Real Estate

Millionaire Rule 1.49

DYI Comments:  The article above is from none other than Thomas Stanley the author of The Millionaire Next Door.  His work shows the first house these future millionaires bought had a price of less than one and a half times their incomes.  Remember this is when these guys were first starting out and were not not making the big bucks.  In order to build business' and acquire stocks, bonds, real estate they needed low overhead to achieve those ends.  Here is a quote from Thomas Stanley:

"The data strongly indicates that this ratio of wealth building productivity is inversely related to the market value of one's home."

So simple yet almost no one lives below their means.  They all say they do.  We know they don't. So much so that 1/3 of the Boomer's are flat broke and many due to the housing downturn have a negative net worth.  Boomer's were and many still are overly enamored with showing off their wealth by building or purchasing large homes neglecting the three building blocks of wealth.  Stocks, bonds, and income producing real estate.  Their large homes soaked up future investments due to heating, cooling, and maintenance costs.  These aspiring millionaires knew, as compared to their aspiring non-millionaires, the true costs of home ownership, not just the monthly payment plus utilities.

Estimating Expenses Before Buying Your First Home

DYI Comment:  Excellent New York Times article listing the many associated costs of home ownership.  Once you start adding up the potential costs and if you live there long enough all of these potentials will become your actual cash drain.

Renting vs. Buying: The True Cost of Home Ownership

October 31, 2013 By Darrow Kirkpatrick

The Bottom Line

Ok, so we’ve explored most of the obvious and not-so-obvious costs of home ownership. As we went along, we made some simple calculations using assumptions based on my personal experience and national averages, to come up with monthly equivalents of all these home ownership costs. So now let’s add them up:

Cost of Home Ownership per $100,000

Item	Monthly Cost
transaction	$125
property insurance	$42
maintenance	$167
property taxes	$83
interest/opportunity cost	$417
TOTAL	$834

The bottom line for our hypothetical example is that home ownership actually costs about $834/month per $100,000. So, for example, if you’re looking at living in a house valued at $300,000, you could assume that would cost you about 3 x $834 or about $2500/month to own. If you can rent it for less than that — which indeed you can in some U.S. markets right now — then renting is actually the better value.

DYI Comment:  Most folks will quickly discount the $417 interest/opportunity cost as not important but not our future millionaires they see those dollars as crucial to wealth building.

Is It Better to Rent or Buy?

DYI Comment:  Top notch calculator from the New York Times.

Stop Acting Rich: And Start Living Like a Millionaire  

Written by Thomas Stanley

DYI Comment:  A top notch book if you are serious in having your financial house in order.

DYI