Author Topic: You're 31 Years Old, How Would you do it Over?  (Read 11443 times)

IamDavin

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You're 31 Years Old, How Would you do it Over?
« on: March 06, 2015, 05:30:11 PM »
If you were me.. and could do it all over again.. what would you do in this case?

Single, 31 years old
Chicago, IL suburbs
No debt
$50-80k a year job income
$40k or so in liquid assets/savings
Currently renting a town home for $1290 a month (yes I know wayyyyyyy to much for a single guy.. but lease is up in two months)

I am thinking of these main options:

1.) Buy an acre of land adjacent to my parents home (they own the land) and build a bare bones small 800 sq. ft. home that could be added onto (I've been checking out Rob Roy's material on this method).  I'm an electrician so I would be doing a lot of work to build up some sweat equity.

Benefits is that I can move in with my parents while I'm working on building.  This will save money.  Hoping to pay for things in cash as I go and avoid a mortgage. 

With it being an acre of land I hope to also start growing my own food.  Helping to cut down in costs and also try to sell some food to help pay for property taxes, etc.

Building can also let me take advantage of eco options like radiant heat, passive solar design, etc.

With this I get to move into a home I built in 1-2 years with low payments of just taxes/utilities/insurance...  and have peace of mind without a mortgage.

Downfall of this approach is that it doesn't provide me with any sort of passive income and will eat all my cash available for the next 1-3 years. 

After this process is complete save money to buy a rental property (maybe 5-6 years down the road).  Bad part will be higher interest rates as an investment property.

2.) Buy a reasonably priced townhouse for around $100-120k.  Taking advantage of good interest rates on a primary residence loan.  Do some repairs and fix it up.  then, after a year or two start working on option #1 above.  I could either move into my parents home again and keep the town home as a rental, or although more expensive.. continue to live in town home until the building is complete.  Then, move into built home and keep the town home as a rental.

I would have to most likely use a property manager for the rental.  As I don't feel like I have enough time to do the job, but then again I've never done it.. so might be wrong here.

3.) Would any sort of renting make sense to allow me to keep building savings and focusing on investing? Maybe delaying building a home until 10 years down the road? 

4.) Other ideas?

Appreciate any advice or other options!  :) 
« Last Edit: March 06, 2015, 05:33:36 PM by IamDavin »

OneCoolCat

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Re: You're 31 Years Old, How Would you do it Over?
« Reply #1 on: March 07, 2015, 08:07:04 AM »
I have always been under the impression that building a new home is more costly than buying a home like the regular folks.  I would look into buying a home, preferably not a townhome in an HOA/COA.  HOA/COA dues are expensive but I understand its much more expensive to buy a home not in an association. 

Do some window shopping on Zillow/Trulia, apply for a mortgage loan (check out a local credit union if you can), and maybe contact a realtor if you are ready to get the ball moving.  Be prepared to dip into your savings for a down payment.  You will ideally get a conventional home loan.  Its ideal because you want to avoid paying PMI if possible and it looks like it wont be a problem with you as you only have to put down 20% to avoid PMI.  Seems very doable with you.

Interest rates are expected to rise sooner rather than later.  Keep that in mind if you are in the mentality that you can just wait a year or so. 

clarkfan1979

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Re: You're 31 Years Old, How Would you do it Over?
« Reply #2 on: March 07, 2015, 10:27:02 AM »
I have an uncle in the Chicago suburbs that grows enough vegetables to last the entire year. He cans them and puts them in a basement. This is a lot fo work, but he is retired and enjoys it. If you are working full-time, it might not be realistic to grow enough vegetables to last eh entire year, but it's possible.

He also lives in a house that is probably 650 sq. ft upstairs and 500 sq. ft. basement. The lot is probably .15 - .20 acres. The size of the house is so small that who ever buys it will most likely level it. He will live there until he dies. 

If you decide to build a tiny house, I think it would be easier to re-sell if it was portable.

I don't think I would do anything different. I feel very blessed with my situation and knowledge that I was able to acquire along the way. I've done a good job of keeping in touch with old friends,  however, I could always do more. 

waltworks

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Re: You're 31 Years Old, How Would you do it Over?
« Reply #3 on: March 07, 2015, 06:58:24 PM »
If you plan to remain single, do whatever you want.

If you want to not be single at some point, forget both of your plans and just put your extra money in index funds. Your future SO and relationship are unpredictable/unknowns at this point so building a house next to your SO's future in-laws... not a great plan.

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teacherwithamustache

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Re: You're 31 Years Old, How Would you do it Over?
« Reply #4 on: March 09, 2015, 02:39:19 PM »
If you plan to remain single, do whatever you want.

If you want to not be single at some point, forget both of your plans and just put your extra money in index funds. Your future SO and relationship are unpredictable/unknowns at this point so building a house next to your SO's future in-laws... not a great plan.

-W

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arebelspy

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Re: You're 31 Years Old, How Would you do it Over?
« Reply #5 on: March 09, 2015, 04:55:23 PM »
I can't say what you should do, but what I would be doing is buying investment properties that make sense and give you solid rental income, yet keep you flexible for all the reasons walt points out.  I wouldn't do the tiny home thing (yet at least).
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octavius

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Re: You're 31 Years Old, How Would you do it Over?
« Reply #6 on: March 09, 2015, 07:15:52 PM »
If you can do a lot of the work yourself, and you think you'd enjoy building a place next to your parents, why not?  I realize 800sf sounds small to a lot of people, but you did say you were looking at designs that can be added on to, correct?  I think it would be a lot of work -- but I've known people that have done it, and there is a certain pride in using something you made.  (btw, who is rob roy (besides the scottish hero)?  I googled it but didn't find anything related to house plans).

As others have said, a future wife might not want to live next to your parents -- if you built this place, then moved -- how would your parents feel about you turning this house you built near them as a rental?



« Last Edit: March 09, 2015, 09:06:50 PM by octavius »

Embok

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Re: You're 31 Years Old, How Would you do it Over?
« Reply #7 on: March 10, 2015, 10:29:07 PM »
Consider buying a duplex: live in one, rent the other.  You can get a residential rate loan.  Later you can collect rents from your tenant, or  move out & rent your unit, or sell the building.  Make sure you have a good realtor and lawyer, and get a home inspection done before you buy.

Smevans

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Re: You're 31 Years Old, How Would you do it Over?
« Reply #8 on: March 15, 2015, 02:51:46 PM »
I second the duplex idea. Chicago renting market is insane. Depending on where you looking, you can easily rent out a place for $1500-2000 and have a mortgage that is significantly lower.

surfhb

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Re: You're 31 Years Old, How Would you do it Over?
« Reply #9 on: March 16, 2015, 08:55:42 PM »
1.  Take your 40k and start investing in index funds

2.  Move in with The Rents and save to buy a home cash (or close to cash) in 1 or 2 years?

3.  Keep saving and investing in index funds till you're FI.

This is just me but I would hate dealing with renters, not paying rent, their bullshit and the mess they leave behind.    You're young with so many options though. 

You should be retired by 45 or so.   By then you'd have met a nice lady (or gentleman) who would be fairly attracted to your kickass view on life and finances

Oh yeah....love people,  enjoy life and have a passion for something.
« Last Edit: March 16, 2015, 09:11:34 PM by surfhb »

IamDavin

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Re: You're 31 Years Old, How Would you do it Over?
« Reply #10 on: March 26, 2015, 07:48:30 PM »
If you can do a lot of the work yourself, and you think you'd enjoy building a place next to your parents, why not?  I realize 800sf sounds small to a lot of people, but you did say you were looking at designs that can be added on to, correct?  I think it would be a lot of work -- but I've known people that have done it, and there is a certain pride in using something you made.  (btw, who is rob roy (besides the scottish hero)?  I googled it but didn't find anything related to house plans).

As others have said, a future wife might not want to live next to your parents -- if you built this place, then moved -- how would your parents feel about you turning this house you built near them as a rental?

the parents plan on moving after my dad retires in four years.  So not an issue if I make it a rental down the road.  Rob Roy.. here is one of his books where he talks about building a home mortgage free http://www.amazon.com/Mortgage-Free-Innovative-Strategies-Debt-Free-ebook/dp/B006K40RHG/ref=la_B00JOBBGFO_1_10?s=books&ie=UTF8&qid=1427420814&sr=1-10

IamDavin

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Re: You're 31 Years Old, How Would you do it Over?
« Reply #11 on: March 26, 2015, 07:54:42 PM »
1.  Take your 40k and start investing in index funds

2.  Move in with The Rents and save to buy a home cash (or close to cash) in 1 or 2 years?

3.  Keep saving and investing in index funds till you're FI.

This is just me but I would hate dealing with renters, not paying rent, their bullshit and the mess they leave behind.    You're young with so many options though. 

You should be retired by 45 or so.   By then you'd have met a nice lady (or gentleman) who would be fairly attracted to your kickass view on life and finances

Oh yeah....love people,  enjoy life and have a passion for something.

Thanks,  as of now I'm planning on moving in with them until I commit to a decision.  I discovered dividend investing and its renewed my interest in passive income and FI.  Would you still recommend index funds over dividend investing?  I know I would most likely get a equal or better return in an index fund.... but I do like the idea of living of dividends...

Now contemplating living with them.  Investing in dividend stocks until FI.. then maybe do some vagabonding. 

May still build.  I think with passive solar design, small sq. ft. etc.. it will be a good place to live.  If the future SO doesn't like living next to my parents for a few years she's not meant to be my SO. 

arebelspy

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Re: You're 31 Years Old, How Would you do it Over?
« Reply #12 on: March 26, 2015, 08:00:20 PM »
If you search these forums for dividend investing, you'll find arguments on why total return is better.  Dividends aren't a free lunch many think they are (sadly, many who run dividend blogs, and don't even understand where they come from).

Not saying you shouldn't pursue that strategy, but it's well worth understanding the opposite side of the coin first.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
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IamDavin

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Re: You're 31 Years Old, How Would you do it Over?
« Reply #13 on: March 26, 2015, 08:06:02 PM »
I can't say what you should do, but what I would be doing is buying investment properties that make sense and give you solid rental income, yet keep you flexible for all the reasons walt points out.  I wouldn't do the tiny home thing (yet at least).

Thanks for chiming in! I listened to your podcast on... I think it was Radical Personal finance?.   I will do some searching around.  Thanks for the heads up.  Appreciate it and always welcome counter points... as I find I am usually wrong 90% of the time.. haha :)

IamDavin

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Re: You're 31 Years Old, How Would you do it Over?
« Reply #14 on: March 26, 2015, 08:12:14 PM »
If you search these forums for dividend investing, you'll find arguments on why total return is better.  Dividends aren't a free lunch many think they are (sadly, many who run dividend blogs, and don't even understand where they come from).

Not saying you shouldn't pursue that strategy, but it's well worth understanding the opposite side of the coin first.

If you know of any good threads I should read please post a link.  My initial searches are not bringing up much.  I would like to dig more into RE investing vs. dividends as after reading dividend mantra's blog.. 190k portfolio.. generating.. maybe 400-500 per month.  Which I would assume is roughly equal to what you would have as a single family rental paid off and netting after expenses, vacancy, management, maintenance, etc. 
« Last Edit: March 26, 2015, 08:18:18 PM by IamDavin »

arebelspy

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Re: You're 31 Years Old, How Would you do it Over?
« Reply #15 on: March 26, 2015, 08:46:56 PM »
Thanks for chiming in! I listened to your podcast on... I think it was Radical Personal finance?.   I will do some searching around.  Thanks for the heads up.  Appreciate it and always welcome counter points... as I find I am usually wrong 90% of the time.. haha :)

Always good to be learning.

I had two on there so far, and we've been trying to schedule a third, but I've been pretty busy.
http://radicalpersonalfinance.com/78/
http://radicalpersonalfinance.com/early-retirement-faqs-should-i-pay-off-debt-first-or-should-i-invest-an-interview-with-joe-aka-arebelspy-rpf0095/

If you search these forums for dividend investing, you'll find arguments on why total return is better.  Dividends aren't a free lunch many think they are (sadly, many who run dividend blogs, and don't even understand where they come from).

Not saying you shouldn't pursue that strategy, but it's well worth understanding the opposite side of the coin first.

If you know of any good threads I should read please post a link.  My initial searches are not bringing up much.

Here's some from a quick googling.

If you're serious about pursing a dividend strategy, I'd read every page of each of them.  Probably will take an hour or two, but if you aren't willing to put in that sort of time to learn what you're investing in, you should probably get a financial adviser and face punch.  :)

http://forum.mrmoneymustache.com/investor-alley/anyone-else-only-buying-dividend-stocks/
http://forum.mrmoneymustache.com/ask-a-mustachian/investing-for-dividends/
http://forum.mrmoneymustache.com/investor-alley/dividend-portfolio-vs-index-fund/
http://forum.mrmoneymustache.com/investor-alley/dividend-stocks-versus-index-investing/
http://forum.mrmoneymustache.com/investor-alley/do-you-own-nothing-but-dividend-stocks/

After you read, ask questions on stuff you don't understand, but I think as you read more, it'll become clear.

I would like to dig more into RE investing vs. dividends

They're very apples and oranges.

What you should compare is dividend to total return (i.e. equities) which are apples to apples.. and then compare that to real estate

after reading dividend mantra's blog..

I was afraid of that.

190k portfolio.. generating.. maybe 400-500 per month.  Which I would assume is roughly equal to what you would have as a single family rental paid off and netting after expenses, vacancy, management, maintenance, etc. 

(450*12)/190k = 2.8% return.  There's no way I'd accept that for a SFR.  Try.. at least 3-4x that.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

waltworks

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Re: You're 31 Years Old, How Would you do it Over?
« Reply #16 on: March 26, 2015, 09:21:36 PM »
I would be happy to give you $400 a month for the rest of your life in exchange for $190k. Drop me a line...we can double, triple, quadruple it...

-W

arebelspy

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Re: You're 31 Years Old, How Would you do it Over?
« Reply #17 on: March 26, 2015, 09:33:05 PM »
I would be happy to give you $400 a month for the rest of your life in exchange for $190k. Drop me a line...we can double, triple, quadruple it...

-W

I'm betting that's in line with what most annuity companies are offering these days.   
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
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waltworks

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Re: You're 31 Years Old, How Would you do it Over?
« Reply #18 on: March 26, 2015, 10:04:07 PM »
Yeah, I don't know if it makes me want to laugh, or cry.

-W

arebelspy

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Re: You're 31 Years Old, How Would you do it Over?
« Reply #19 on: March 26, 2015, 10:09:24 PM »
Yeah, I don't know if it makes me want to laugh, or cry.

At least the dividend stocks have the upside of growth through stock price increases.

(Though to be fair, of course, the annuities have the upside of the "guarantee" whereas dividends can be cut -- which is only as useful as the quality of the company.)
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

IamDavin

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Re: You're 31 Years Old, How Would you do it Over?
« Reply #20 on: March 29, 2015, 12:45:36 PM »

What you should compare is dividend to total return (i.e. equities) which are apples to apples.. and then compare that to real estate

Hmmm not sure why when you search inside the forum search it doesn't bring anything up.. but Google does.. will use that to search for topics from now on.

Ok I am about 4-5 hours into trying to wrap my head around the pissing match you led me into! :)  haha wow didn't realize it was such a heated topic around here.

Seems like both sides continue to hold their positions despite what any data shows.

From the average of all I have seen I now understand that for the most part the index outperforms as a total return.  So thanks for pointing me in that direction.

The more I learn the more it seems like multiple income streams, and diversified portfolios make sense.  I was deep into the 80/20 rule for awhile thanks to Tim Ferriss, Richard Koch, etc..   

Now thinking I will try to transfer my retirement account through my union to Vanguard.  Invest it in a bond or total market index.  With my job savings I will invest in RE, and maybe some other investments that seem like a good buy for additional income.

As far as real estate..

Instead of building a small house for myself.. would a good idea be to build say.. a 1800 sq ft. ranch that can be divided up somewhat like a side by side duplex.. then rent to friends/family, Air BnB.. for getting started in RE without getting into multi-family zoning/property?

Maybe build some some sort of sound proof wall after occupancy between the two that can be removed before/when selling the home?

Not sure on the implications of this sort of thing.. and may just have to get the land rezoned if I where to go down this route properly...

« Last Edit: March 29, 2015, 01:17:07 PM by IamDavin »

arebelspy

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Re: You're 31 Years Old, How Would you do it Over?
« Reply #21 on: March 29, 2015, 02:28:16 PM »
Glad you took the time to read and learn more, whatever you choose to do.  :)

That sounds like a good plan to me, aside from the real estate part of it.  Renting to friends/family rarely works out, from everything I've heard.  Reading some of the books in the sticky thread of the real estate forums may be next on your reading list.  :)
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

IamDavin

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Re: You're 31 Years Old, How Would you do it Over?
« Reply #22 on: March 29, 2015, 07:54:11 PM »
  Renting to friends/family rarely works out, from everything I've heard.  Reading some of the books in the sticky thread of the real estate forums may be next on your reading list.  :)

Thanks again :)  I think you're right about renting to friends and family.  I learned the hard way to to not do business with family/friends long ago.. but for some reason it didn't register when thinking of renting.  Was too focused on getting around zoning laws at the time.

Will dig into some of the books you suggested that I haven't read.  Curious if you've ever come across any that specifically talk about building a single family home to rent?

I'm sure most don't because in most cases its cheaper to buy than build nowadays.  But I feel like with myself being in the trades and knowing many others in the trades I should be able to get some decent sweat equity.  And even if it does cost a bit more than a 1950-1970 home that needs work I think the value of everything being brand new and knowing how everything was built from the ground up would be worth it...

Although... again I could be wrong.. haha

I suppose I could just swap purchase price for building cost when reading RE books and thinking through things.. 
« Last Edit: March 29, 2015, 07:59:04 PM by IamDavin »

Spondulix

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Re: You're 31 Years Old, How Would you do it Over?
« Reply #23 on: March 29, 2015, 09:19:32 PM »
I have an uncle in the Chicago suburbs that grows enough vegetables to last the entire year. He cans them and puts them in a basement. This is a lot fo work, but he is retired and enjoys it. If you are working full-time, it might not be realistic to grow enough vegetables to last eh entire year, but it's possible.
I always question the level of gardening experience when I hear this, cause anyone who gardens seriously knows it's a huge undertaking. When you've got a garden the size to live off of, it's like owning a herd of dogs. Not only does it take time to take care of, but you have to worry about it's care when you're gone (no getaways without arranging a babysitter). Maybe it depends where you live (and soil conditions), but it's taken me five years of gardening - and killing a lot of stuff - to figure out what to plant where to have decent results. The first couple years were extremely disappointing cause I thought it'd be easy and I'd be overrun with home-grown produce... instead, I was lucky to make a whole home-grown salad.

arebelspy

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Re: You're 31 Years Old, How Would you do it Over?
« Reply #24 on: March 29, 2015, 09:58:39 PM »
Will dig into some of the books you suggested that I haven't read.  Curious if you've ever come across any that specifically talk about building a single family home to rent?

Spec building is typically done for resale, as buyers often like the brand new home thing, whereas with renters as soon as the first tenants move out it's no longer new.

But it does happen.  The phrase you want to search on is "build to rent".
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

KungfuRabbit

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Re: You're 31 Years Old, How Would you do it Over?
« Reply #25 on: April 12, 2015, 08:08:34 PM »
move in with your parents until they kick you out. 

bruce88

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Re: You're 31 Years Old, How Would you do it Over?
« Reply #26 on: April 13, 2015, 01:37:32 AM »
I am late to this topic, but want to second (third?  fourth?) the duplex idea.  In many areas of the country, you can rent out one side and nearly live payment free in the other.  Later, when you want to "move up" personally, you just rent your prior side for add'l cash flow.  If I was 31 and single, that is what I would do.

As far as your experience in the building trades, you can easily find "fixer-uppers" that will require your sweat equity to build value, instead of building new.  My wife and I have purchased over 20 properties in the last 35 years.  We lost money on only 2.  One was the only "new" construction we bought.  Similar to buying a car, there seems to be a little initial depreciation with a new home early on.  If you have to sell, you are competing with other new homes.  Not so with a 20 or 30 year or older home.

And you don't have to be a master carpenter/plumber/electrician to make money rehabbing.  We rarely do more than scrub, repaint and re-carpet.  There are huge savings in cosmetic re-dos. 

Reddleman

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Re: You're 31 Years Old, How Would you do it Over?
« Reply #27 on: August 30, 2015, 04:23:08 PM »
Although this is an old thread now. I'd definitely recommend the duplex.  It will definitely reduce your current rental costs and allow for building of equity and tax benefits. 

The bonus is that in a few years you can also move somewhere else and keep it for a rental to generate cash flow.  And maybe move into a nicer duplex and start the whole process over. 

We lived in a duplex for almost a decade and it allowed us to pay for both of our graduate degrees out of pocket.  By year 3 we raised the rent and it paid for our entire mortgage and most of our taxes/insurance.  With only maintenance expenses it was easy to start building capital for other investments and max out our IRAs, 401/403 etc. 

Even though we didn't know about the mustachian way back then, it really set us up very nicely.  We're only a few years away from FIRE, while most of our friends will be working 1-2 decades longer.


Trimatty471

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Re: You're 31 Years Old, How Would you do it Over?
« Reply #28 on: September 07, 2015, 08:31:59 PM »
I would have saved myself a lot of frustrations if I had bought my forever until I retire or get married home.

pbkmaine

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Re: You're 31 Years Old, How Would you do it Over?
« Reply #29 on: September 07, 2015, 08:55:04 PM »
If I had it to do over, I would not have bought a single family house. Perhaps a small apartment building where I lived in one unit. But only if it was very close to work. Home ownership for me involved long commutes, and I completely agree with MMM that long commutes to work are soul-destroying. The happiest commute I ever had was in an apartment building in downtown Minneapolis, and I was able to walk through the Skyway to work. I never had to go outside. It took 8 minutes on foot and was wonderful.

cchrissyy

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Re: You're 31 Years Old, How Would you do it Over?
« Reply #30 on: September 07, 2015, 10:40:31 PM »
I would buy a duplex and liv in one side while renting the other, until some day when I moved on and rented out both sides while I lived in my next place.  Or, I would by a house/condo with the intention to take on roommates.  Certainly not building new construction though!

Lowerbills

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Re: You're 31 Years Old, How Would you do it Over?
« Reply #31 on: September 09, 2015, 08:58:05 AM »
Title is How Would YOU Do it Over, so I'll answer that.

For me, pretty simple, buy more real estate sooner.

And I'd maximize tax advantaged accounts earlier.  I was slow to grasp that early on, and although I was investing, paid more in capital gains taxes than I should have because I wasn't in tax-advantaged accounts.

curlyfry

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Re: You're 31 Years Old, How Would you do it Over?
« Reply #32 on: September 27, 2015, 02:38:36 PM »
I'm same age, similar income & savings as you. Also a renter.

Sounds like they are all good options - may come down to... which one do you want to do?    I'd lean towards townhome or duplex, but maybe you would really enjoy building the house?

Comes down to.... Does it make you money or does it make you happy?  Hard to balance the two

I guess that's why hearing from others with experience is good

Hard when we can't predict the future!