How I Bought My Home Against All Odds
It was 1997. My boyfriend and I had four young children between the two of us. We were living in a modest three bedroom in Brentwood — what they call a teardown — the land is much more valuable than the house residing there.
Brentwood was wonderful, though. We could walk to the grocery store and my children’s school was three blocks away. The public library was a short walk. We lived on a cul-de-sac where the kids could play ball and ride their bikes without fear of traffic. Our bunny, Muffin, ran around the circle of yards like a neighborhood feline. We converted our detached garage into a big office where we would steal away, furtively talking and writing for a couple hours away from our kids who were left to their own devices and mostly happy about it. But invariably, they would tiptoe across the backyard to snuggle in our laps and make sure we were still there. I loved those memories.
When the real estate market started its recovery in the late 90’s, the values of the well-heeled areas of Westside, Los Angeles: Brentwood, Pacific Palisades, and Santa Monica, were the first to take off. The owner of our home promptly put it on the market.
I was devastated.
I needed to buy a house. It was the second home we had been booted out of and with four kids it felt like an insurmountable undertaking to move every two years.
I had a good job but no savings. Zero. Between all the kids, living in L.A., with one breadwinner (me) and housing prices, even at their trough, mostly unaffordable, it felt like buying a house was a Hollywood dream. Our little teardown was being sold for $700,000 dollars and there was no way we could afford that. I had moved here from Ohio where $700,000 would buy you the most opulent mansion in town. How could anyone buy a house here?!?
With my typical can-do attitude, I futilely went through a campaign of letter writing to the owner offering to buy “half” the house and be his partner, take care of it and we could either sell it in a couple years or I could buy out his half at the going rate. I was convinced that the price was going to go up even more, that we were at only the beginning of the recovery, obviously, but then, I was an economist and he wasn’t. I was right, of course, but he didn’t take the offer.
I had to think of another way. For starters, I had to look somewhere other than Brentwood. I decided on Venice Beach, which was still on the Westside, but a bit dicey, so more affordable. I went to open houses every Sunday, dragging one of my kids, clutching the real estate section of the L.A. Times like a Jehovah’s Witness grasping the Good Book. I had 60 days to buy a house and I was on a mission.
In one of the wisest decisions and happiest coup d’états I ever managed to make, I found and bought my home in Venice Beach that was just big enough to house our family. I borrowed both my mortgage and my down payment at a rate far above market, and double what I had been paying for rent. But I did it.
I didn’t have the money for closing costs, so I wrote one more letter to my landlord and told him in as respectful terms as possible, that I was not paying my last two months rent. He didn’t respond so I took that as an okay. I used that for closing. I also didn’t have the money to move, so we rented a little van for $19.99 and made what felt like a hundred trips from Brentwood to Venice. But I did it.
For the next five months I put childcare on a credit card and overall, it was a scenario that was much more precarious than I’m even letting on here. But I did it.
I hung on until the value of my home (that I had been checking daily like a stalker), increased enough that I could refinance. Within five months, my mortgage payment was only slightly more than my rent had been. My life had become infinitely easier and I was on my way. I did it.
How Homeownership Can Change Your Life
I was listening to the news and the reporters were talking about how Mayor Pete Buttigieg, one of the many 2020 Democratic candidate hopefuls for President, was doing an interview in March. He was asked about his agenda for black America, and I think he responded with a brilliant, unique and doable idea, that an agenda for black America needed to focus on black entrepreneurship and black homeownership, amongst other things.
Home ownership! I tell people all the time that homeownership will change their life. Here is how:
1. You have to pay for rent anyway, so why not pay yourself?
2. You get a deduction from your income taxes for all the interest and the way amortization works, the bank wants their costs first — in other words, almost all your payment at the beginning is interest and therefore deductible.
3. There are other tax deductions. Talk to your accountant.
4. Unless you buy in a lousy neighborhood, the value will most certainly increase over time.
5. You can use the equity in your house (the value less your mortgage loan) to invest in other things. That is often tax deductible too.
6. One day you will pay off your mortgage loan and you will be able to live in your house free and clear.
7. If you decide you want to move you can rent it out as a source of income or sell it and keep all the accumulated equity and buy a new house in your new neighborhood or city.
Why Don’t More People Buy a House?
I think people know that it is a good idea to buy a house, but they don’t think they can do it. They are afraid: that they can’t get a loan, and they can’t afford the closing costs, the moving expenses, the monthly mortgage payment, etcetera. Like most people, they talk themselves out of something before they have even tried! Many young people say they don’t want to “commit” to living in whatever city they are in. They say that they don’t know where they want to live. But I think often that’s just an excuse.
We humans come up with every reason to avoid moving outside our comfort zone. I’ve written about this. When you put off doing something it’s usually because it’s outside your comfort zone.
Don’t wait until you start making more money, or save more for a down payment, or get that promotion or reach any other milestone that you think you need to buy a house. Go ahead and figure out how you’re going to buy that house now. Or at least come up with a plan to do it.
I just told you how I bought my home. It was difficult. But, it’s not like I was going to be homeless. I had to pay rent anyway. Yes, my mortgage payment was higher than my rent but I got a tax write off for most of the payment and was able to refinance in a relatively short period of time. It set me up for the rest of my life. It has a higher potential for doing that for a person than just about any other financial vehicle you can invest in. I practically ruined my credit by putting everything I could on a credit card to afford my first and second mortgage for the first six months, but I was able to repair that in a couple years.
If your parents can swing it, perhaps see about borrowing a down payment from them. You can also buy a fixer-upper in a lousy neighborhood (with potential). Just do it.
How My Home Established a Foundation for Me to Become a Multi-Millionaire
1. I saved a significant amount of money on tax deductions for the interest expense — which at the beginning is almost all the loan payment.
2. I set up a home equity line of credit of $200,000. That enabled me to make other investments. Interest rates were low to the point where I was almost able to borrow money for free and I made sure it was only used for investments and home improvements and not to spend on frivolous things. Most of it was also a tax write-off.
3. I used my home equity to start my own business and shortly after, bought a minority stock position in a clothing company with high potential. I helped build that company into a much larger and more profitable entity all while earning a salary.
4. My partners and I used that profit to buy our first commercial building that housed our company as well as six other tenants. This is another post in and of itself.
5. My partner and I bought several more buildings. We watched the equity of our buildings increase as loans were paid off. Depreciation was an excellent tax write-off. Interest rates were still low.
6. I launched my new business, Bloomers. I raised over $1 million and was able to support myself with the money I was making from my properties while I built my company. I rented rooms in my house through Airbnb to supplement my income.
7. I started traveling more and I rented out my original home for a significant amount of money — enough to support me. I’ve also been able to build the brand awareness of my company and write — something I’ve always wanted to do.
8. When I sell it, it can be my retirement.
All of that from my home. I call it the gift that keeps on giving. Even after the Great Recession of 2008, and seeing my home’s value decrease by 40%, it bounced back in a few years and then tripled and quadrupled in value.
Buy a home. As long as it is in a stable or up and coming neighborhood, the risk is pretty small.
Tell us how you’re going to do it or how you succeeded.