3.27.2007

The House Who Bought Itself

Let me tell you a story about the house who bought itself. One day a boy named Paris (I'm the star of the story!) realized that he wanted to buy a house. But he was only 23! (I took an aging potion) He could not afford to make continuous payments to his mortgage, but following his own advice, had about 50,000 dollars saved up. So he went around looking for a nice house. He found the perfect one, and it cost 500,000 dollars. He quickly got a mortgage and payed his 50,000 dollar down-payment. But now he needed a way to pay the mortgage. He didn't feel the need to move out of his parent's house just yet (although they wanted him to) so he decided to rent the house out and stay with his parents. He put all the rent payments towards the mortgage, and pretty soon, he had a 500,000 dollar house that only cost him 50,000 dollars!
The end!
I have this dream to buy a house before I'm 17, but I need a way to do it. I know that I can't pay for the full house all at once, and paying off a mortgage is out of the question, so I devised this plan to help me do it. If you can't come up with the 10 percent down-payment, see if you can borrow from an angel investor (someone who will loan you money at little or no interest, usually family) and if you have a dream like that while you are young, you can ask a parent to buy the house for you.
Another similar plan like this is, if you already own a house and are paying that mortgage, you can get a second mortgage on a condo or another house and use that as a rental property.
So if one of these plans can work for you, you're well on your way to being on your way to being financially independent!

5 comments:

Jay said...

This is a great idea--- in theory. Unfortunately, there's a couple problems with it. The first is that its hard to find someone who wants to live in a $500k house that they are renting- if they can afford the rent, generally they will buy a house in that price range themselves.

But if you scale it down, there's more people who will want to rent the house, but there's a problem: The rent won't cover the mortage payment.... at least not in the early years. After about 10 years rents will start to cover the mortgage payment (assuming house prices go up.)

The next problem is that there has been a housing boom over the last 13 years (Eg: since you were born) and this has been historically much greater than previous housing booms-- especially in British Columbia.

So the next 5-7 years will probably see house prices fall or deflate (and rents will go faster)

Finally, assuming you find a property whose rent will cover its mortgage, you still have to cover the taxes and upkeep for the property.

Unfortunately, real estate on a small scale is not a good investment unless you stick with it for a very long time-20-30 years.

Most people advocating real estate as an investment are real estate agents. But they ignore the real costs. More often it does not work out unless you buy in jsut the right area-- and then you're speculating (like all speculation you're taking more risk.)

The best way to make really good money in real estate is to be a real estate agent... then you get a cut of every transaction. Sell 20 houses in a year and you make as much as the average selling price of those houses.

But your idea is very good in an important area-- you're thinking about leverage and leverage is the way to get wealth. Just have to account for the risk.

Keep thinking up ideas like this and eventually you'll find a good angle and become wealthy... you're miles ahead of most people already (who are actually living in a house they bought that was too big for them ,and are losing money on the deal because they paid too much and will move before they've built up any real equity.)

Munnybagz said...

Haha, thanks.
You are totally right. A much easier way to do it, correct me if I'm wrong, is to invest in a condo. They go for a lot cheaper (if you have the money up front you can buy an under-construction one for under 300,000) and they are a lot easier to rent out.

Munnybagz said...
This comment has been removed by the author.
Tom said...

not bad my little friend

Niko said...

Tom...Dont call him little, hes going to be a multi billionaire by the time hes like 30. I am his friend at school, seriously, you may be right about the "not bad" part, but not about the "little friend" part