Being a first time home buyer in generations past most likely meant finding a home to live in as your family grew and then selling that home to buy a larger home when you outgrew your first home. Now, buying your first home is more likely to be in line with a strategy to build a foothold in the real estate market and increase your equity in said investment, which in turn fuels your next step in the real estate market.
The amount of information about the real estate market that is available to people these days is astounding and absolutely blows away anything that our parents and previous generations had to work with. And because of that, a lot of well informed and savvy people have been building crazy wealth through the real estate market. I would say a large majority of my clients want to adopt one of the following ”strategies” with their homes to build wealth and reach their “forever home”. So here are my favourites, some of which I have used myself, so build wealth with your first (and future) homes.
#1: Deciding to buy in the first place: this is worth mentioning. Deciding to buy a house rather than rent is the first useful strategy to building wealth through real estate. Seems obvious enough but often times that decision comes with a long road to success which is a pretty big deterrent. The process of saving up a big enough down payment, building your credit and establishing a solid income is hard and getting a mortgage these days isn’t the easiest thing to commit to. So step number 1 to any of these strategies is deciding that home ownership is definitely for you and committing to qualifying for a loan.
#2: Good old sweat equity! Digging in and getting your hands dirty in the name of improving your home. This is the most common strategy for a first time home buyer to use. Find a property that isn’t in the best shape, has potential, and then set about fixing that place up. I would consider most sweat equity plays as cosmetic fixes mostly. Think about replacing flooring, painting, trim, cleaning the property etc. Nothing too major, just your typical home owner DIY project. The reason this is the most common strategy is because it is accessible, easy to find and doesn’t require a major cash outlay. The best part is, you do this stuff on your own time and sell when you want, hopefully for a nice little return.
#3: The live-in flip. I might coin this term because I don’t see a lot of other people using it and I think it perfectly defines this strategy. You buy a house that you can live in while “flipping” the house at the same time. How is this different than simple sweat equity? Well, this strategy is a bit more involved and is definitely harder to find. In this strategy, we are going well beyond some cosmetic fixes. We are targeting a few key areas for a good flip: improving functionality and/or adding square footage. Those are they keys to a good flip, cosmetic and aesthetic fixes happen, but you’ve gotta have one or both of those things to make money on a good flip. Finding a home with an unfinished basement: gold mine. A house with an old school floor plan that can be opened up: bingo. In my opinion, in order to flip a house, you have to either add square footage or improve the functionality of the home, no compromises there. Otherwise, you’re just putting lipstick on a pig and are likely to spend more money on the house than you will ever make back.
#4: Buy a multi family property. This one is becoming popular as the prevalence and proponents of multi family properties grow. The idea here is you buy a property that you can also collect rent from to offset your living costs or hammer your mortgage payments. This makes a ton of sense if you are a single person or perhaps a young couple that doesn’t need a ton of space and is willing to sacrifice complete privacy in the name of building wealth. You live in the house for a while, maybe do some improvements, pay off as much of your loan as you can and then probably refinance to buy something else. I think the demand for duplexes and triplexes among first time buyers is going to explode over the next few years.
#5: Convert a single family home into a multi family property. This is a combination of #3 and #4. You take a home that is suitable for a single family or buyer and turn it into a multi unit property. Genius! You’re improving the functionality of the home and building an investment property to completely suit your needs. For the handy buyers out there, this is the gold standard.
These are the top strategies that I am seeing buyers utilize in today’s market to build wealth right out of the gate. I am seeing young buyers make major headway in the real estate market while they can or before they start a family, whatever their goals are, and they are succeeding. There’s no secret to success anymore, there are well established playbooks to success that anyone can access and implement in their own real estate journeys.
Two things I want to emphasize: real estate is not a liquid asset so you need to understand how you are going to exit your strategy before you even begin. That means talking with a mortgage broker so that you know what is possible for you to acomplish with your financing, because there are rules.
The next thing is to know your limits and don’t overextend yourself. If you’re not a handy person, don’t take on a massive project. If you don‘t know what it means to be a landlord or are unwilling to learn, don’t rent a house to someone. And for everyone’s sake, be realistic with your budget. Know your money inside and out and make a move that you can handle. Get your money right, so they say.
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