Thought Catalog

How To Buy A House Before You’re 30

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Ryan Holiday
Ryan Holiday

Should you buy a house in your 20s? A lot of people say no — that home ownership is scam, that it’s propaganda from the real estate industry, or that millennials will never be able to afford one. On the other side of it, a lot of people say that if you’re saving money in any way in your 20s, you’re doing it wrong. Both these viewpoints are simplistic and miss the real point: that it all depends.

Now, I’m not one to usually disagree with James Altucher or Ramit Sethi, but I think there are plenty of reasons to buy a house in your twenties. Below, I’m going to explain how and why. It’s not for everyone, but it might be for you.

But first, let me quickly tell you my experience, because I’ve been on both sides of it. I started getting that “You should think about buying a house” advice in 2007/2008. I was 21 years old and had just gotten my first good paying job. In retrospect, it would have been the worst mistake of my life—not just because the market crashed, but because I’m not sure I’d have had the guts (or freedom) to make many of the risky decisions I made in my life. I wouldn’t have quit my job to become a writer. I wouldn’t have moved across the country. I wouldn’t have lived in nice and not nice places and figured out what I want out of life. A house would have tied me down.

If you want to live an adventurous life, buying a house young makes that a lot tougher. At the same time, the house I ultimately did buy six or so years later, has not only been one of the best financial decisions I ever made, it has drastically improved my life.

I bought my first house in 2013. A few years later, I bought a small ranch outside Austin, Texas (helps with the goats!). I keep the other house as an office and an Airbnb rental. In both cases, I pay less than what I would have paid in rent, have seen them both appreciate nicely, and live in one of the fastest growing and best places in the country.

The way to save is by automation and obfuscation…

That sounds weird but it’s true. The best way to save up money when you’re young is to set up automatic transfers from your paycheck the second it comes in—before you can touch it—and to put it somewhere where you can’t see or touch it. For a long time, I set up a second high interest savings account with a second bank. Every week, money went into it without me needing to do anything. For years, I never even checked the balance, though it grew and grew. The balance of the accounts I did check seemed artificially small because of the transfers. But when it came time to buy the house, I had enough for the entire down payment (or had I had a life threatening emergency, I could have used it too).

The second best way to save money?

Don’t buy dumb stuff. While I knew I wanted to one day buy a house, most of my healthy financial situation was a result of two things: I worked hard and I didn’t blow my money on dumb stuff. Saving money in your twenties does not mean ‘you’re doing it wrong.’ It means you’re not jerked around by your impulses and hormones and you’ve taken the time to develop systems and priorities. Living and having a good time are not incompatible with wealth. However, making tons of money but having profligate habits usually is.

Scope the right city

I traveled all over the world to find the right place to live. I’ve lived in Los Angeles, New York, New Orleans, and Austin and spent substantial amounts of time in other cities. This travel made a couple things clear: One, I am very American and can only live in the US. Two, my personal happiness is higher in places with a slower pace of life. Three, I could get a lot more of what I wanted in a house—and work/spend substantially less to get it—in the South. That’s why I bought in Texas. But it’s going to be different for every person. DO THIS WORK.

Scope the right part of the right city

Think about picking a neighborhood in Los Angeles from Google Maps having never really been there (a friend of mine did this and ended up on the edge of Inglewood). Yet this is what most people do: they buy the house and not where the house is located. An amazing house in a bad neighborhood? What’s the point? Ok, so the neighborhood is going to be really nice in 10 years? Well, you have to live there now. For our houses, I did extensive research—we even stayed in the various neighborhoods on Airbnb before moving so we could get a fuller picture of what living there would be. In doing this, I was able to create very distinct circles of criteria for the real estate agent and substantially reduce the time we spent searching.

Find an agent who you like, trust and most important, actually understands what you want

A lot of people think that a real estate agent is pointless, that they can do it themselves, whatever. Maybe you can but the costs of being wrong here are very expensive—much more than a commission usually. If you don’t trust your agent, get another one. If they don’t ‘get’ you, get another one. Even if you do trust and like your agent, get a second opinion when and where you can. Anyway, the point is finding the right agent and clearly communicating what it is you’re after—what your needs, wants, expectations are—reduces the chances that you will rush into something that turns out to be a mistake. (Shout out to our agent Donna Wallace!)

If you have to get money from your parents, you’re probably not ready

There is a reason that most banks don’t let you borrow the entire amount of the house or don’t like buyers to borrow the down payment money from another bank (and remember the big problem during the financial crisis was all the people who bought houses with no money down). It’s a sign that you either don’t have much of a cushion yourself, or that you can’t actually afford to buy. It might be nice to get some cash from mom and dad, but you should ask yourself: What does this actually say about my financial situation?

Credit card debt is death

If you have credit card debt, you probably shouldn’t even think of buying a house. How can you possibly care about whatever “savings” there are from not renting when every month you throw away 13% interest on a ‘loan’ from your credit card company? It’s probably better to get your own house in order before you actually buy one. Same goes for owners—it’s so common that people buy a house and then before it even closes put thousands of dollars in furniture purchases on their credit cards that lenders actually forbid you to do so. They’ll cancel the loan if they catch you. In other words, don’t be an idiot.

Buying is not the only way to profit from real estate

I don’t mean to spend so much time discouraging people from buying but the fear of missing out motivates way too many people to take this enormous financial risk. There are other ways to profit from real estate aside from just buying your own house that take less capital and less commitment. You can buy stock in real estate companies, you can buy REIT index funds, you can set up an account with LendingClub and loan small amounts of money to people buying houses or doing remodels. Before I bought, I had done a fair amount of trust deed lending (high interest loans to home buyers secured by the property). Even if you do buy, it’s worth considering the option of buying a less expensive house and diversifying your real estate investments across some of these options so you’re not making one enormous bet on a single property in a single city.

Could you afford to buy it in cash?

James Altucher had a decent rule that was influential to me when I was trying to come up with a budget: could you actually pay for the house in cash if push came to shove? Not that you should but could you? Look, lenders and agents are inclined to push you into as much debt as they possibly can. But that’s not a great life plan. I wanted to be conservative enough to buy something that I had a reasonable chance of paying off relatively soon. I chose not to pay cash (see: stuff about interest rates below) because I believe there are currently other opportunities worth pursuing, but that could always change.

Put what you can down

Most lenders require at least 10% down. Anything under 20% and they will usually require you to pay mortgage insurance. Being able to put at least 20% down then, not only saves you that unnecessary monthly expense but it significantly reduces the interest you’ll pay over the course of a loan. The more you put down, the more you save and the sooner you’ll pay it off. A good rule of thumb is to put down what you can reasonably but not so much that you’re then strapped for cash or at risk in an emergency.

How long do you see yourself living here?

You have to be honest with yourself. If there is a reasonable chance of moving in the short term, then renting is not ‘throwing your money away.’ It’s a freedom tax. It’s an investment in your own mobility.

If you actually want to settle down, a house can work

Just as it’s perfectly reasonable to pay a freedom tax, it’s perfectly reasonable to stop paying it when you’re confident that you either no longer want to put such a premium on that freedom or you know for a fact you’re not going anywhere. Think of a professional athlete—one that can be traded or cut at any time probably wants to pay the tax. One that has a long term contract or guarantees and loves the city they’re in? Why wouldn’t they put down roots and reap some of the benefits of that strategy?

Write a letter

In competitive markets, houses often get more than one offer. Those offers can be radically different from each other in price, in demands, in structure. One thing can help humanize an otherwise complex financial negotiation: A thoughtful letter explaining who you are, why you want the house and why you hope they’ll accept your offer. In both houses we bought, my wife and I were technically outbid—but had our offers accepted both times specifically because of the letter we asked our agent to pass along to the sellers. Why? Well, people often have emotional attachments to a house they’ve lived in or spent a lot of time building. It’s not unreasonable that they’d want to see it go to a person they relate to or like (within certain financial windows obviously). But also, closings last for 30-60 days and a lot can go wrong—sellers likely find some assurances and trust in understanding the motivations of the human beings on the other side of the table. Anyway, this little trick works.

Buy the house you need, not want

There will be a ton of people pressuring you to buy more house than you need. Your real estate agent, your friends, your parents. It’s one of the reasons I feel like everyone should live in New York before they buy a house. It gives you a very real sense of what you actually need in life. I remember walking into a 1,000 square foot house after living in a studio in Manhattan and saying: “What would we do with all this space?”

Or rather: Live in less than you can afford

A huge part of the reason that ownership seems so outlandish to people is that their tastes are ridiculous. They’re overpaying for their apartment and rationalizing not buying by saying it would be too expensive to buy something similar. Meanwhile, an adjustment in our needs/wants can create real opportunities. This is especially true when you stop caring about impressing other people, meaningless status symbols like which neighborhood is cool or not and actually thinking about what you truly enjoy and want. “Wealth” is when you can afford to buy and do what you want—so yes you can make lots and lots of money and be able to have everything OR you can just figure out what is important to you.

Everything you see on HGTV is wrong and dangerous

That’s a little bit of exaggeration but it’s a good rule. Most of the people you see on it make more money selling people information about how to flip houses than they do actually flipping them. Most of the buyers you see on these shows are laughably stupid (‘Oh, I didn’t like that house because of the paint.’ DO YOU HAVE ANY IDEA HOW CHEAP PAINT IS?).’ Worse, most of the shows are fake too. Did you know that to be on House Hunters you have to have already bought your house? That’s right, all of it is really bad pretend shopping.

If you haven’t lived on your own before, maybe don’t buy a house right away

The idea of living with your parents until you can buy a house seems so preposterously immature to me (and worse it’s one of those things that sounds responsible). First, if you can’t live on your own and afford to save money, it’s worth considering whether you really can afford a house. More important, if you’ve never lived on your own before, how on earth will you know what you actually want or need in a house? I’m glad to have lived in apartments, guest houses, lofts, studios, nice neighborhoods, gentrified neighborhoods, a big city, a condo, etc etc. You might save money living with Mom and Dad, but that will all be for naught if you end up purchasing something that makes you miserable.

Put your taste to good use

I moved in Downtown LA right at the beginning of its revitalization. I watched as New Orleans underwent a resurgence while I lived there. Young people are often part of emigration trends—what they like, what areas they’re attracted to and their very presence can change and improve whole cities. So think about what your friends are doing, what trends you might be at the forefront of, and use that to your advantage. I got a little tired of essentially picking these stocks for free—raising the property values for the benefits of landlords instead of myself. When I was doing my research on Austin, I was confident that the same pattern was repeating itself and was part of why we finally bought. The East Side where our first house is has changed dramatically in two years—and so far been a very profitable decision. The same taste advantages apply to the house itself. If you have a good sense of what’s cool, what’s becoming popular, and so on—these are advantages over say a 40 year old divorcee with kids looking for a track home. You’re able to see what the market may currently undervalue or what may be valuable in the future.

Happy wife, happy life (or whatever rhymes with spouse)

If you’re not living alone, it can be very easy to make the mistake of buying a house that one of the partners is not fully happy with. This is a HUGE deal and there are almost no financial scenarios that would justify it. Getting a good deal vs fighting all the time? Which trade would you take? A house is not a car, it’s not a sweater or where you’re going to dinner tonight. Both people have to be fully and totally happy with it. Do not push past resistance. Listen to it.

Avoid HOA fees as much as possible

This is my opinion and other people are going to disagree with me but I think buying a house with significant Home Owners Association Dues—for the community pool, for a doorman, for lawn care—is absolutely insane. A large part of making the math work on a house is the equity you get. And paying $400-500 a month for a bunch of stuff you don’t use substantially raises your monthly costs for very little in return (ask your future neighbors in the subdivision or complex: Have they ever used the community pool?). For some perspective, borrowing an extra $100k costs about $475 in interest and principle…so why not just buy a better house somewhere? (Note: do the math though—sometimes these dues include stuff like insurance or other amenities you were going to pay for anyway and actually do so at a discount.)

A commute costs money too

In most cases, the further you get from town the cheaper prices are. But this is not free money. Your time has value. The math is right there: What do you make per hour? Ok, now what will this 30 or 40 minute compute cost in real dollars over the lifetime of living there? Being isolated can also mean lost opportunities. Our farm has a 30 minute commute. Even though I work from home a lot, my wife does not. So we very seriously did this math. It turns out we actually both enjoy the drive and use it as a time to handle phone calls, listen to podcasts, decompress and so on. Being somewhat isolated has improved our relationship and cut out distractions. A wealthy friend of mine found his dream home but due to Los Angeles traffic would have needed to lose an hour driving each way. He took the drastic step of hiring a driver so he could be productive during that time (a lot of companies do this for their CEO for the same reason). Make the calculation for yourself.

Buying a house when you’re self-employed is a nightmare

I bought our first house when I had a day job and it was smooth and seamless. When we did it for the second time after I’d gone to work for myself—even though I made a lot more money—it was one of the most miserable experiences of my life. It was like a scene out of Kafka’s The Trial. Stuff to be aware of if you’re self-employed: Writing expenses off on your taxes is a perk of being self-employed…but it decreases your income in the eyes of a lender. Make sure your taxes and paperwork on your self-employed or freelance income is in order (usually you need three years of consistent payments from the same sources). If you have two incomes, try to see if you can get by solely on the salary. For a lot of stupid reasons, lenders care a lot more about monthly income than they do about how much you actually have or make.

It’s not the mortgage amount that matters

People get misled by thinking how little the house costs (because the home price divided up in 360 payments can seem small). You have to think of the whole payment: Mortgage + taxes + insurance + average bills. It can still be much lower than renting, but if you don’t do this math in advance, you’re in for a very rude awakening you probably can’t afford.

Just because you can change something, doesn’t mean you should

As a renter, there are so many things you never think twice about: stuff like paint, the way a bathroom is laid out, the plants in the yard. In many ways, this eliminates a lot of unnecessary choices from your life. When you become an owner, suddenly you can change these things. It’s usually better to restrain this impulse—unless you want to fall down an endless rabbit hole of expenses (which is why the math on buying doesn’t work out for a lot of people). If you are going to remodel or change a house, it’s better to focus on things that either a) substantially increase the resale value b) substantially improve your quality of life on a day to day basis.

A house doesn’t have to be a money losing proposition

This is one of the biggest parts missing from almost all the analysis of buying a home. The first year I bought my house, we made $8,000 renting it on Airbnb, while living in it (we travel a fair amount for work). The second year, we made $11,000. This year having moved out about halfway through, we’ll make closer to $25,000 (well above the entire mortgage). Also picking to live in a state with no income tax, the savings nearly pay for the mortgage. My wife also likes to watch dogs on Dogvacay, which is income of roughly $500 per month and would never be allowed by a landlord. Our house now has an agricultural tax exemption, which not only lowers the taxes by more than half, but presents other money making opportunities.

Maintaining a house is work, but nice work

You’ll see a lot of people discourage home ownership ‘because it’s expensive and time consuming to maintain a house.’ And while that can be true, I think it misses the point. I had long been terrified of supposedly pointless things like taking care of a lawn or maintaining a pool. First off, it’s your house—you can decide to run and maintain it however you like. Second, as someone who works too much, I’ve actually found the somewhat trivial tasks of home ownership to be therapeutic. I like doing them myself, even though I could probably pay someone to. It’s much less stressful than my job so the work can be nice.

Do not check Zillow, especially after you buy

If you want a surefire way for misery, sign up for Zillow price alert emails which update you weekly of their algorithm’s valuation of your home. For starters, it is one of the dumbest and least reliable computer algorithms in the world and is basically completely incapable of even the slightest nuance (and property is all about nuance). Due to a complicated mix up, we had three separate independent appraisals done on our most recent house over the span of a week. All of them came within $10,000 of each other…Zillow’s ‘real time’ algorithm thinks the house is worth less than half the amount the house sold for! Yeah ok. Second, you’re not a day trader, so what the hell do you care if it goes up one minute or the next? A house is a long term bet and vehicle for your money.

Pay what you can, as you can

Every little bit that goes towards your mortgage amounts to substantial savings over the course of a 15 or 30 year loan (not pure savings, but reduced interest payments). Can you afford to throw an extra $100 a month towards the principle? Get a bonus at work—throw part of it towards your principle.

Low interest rate + inflation is your friend

One of the calculations that a lot of people skip over when they pompously advise people against buying has to do with some of the tax and currency benefits of buying. So first off, the interest you pay on a home loan is tax free. That’s not a savings exactly, but it does reduce the real costs of that money. The other thing people miss is that we’re at a point where interest rates and inflation while not exactly the same, are surprisingly close. Today, mortgage interest rates are below 4%, meanwhile inflation in 2014 was at 1.6% percent per year. Meaning essentially, that the difference between what someone pays for their house at closing and what that money is actually worth in 15 or 30 years is substantially different—in their favor ($300,000 with 30 years inflation at 2% equals $166,000). You should still pay off what you can, when you can but that difference does reduce the actual interest costs.

Keep an emergency mortgage fund

It’s not just about saving up to buy a house, but also saving for the house you already have. Personally, I set up an account (which automatically transfers each week) to keep a balance of at least six months of our monthly mortgage. Why? Because I know that if my wife and I both lost our jobs and all our sources of income, we would have at least six months in our house—in addition to any other savings we have—to turn things around. That’s very comforting.

Finally: Have and stick to a plan

If there was one theme running through all this advice it would be: don’t just blindly do something as big as owning a house because it’s what you’re ‘supposed’ to do. In fact, it’s probably this attitude that accounts for a huge margin of the poorly made decisions that skew the math on home ownership. Keeping up with the Joneses? That’s the sickness that happens when you don’t have a plan, or you ignore the one that you sketched out.

Meanwhile, people who have plans and priorities do fine—or better than fine. For me, the goal was to start with something small, pay it down quickly and eventually be able to move into something larger while I turned the first property into a source of cash flow. That’s essentially exactly what happened—a little sooner than expected. If it hadn’t, I’d still have been fine because I was conservative, and systematized and disciplined in my choices up to that point.

So: Buying a house in your 20s is more than possible. The Millennial Generation is perfectly disposed to buying a house if they are so inclined. In fact, all the changes in technology and the sharing economy and a rise in entrepreneurship might make buying a home make more sense than it ever did before. But that’s up to you.

Good luck. TC mark

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    • http://reneelynnk.wordpress.com Renee Lynn

      That’s awesome. I think that not all people would really want to buy a house before their 30s. As for me, I’m a nomad. I’m out and about and moving/traveling a lot. It’ll be a long while before I decide to settle. LOL. Thanks for sharing though! This would be really helpful for those who are eager to buy one.

    • http://digitalrabbithole.wordpress.com christinadrh

      I bought my first house at 21. If you plan to stick around the area it’s a good thing. I have always owned a home since then. I have traveled. You always need a place for your ‘stuff’, so why not make it an investment? Plus, you can make it your own. I love owning property, it gives me a base from which to grow my dreams. Good post.

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