I am on a journey to provide for my family and position myself to spend as much time with them as possible. With this mission in mind, each step I take must be calculated to leverage opportunity, connections, resources, and my education. One of the main goals many people have along their path is to purchase a house. If done correctly with their future selves in mind, this purchase can benefit or aid in achieving the end goal. Once we can effectively bounce ideas off ourselves and when we understand ourselves deep enough to criticize our actions while holding ourselves accountable. We can make these decisions with our goals in mind allowing us to stay the course. For example, by understanding our end goal, we can act accordingly with large purchases such as a house.
The norm has been to stretch ourselves thin when it comes to these large purchases because scaling quality has many benefits. By doing so, we limit not only our growth opportunities, but we may incur added stress when the inevitable repair bill, remodel, or any unexpected cost surfaces. I am one to certainly enjoy, just like anyone else, higher-quality products, especially if I live in them. I challenged myself to understand early how I could achieve that while maintaining a certain level of comfort and knowing that I made the right decisions along the way.
As far as my first home purchase, we firstly leveraged our network. We were able to purchase the house from a family member who was looking to relocate as she moved into the next phase of her life. There were certain things she was looking to take care of with the sale of the house, and we wanted to be sure that we did what we could to meet that need. The house was for sale off the market for $150,000; there were, of course, cosmetic updates that were required before the purchase was made. After researching the area’s comps, we figured that, at the very least, the home’s market value was around $250,000. This allowed us to acquire a home where we would instantly realize value by purchasing below market value. The best part is we could take our first step toward financial independence while also assisting with achieving the seller’s goals.
I, of course, began to compare interest rates through various mortgage companies during this time. We saw between 3 and 3.5 two 4.5% interest rates (January 2022). We could lock in a 3.5% interest rate through rocket mortgage, which was not an easy company to deal with, but I will get into that in another post. After the appraiser came out, we received a value estimate of $310,000, well above what we initially thought. This gave us options; we could outright purchase for $150,000 and take that loan while reducing our monthly expenses. This was a net positive regardless of the decision due to the monthly rent of $2300. Alternatively, I could commit myself to furthering my education and how to make money work and utilize this opportunity to expand and grow for my future self.
The goal was to take out a loan of $300,000; how we were looking to use this money was to pay the $150,000 to our family member who was selling. Leverage some of our contacts to assist us with this purchase by paying for our 20% down payment, understanding that once we close, we could pay them back through the seller concessions. Of course, this is only really an option for someone involved with trusted individuals. This is abundantly clear to me, and I want to clarify that to everyone else who may attempt to do something like this. How this all breaks down is a total loan amount of $309,000 with the sale price of $150,000, gifted funds of $60,000 from family members to cover the cost of the down payment, another $50,000 to cover the cost of solar panels, which were installed only three months before the purchase of the home. Lastly, the closing costs of $12,000 are also included in the equation. That leaves us roughly $51,000 to work with, 16 of which went to the remodel of the house to bring it to today's standard—the remaining $35,000 or what's left over for us to utilize and acquire the next property.
Now I know that the $60,000 amount that was gifted to us temporarily could raise questions due to gift tax being involved. My answer to that lies in the laws surrounding money transfers between family members. Firstly, you can gift up to $16,000 per person and $30,000 for married couples tax-free. This can be done for each set of parents as well, which will allow for a more significant gift amount; the person gifting you obviously would need the money available to them to make this happen, so there is a certain threshold when considering this process.
The journey isn't over, but I wanted to share what I learned about myself through this process. The first step was to build wealth for the future instead of satisfying my desires. Taking time to understand the steps that are required to achieve this goal is critical; a strategy must be formulated that can be executed to put you in an up position of success. Is this first purchase the most prominent house? Not by a long shot, but making this purchase opened the opportunity for the next one and the one following that so I could then make the big “dream house” purchase down the line.