The Skills that Make You Rich: Real Estate Know-How

“Duh, Darcy,” I can hear you saying already. “Knowing your way around real estate is an OBVIOUS wealth-building tool.”

Ah, but knowing your real estate is ALSO an excellent way to avoid going broke. It’s one of the top skills that makes you rich, as several real estate investors can attest. At least, the ones with enough skill can, anyway.

There’s a hidden underbelly in the world of listings and fixer-uppers. It’s where they choose not to discuss how badly you can screw yourself on buying a house; it’s also where they use manipulative tactics to trick folks into an ownership hell they’ve never conceived of before. As a veteran of the real estate industry I’ve seen these things unfold firsthand; I’ve also got that to credit for not losing out on real estate myself.

How It Lowers Costs

Knowing the ins and outs of your local market helps you out MASSIVELY. It doesn’t matter if you’re buying, selling, renting, or staying put. No matter if you’re looking to buy a property or rent a good space, you know a good deal when you see one.

In my case, knowing the market helped me make the decision to rent instead of buy and also to know what the market rates are. I knew more than enough to jump on a screaming good deal when I came across it. That specifically being my current apartment, where I’ve got an almost 40% off rent deal. I also saved the money that would’ve gone towards a broker’s fee, generally the cost of a month’s rent. That’s almost $2,000 saved right there, just from my real estate know-how!

Now if I was looking to buy, I would have given myself a lot of time to scour the market for anything underpriced. Let’s say I wanted to buy a home here in Massachusetts, but I didn’t want to pay more than my current rent ($1,700) each month. Knowing that, what’s my ideal price range?

Calculating this is tricky because of how many variables go into this. You know you’ll get a mortgage, but not what your mortgage rate will be until you negotiate it. You also know you’ll need to take care of repairs and maintenance costs, which are also tricky to price. There’s also the question of whether the house will need renovations, or (if you didn’t do your homework) whether your neighborhood is part of an HOA that demands fees from your pocket. Then you’ve got other stuff like taxes and insurance to worry over too. It is a lot.

The Case Study

In my case I tried approaching it a different way. I found a couple of nice-enough homes that were accessible by commuter rail in Greater Boston. The homes I liked most were in the $300k-$400k range, so for this exercise let’s use a $350k house. Thanks to COVID-19 open houses are limited and rushed, but it also means the lowest mortgage rates in recent history at around 3.2%. Let’s say I choose to plunk down 25% of the purchase price (or $87,500) and get a mortgage for the rest ($262,500). Google’s got a very simple mortgage calculator that tells me my monthly mortgage payment would be around $1,100 for this house.

Which, on its own, is much cheaper than my current rent. But we know there’s more associated costs with a house than just that.

A lot more.

After looking up this imaginary home on the local assessor’s database I find out that the property tax is around $5,600 per year, or roughly $465 per month. Now homeownership is costing me $1,600 a month, which is still a bit of a deal.

Until we get to the home insurance payments. Bankrate estimates the average Massachusetts homeowner forks over $1,900 a year on it, or ~$160 a month. It only takes those three bills to put me over the amount I pay already. WITHOUT thinking of the other associated costs to buying a home like further upkeep, furnishing the place, and possibly buying a car.

I want the numbers to work. I want to be a property owner, having some wide swath of property all to myself. But I also know it’s much cheaper for me to rent at this stage, even with the hefty amount I’m paying each month.

I wouldn’t want to buy a house anyway until I can walk through it without a mask, which means post-COVID and post-COVID-vaccine. I also wouldn’t want to buy a house unless it’s my dream home in the rural mountains. Basically, I want something like what the Frugalwoods have, except in New Hampshire. But right now I know this isn’t in the cards money-wise.

At the end of the day, that’s okay. I’m in my twenties and plan to do a lot of other things before buying a home, like travel the world and gain a much higher net worth. These exercises are still valuable to do in the interim, both to prepare myself for the future buying process and to check my housing situation is still the best dealio.

How it Can Increase Your Income

I’ve cautioned before against considering your home an investment, especially because of the countless other ways you can gain money via real estate. You can become a part-time realtor, for example, and play matchmaker for young professionals and rental properties. Even just doing that on the weekends can bring you that fat broker’s fee I mentioned above. In other words, renting a place out nets you that broker’s fee of the monthly rent; that’s $2,500 on average for a weekend or two of work. That’s one sweet deal.

With your real estate know-how you can do a lot more. Owning property is a huge and awesome step up, one which offers you a TON of opportunities. Flip the house and sell it for more than you paid! Set up vacation rentals for post-COVID crowds! Become a landlord and rent that baby out!

Don’t sleep on doing something unusual with your property either. I can imagine doing some really cool things with the property you might own, like using it as a wedding venue if it’s large enough or posh enough. There were a couple of properties in New Hampshire I saw that used to be exactly that, which really gave me food for thought at how much I could rake in doing that. The more you know your way around your local real estate, the better off you’ll be making these calls. Real estate know-how is definitely one of the best skills that makes you rich.

What are your outlooks on real estate know-how? What are the wackiest moneymaking ideas you’ve heard of when it comes to property ownership?

Top image credit: Michael Pierce via Unsplash