snarky memes blaming all the older people for ruining it for them. It’s not even close. In my case, for instance, you’re going to be thinking, “$150,000 for a condo in Hollywood isn’t happening. There’s no comparison.”
At the time of the example I’m giving you, the average rent for a 2-bedroom was $750. I was paying $1,250 because I was young and dumb. I thought I was all that. I got a little more expensive one. I was all bougie until a little bit later, I realized that I needed a roommate to be that bougie. Let’s take $750 and compare that to the average rent for a 2-bedroom in a major metropolitan area. That’s $2,000. That’s a 267% increase in the monthly payment.
The rent is different. Let’s multiply the $150,000 costs of the condo, the one that you’re going, “You could never get one for that.” Let’s see how that works for the rents. For 267% increase on that $150,000 condo, you get $400,500. It’s almost the same as the 2022 median sales price for homes in this inflated market.
You see, I’m not a Boomer telling you to get over yourself and stop whining. You’re right. The numbers are bigger than they were back then. The initial investment takes more time if you’re going to go like, “I need a 20% down rule.” In general, the numbers are pretty much the same so stop with all your stupid memes. That’s why I started the show to help you see the real math and help you beat the system.
The math is there, especially if you’re using the national average for the major metropolitan areas. The whole thing is not much different than the Boomer had it when you extrapolate the rent to prices ratios where it is rigged against you. That’s what I told you in one big facet the down payment and the time it would take to save 20%. That’s why I’m here spitting all these boring stats, facts and figures to you. It’s harder to save 20% but you have ways to beat the game.
Don’t Get Sucked Into The Blame Game
I’m not even going to get into it because if I had the time and I got to get real on you, I bet I could go back and show how the wages increased over the same period. You might have a similar ability to save 20% as they did back then but I’m not even going to get into that. I’m going to stay on your side. There’s a better way. Let’s practice practical positivity and find a way to win with the hand that we’ve been dealt.
Don’t get suckered into the snarky blame game. If you’re reading and you want to do this, let me help you beat the system and make this possible. That’s the real real of how I feel for all my readers that are discouraged. Frankly, I’m pissed off that there are trolls out there feeding you this terrible information. It’s bad enough that I have to fight the real estate industry, my industry, for not bringing enough clarity to help you out.
I got to reverse your mindsets because there are people out there with nothing better to do than sit around, whine and make all kinds of crap on the internet for you when they’re not even offering any solutions. They’re whining and complaining about how easy it was back in the day but never help you with the answers, just making negative noise and preaching hopelessness.
You, Captain Whiny Pants, shut the F***. I’m so sick and tired of you, trolls, bitching about how the Boomers messed everything up. Don’t even try to put me in the category and say I’m one of those Boomers who says that everyone younger is entitled but you don’t understand the value of hard work. I don’t think you understand math. Things cost more in the future than they did in the past. Welcome to history. The disparity is nowhere near where you think it is and where you claim it to be.
Even if it was so different so what? Things change. Do you want to bitch about it? Find a way to make it work. You sound like a blacksmith who’s bitching because the Model T’s put them out of business. Stop bitching about the Model T and start figuring out what you’re going to do next. It’s called progress and change. Things happen, adapt or die but you don’t do that. Do you realize that if you spent all the time that you spend on social media whining, telling everyone how terrible it is, adapting and figuring out some new skill that other people would pay you for, could you afford the lifestyle that you say is taken away from you?
Seriously, stop scaring people into complacency because of your fearful words. Stop telling people there’s no hope and the American Dream was taken away from them by the generation before them, all those greedy people. The American Dream is about ingenuity, adapting, evolving and progressing. The people out there I’m trying to help deserve solutions, not complaining. Stop polluting society with your do-nothing bitch fest. Get off your butt and find some solutions.
If you can’t do that, get out of your way. The economy and world change all the time. If you believe what you’re saying, stop making memes and whining about it. Start doing something about it. Find some solutions, better yourself, adapt and start a protest if you want to but you better make sure that you understand all the math and you know what you’re talking about because you’re way off. People need answers, not incessant whining and complaining. Run for office. Shut the F*** up.
Sorry about that. It looks like you got to see something that’s been festering for a little while. Let’s get back to the answers to your questions about planning for and buying your first home with my story. I moved to Hollywood, didn’t buy, could have and paid $104,000 of rent. I could have bought a nicer condo with that money to break even in eight years. I would have got $10,000 back on that plus the $30,000 initial investment.
Even though this imaginary condo that I could have purchased would have lost value immediately. In other words, I was buying in a down market. I would have done this all by making this purchase at 9.5%, 9% interest. It would have cost me $1,311 a month in PITI. That’s $61 more than the rent that I paid for 8 years. For those of you super nerds out there who did the math, it was $61 more a month.
Let’s multiply that by 12. That’s $732 more annually. Multiply that by 8 and that would have been $5,856 more. To be fair, I will subtract that $5,856 from the $10,000 that I made on the profit in a breakeven sale. Confused yet? I told you it’s going to be a lot. That means that instead of the $10,000 extra profit, I got $4,144 actual profit. Remember, I wanted to move out in 1998. If I sold it, that $4,144 would not have been enough to cover the cost.
You Have To Think Long-Term
Remember to truly break-even in the value of your home when you’re buying it and then sell it later. Not including the payments that you put into the principal, you have to factor in a 7% to 8% sale of the property. That’s a lot of math to figure out but I didn’t start yelling at all the haters without bringing all the legit numbers to fight them off. Who said anything about selling? We’re talking about a new game plan. Remember, in a changing market, you have to think long-term.
Is buying going to be right for you if you’re going to move at some time? Maybe not if you want to use the profits from owning that 1st home and pull them out to buy your 2nd home. It’s a punch-you-in-the-face reality. If you miss the opportunity to buy your house, in 2, 3 or 4 years, sell it and get a profit. You still could. I don’t know what’s going to happen in ’22, ’23 and ’24 but I’m not saying you should plan on it. You might want to have a new exit plan.
Either you buy a home and stay in it for 10 or 15 years or have a new exit plan. If you’re looking to buy and then move in ten years or less, it’s time for a new plan. Number one, you can fix this by moving fast, trying to catch any of the remaining run-ups in prices and getting some equity because the recession is coming and things are going to slow down. It might be in a few years but it could happen in a few months. Who knows?
Number two, you recognize that you do have something tangible and mathematical that you can complain about. This is happening regarding your timing. If you miss the run-up of the decade, that’s no one’s fault. It’s history and that’s the way it works. Let’s talk about solutions and keep learning from my mistake.
In 1998, when I would have been breakeven, interest rates had dropped from that crazy 9.95% to 7%. I could have moved and kept the home. Refinance the $110,000 that I had left and get down to a payment of $1,000 a month. Staying fair to the math back then, I’m not even going to bump the rents up because rents didn’t go up during that time. It was a recession. My rent for that bougie place that I bought still would have been $1,250. My payment for my PITI dropped down to $1,000 because I dropped from a 9.95% to a 7% interest rate.
I don’t think that the rents are going to stay the same for you over the next years but I don’t want you to think that I’m going to be inflating the facts of the data in any way. That’s not me. That’s you guys. To once again present a fair and actual example to all my readers so you can find the solutions, I’m not going to include any rent heights in my example.
Let’s go back to my imaginary condo example. I would’ve paid $61 more a month for 8 years. At the end of that, I would have a condo with a $110,000 mortgage now worth $150,000, which was what I bought it for back in 1991. It’s 1998. I can refinance down to $1,000 and it’s going to rent for $1,250 because interest rates dropped from 7% to 9.95%, which leads me to another very big side note.
This is all very important stuff. You won’t make money off it immediately. By the time you reap the benefits, I’m going to be retired on a boat somewhere. This is probably the worst sales pitch and business idea in the history of real estate but I don’t care. If someone had done this for me at 21, 22 or 35 and I saw the benefits that you’re going to see in 10 or 20 years, I would have followed that dude or lady on TikTok or whatever the social media was at that time.
When they died, I would have gone to their funeral to help me out 10, 20 years ago. That’s how long it’s going to take for you to see the results from this show. It’s cool. Gary Vee says, “I don’t do this to get props and likes on social media. I do this so my funeral is filled with people that I helped.” Let’s get back to it. In my example, mortgage rates sucked when I bought this imaginary condo at 9.95%.
Let me put this entire mortgage interest rate debate to bed. I understand you are reading this show, which means you’ve been studying this home buying stuff for a few months, a year, maybe even as long as a few years but let me explain how interest rates should affect you in the anti-immediate gratification solution that I created with my imaginary condo on how to beat a coming recession and downsizing in housing.
Interest rates don’t matter. I have a chart that shows interest rates since 1970. We’re talking 7.5% back then and it rolled up to 18.39% in 1981. From 1970 to 2000, interest rates average 9% to 10%. In the last run-up, in 2000, they were at 8.84%. Through the run-up, they average between 6% and 8%. In the grand scheme of things, these whole interest rates at 5, 4 and 3 are all brand-new drops in the bucket since 2008. The market has been below 5% for the last several years. Before that, it averaged 8.5% for decades on decades and survived multiple recessions.
Let me help you get some perspective on interest rates. Stop waiting for rates to drop. This 5% might be the lowest we see for 5, 10 years. If you believe in the math that I’ve been giving you so far and buy at the top like I did not when I was 21 years old, you want to get even as soon as you can because at whatever rate you get in, there are only two things that are going to happen with interest rates. It’s going to go up and you’re going to be saying, “I’m glad I got in at 5% because I could never afford 6%.”
People were saying, “I’m glad I got it at 4% because I could never afford 5%.” In 6 months, people are going, “I’m glad I got in at 6% because I could never afford 7%.” That’s one thing that could happen. It goes up and you’re happy you’re locked in or two, it goes down, you refinance and get a lower payment. That’s how interest rates work. Those are the options. Sitting around waiting for it to go back to 3% might not happen. It doesn’t jive with the history. If it does, great. See option two and refinance. End of interest rate debate, history lesson included, think historically, not recently.
Back to my imaginary story. I bought the condo in 8 years, broke even, drop the payment down to $2,000 a month. I can rent it and make $250 a month. What’s the difference between me trying to wait it out and save for a down payment versus me buying the property? As we found out, if I buy the property, we’re in that situation where it’s going to break even but the real key to understand is that the rental prices versus the price for owning the home were almost the same by the month.
At the end of 1998, if I’d saved anything up, that would have been my down payment if I was a renter but as an owner, I already owned the place and ended up in the same place. Here’s the kicker. It’s 1998. I’m breaking even. If I’d spent all my time saving money up during that time as a renter, I would have been using the same money to buy a house for the same price.
Downtimes are always followed by uptimes. If I hung onto it in 1998, I could have saved the same money that I saved if I was a renter to buy my next house because the prices were the same as far as my monthly payment. I’d be doing the same thing except I’d be owning a property. Here’s the median price of a home. At the top of the market, the median home price was $257,000 in 2007. That means my $150,000 condo would have been worth about $300,000 at that time.
We already established that my savings plan would have been the same if I rented or bought in the ’90s since my rent would have been the same whether I bought or waited it out. Whatever I decided to do years later when the market was similar to what it is now, I could have saved the same. Either I would have had nothing or this home, plus it already is making me $250 a month.
Rent started going up after 1998. By 2007, I’d be charging $1,750 a month instead of $1,250. Instead of making $250 a month on my refinanced new 7% loan on the $110,000 that I had left on my principal, that’s $3,000 a year, I would have been making $3,000 a year in 1999. With the incremental rent increases over the next eight years because rents went up, I’d be making $4,000 a year, $5,000, $6,000, topping off at $9,000 a year. That’s $750 over my $1,000 a month times 12. It would have been even more because interest rates dropped in 2003. I would have refinanced approximately maybe $100,000 I had left on my principal. My new PITI principal payment that’d be $850.
If you’re not following what’s going on, I own the place in ’98. I decide to keep it. Rents go up. My cashflow each month goes from $250, $500 to $750. I refinanced in 2003. I understand that’s a lot of math but if you stay with me, this could be your future. Maybe you can’t afford to buy a home in the area where you live above the national average but if you’re going to live there even a few years, you can figure out a way to buy and pay a mortgage because you’re going to pay this anyway and do this plan. The other option is to buy a forever home, ride it out and in the long run, you’re going to do great.
Back to my example, if I kept the home through 2007, if I was making $3,000 to $9,000 bucks a year in cashflow, we include the new payment drop from 2003 when that refinance went and that ups all my rent payments to $1,800 a year more for the last few years, the total is about $70,000 of rent that I would have collected. Plus, I would have owned the home that is going to be worth $325,000.
I only owe $100,000 and pay $850 a month on it. My rents are $1,750. What if you say, “That sounds great, David but then the investment tanked in 2008?” We all know that. Your numbers suck. I should have listened to that troll over there that you were yelling at. Do they? Home prices would have dropped. Your great investment in 2007 would tank 2008, ’09, ’10 and ’11. You lost some money.
There’s no way you would have figured out how to sell it in 2007 to see the big bubble that was coming. Here’s the big kicker behind that. Do you know how long it took from 2008 to 2007 very top before it came back and the biggest real estate crash in history recovered? From 2007, at the very top, we were back to that same home value in 2013 in less than six years.
In those six years, if you’ve been paying attention, you think there’s a lot of haters out there talking to you but back then, in that slump from 2008 to ’09, ’10 and ’11, you would have thought that buying a home would mean you’re the biggest idiot in the universe. Yet in a few short years, from 2007 at the top, we were right back there in 2013.
If I kept it during that time, the value would have gone down but who cares? I’m not selling it because rents went up another $200 in 2012 and 2013 while the market fully recovered in the price. In 2013, years after I made this initial investment to buy this imaginary condo when the market was going down, I would have made over $100,000 in rental money over that time.
My loan at this time would only be about 33% of what I paid for the property and the property would have doubled in value by that time. The kicker is I only would have broken even in those first eight years but if your whole reason for doing it is because you’re saying, “I need to save up money for my down payment,” the cost of it was the same month for those eight years.
Beat The System By Leveraging Your Monthly Rental Payment
Wouldn’t you love over several years to have $100,000 in rental income coming in and have a property that’s double what you paid for it with almost nothing of a mortgage? I understand this is a lot of math. I encourage you to go back and read the episodes over and over again. The reality is this is where we are headed. Is this the only foreseeable future? No, but if the recession and correction do happen sooner rather than later, this can be one plan to help you beat the system by leveraging your monthly rental payment over these next few years when you’re going to be a renter.
I can’t help it if you’re going to become a renter at the top of the market, maybe moving into a correcting market. This is where we are. Your situations are going to be different. Every one of you is going to be able to cash in on this plan. If you did my imaginary plan, you could cash in a bunch of different times like in 10, 15 years or wait for the full 22 years as I did. I do want you to keep in mind in the fake example that I gave you, I kept it straight up.
I’m straight up with the numbers. I’m not selling you or giving you any slanted numbers to make things look better. I cut it off at 22 years in 2013, which is the date that the market rebounded during the worst crash in history. If I was selling a seminar, I wouldn’t have made it 22 years. I would have made it a 25-year plan because, in ’13, ’14, ’15 and ’16, the market went up and the home would have been worth even more.
I would have made a 30-year plan where the home was paid off completely. You made $150,000, $200,000 in rent and the home are worth $400,000 but I’m not selling a seminar or workshop or trying to get you to buy and sell a home with me. I’m giving you the real numbers on how this can help you even through the worst crash in housing history. This is guidance for you because I screwed up.
Now that I know better, I want to help you avoid the mistake that I made. Nobody makes a fortune in a recession by talking to you. It’s crappy to say but it’s the truth. Nobody makes a ton of money helping the little guy during a recession. It’s not sexy. It’s a long play. If I’m living off testimonials on my website, what am I going to do? Wait twenty years for you to give me a five-star review?
What happens in these times? The rich people ignore you when they make money for themselves. Recessions are for the rich. All the fat cat, wealthy, big dollar players know that when things suck in a recession for the general public, that’s the time that they invest big time because they know all the whining, the crying and the fear are so short-lived. If you look at history, the rebounds always happen and they always happen faster than they think they will. You have a little time left. It’s not great but it’s good heading towards okay. If you miss it, there’s still a play for you where buying beats renting. The example that I have is not the only one.
Maybe you can buy your forever home. It’s still going to be cheaper to do that at 5%, especially if interest rates never get below 5%. They didn’t for almost 40 years. Maybe you can start the plan that I should have done. When you do that, I will give you the 22-year plan. Remember, the imaginary scenario I made up for you has the worst drop in housing history. Maybe you’re going to do even better than I did without that.
Instead of 22 years, maybe you’re going to have those numbers in 15 or 10 years. I cannot predict the future and guarantee. I can take all the data and get you informed to make sure that you’re making a decision, not based on fear. I want you to make one not based on research from the last few years and not based on some realtor trying to sell you something without giving you all the true and honest opinions.
I don’t want you to make it based on that internet troll spewing all the fear and facts. Do I have to cuss at you again? No matter what the market is, there is a plan. Buying yesterday beats renting today. For the next few years, if you have the right guide, you can make this happen. Let’s go and do this because you can do this.
- Episode 5 – Past Episode
- Episode 50 – Past Episode
- Episode 60 – Past Episode
- Episode 62 – Past Episode
- Episode 67 – Past Episode
- Episode 68 – Past Episode
- Episode 70 – Past Episode
- Episode 72 – Past Episode
- Episode 73 – Past Episode
- Episode 74 – Past Episode
- Episode 75 – Past Episode
- Episode 78 – Past Episode
- Episode 84 – Past Episode
- Episode 89 – Past Episode
- Episode 92 – Past Episode
- Episode 93 – Past Episode
- Courtland Burchfield – Past Episode
This podcast was started for YOU, to demystify things for first time home buyers, and help crush the confusion. After helping first timers for over 13 years, I knew there wasn’t t a lot of clear, tangible, useable information out there on the internet, so I started this podcast. Help me spread the word to other people just like you, dying for answers. Tell your friends, family, and perhaps that random neighbor you REALLY want to move out about How to Buy a Home! A really easy way is to hit the share button and text it to your friends. Go for it, help someone out. And if you’re not already a regular listener, subscribe and get constant updates on the market. If you are a regular and learned something, help me help others – give the show a quick review in Apple Podcasts or wherever you get your podcasts, or write a review on Spotify. Let’s change the way the real estate industry treats you first time buyers, one buyer at a time, starting with you – and make sure your favorite people don’t get screwed by going into this HUGE step blind and confused. Viva la Unicorn Revolution!