My husband Thom and I have been real estate brokers and investors for over 35 years. And while I’ve been mainly writing about the subject for most of those years, Thom has actively been a specialized commercial broker. Even better, we’ve used our knowledge and background to manage our own purchases and investments. Then about seven years ago we began switching our thoughts about real estate ownership; what it means and what it can do. That’s when we started gradually rightsizing our lives. Lately, it occurred to me that while I often take what we’ve learned through the years for granted, it might benefit others to see it through our eyes. In fact, in many ways real estate is a perfect mirror for a rightsized life.
First, here’s some background. When we first got involved in real estate back in the late 70s and early 80s we became house-flippers. Even though my parents had offered us a great example of how you could make money buying and holding properties, we needed the cash to pay our bills. So rather than hanging on to them, we fixed them up and sold them as quickly as we could.
In some ways, it worked. Even though we had very little money, we bought over a dozen homes with nothing down and fixed them up before we flipped them. Back then you could buy a decent little house for less than $50,000 and flip it making $5,000 or $10,000 rather quickly without much to loose. But even though we were fairly lucky, it sounds more ideal than the reality. The truth was that while we learned a lot, and managed to live in some very interesting homes through the years, we still seemed to struggle to pay our bills. It might sound romantic to be a house flipper and offer a path to financial security, but without the ability to easily hold the properties for any length of time, our success was fleeting. And let’s face it, with no guaranteed income, it is a stressful way to live.
I wish I knew then what I know now. With that in mind, here are our views of SMART and rightsized real estate ownership today.
12 SMART & Rightsized Tips For Buying Property
- You are not your square footage. When we were younger, size mattered a lot to us. It is so easy to be impressed by things that look opulent and spacious without considering the cost of the tradeoffs of paying for and maintaining it day-in and day-out. Most of us need far less room than we think we do. Avoid defining your true nature or worth by the size or image of your home. Remember, you are so much more than that!
- Layout matters. What does matter is the functionality of your home. We’ve viewed homes with twice the square footage of our current home but they seem cramped and awkward. That’s because builders, who are mostly men, build to make money—not to maximize space and comfort in a home. When you pay less attention to the square footage or the “look” and more attention to the function, you will be pleasantly surprised.
- Buy the best location you can afford. There is a reason for the statement: location, location, location. The first home we bought was a duplex on a busy corner in Colorado Springs, CO. We ignored the traffic and the noise because we thought we were buying it at a great price and that living on a busy street wouldn’t matter—wrong! After living there a couple of years and putting up with all the commotion, we had to discount the price just to sell it. Location matters.
- Never buy more house than you can easily afford. Thinking otherwise is gambling with your future. Lenders are in the business to give you the biggest loan they can. Unfortunately, many real estate agents also push to sell you a bigger home so they make more commission. Then add all that to the media’s constant push to insist that you won’t be happy unless you have a bigger fancier home than your neighbors and people frequently buy a home they can’t afford. Even if the buyers manage to scrape by enough to not lose it in foreclosure, the ongoing stress they endure is an unacceptable price to pay.
- Live as close to where you work as possible. Research proves that some of the unhappiest people are those who regularly commute long distances. Not only are they unhappy, they are up to 40% more likely to divorce. Long commute times lead to more stress, unhealthy eating and sleeping, and poor health. (1) And if a person thinks they are buying that big house in the suburbs for the family, what kind of unhappy, unhealthy, stressed parent would they ever be?
- Sometimes it is better to rent than to own. I wrote a blog post about this before so I won’t go into details here. Just remember, rightsizing suggests that you take the time to figure out what really matters most to you and decide from there. If you do sell, it is often very SMART to rent for a while in different locations while you get very clear about what’s important to you and where you want to live. Sure, it can be a hassle to move twice, but much easier if you are just renting!
- Keep in mind that your home is an expense—it is seldom the best investment. It’s true that while it may (or may not) go up in value, you always need a place live. Constantly remember that your home is not ready cash and its primary value has little to do with its price in the marketplace. Instead of thinking of it as an investment, think of it as the expense of shelter for you and your family. While you want it to be comfortable and fulfill your needs, thinking it adds to your “worth” while costing you money to live there is just wishful thinking.
- A second home is seldom a good investment either. While realtors, lenders and anyone who wants to sell you something will do their best to convince you of all the money you will make on that ski condo in Aspen, the truth is that it is seldom that easy. Even if owning that cottage in Hawaii seems incredibly romantic, the truth is that you probably won’t visit it as much as you think. Sure you may be able to rent it out on AirBnB, but do you really want that job—because it does take more time and energy than most people have. Most 2nd homeowners greatly exaggerate the amount of time they will use their 2nd home and dramatically underestimate the cost and time to maintain and pay for it.
- If you want to invest in real estate—and we suggest you do—buy an investment property based on the numbers, not emotion. Investing in real estate has been very, very good for Thom and I. But when we buy something it is based on its return on our investment (ROI), not the emotion of owning something sexy or cool. If our investment doesn’t have the ability to bring in the ROI that we want and expect, we patiently wait until the right one comes along. On the heels of this idea is if we want to travel and stay in a property just for fun—we use the ongoing money from our investment cash flow to pay the cost.
- Don’t wait until you are too old to start thinking about where you want to live when you aren’t as mobile, flexible or financially free. According to a recent article in AARP, “Only 1% of all houses in the U.S. are adequate for people to age in place.” But far too many people wait until they are in their 70s or 80s before they start realizing they won’t always be able to climb those stairs even if that is the goal. Or what about having a multi-acre home site that requires ongoing maintenance, not to mention the need to drive just to pick up a carton of milk? Hopefully, we are all aging for a long, long, long time but if we wait until we don’t have much desire or capability to move, chances are the decision about our “last home” will be made by someone else.
- Having no mortgage on your property is one of the best things you can do to achieve financial freedom and peace of mind for yourself and your family. I know this can be difficult but believe it or not, nearly one-third of all homeowners in the U.S. (approximately 21 million people) own their own home according to Zillow. Here is another blog post I wrote about how to go as debt-free as possible: Rightsizing Your Finances.
- Never forget that the look or size of your home isn’t what makes what makes it a happy home.
If more people spent time thinking about their needs, the functionality of a potential home (or investment) and what the tradeoff to own is before buying anything, they would likely be much happier in the end. Unfortunately, most people get into a real estate agent’s car or surf the Internet looking at glossy photos until they find something they fall in love with on sight. Within days (sometimes hours!) they are writing up an offer, searching for a loan, and a short time after that moving into their “dream home.” Instead of considering that a buying a home is often the most expensive purchase anyone will make in their lifetime, many go about it like impulse buying on Black Friday.
Back all those years ago Thom and I would never have guessed we’d end up thinking about real estate as something you could rightsize. But like so many aspects of life, there is no going back to mindless living or mindless real estate ownership. And as usual, it is SMART remember that a rightsized life is what most of us really want at the end of the day.