Own Thy Own Home: How Real Estate Can Relate to Trading

homeforslae

“This come many blessings to the man who owneth his own house. And greatly will it reduce his cost of living, making available more of his earnings for pleasures and the gratification of his desires. This then, is the fifth cure for a lean purse: Own thy own home.”

-The Richest Man in Babylon

Over the past few Mondays I have been discussing the Seven Cures for a Lean Trading Account which are derived from the Seven Cures for a Lean Purse as discussed by The Richest Man in Babylon.

We have already talked about setting aside one tenth of your income, cutting unnecessary expenses, finding ways to quickly multiply your savings, and making sure to protect our principle from sudden loss.

The fifth cure for a lean purse is to own your own home. For traders, we will take a slight twist on this and say that the goal should be to make your home a profitable investment.

This is something that I’ve actually done a pretty decent job of accomplishing. I purchased my home a few years ago for $100,000 and it is easily worth $150,000 today. I have also made a number of improvements that should allow me to push that price even higher if the right opportunity to sell should arise.

What this one good decision has done for me is basically establish a $50,000 emergency fund that I didn’t need to save a penny to accumulate. I created it basically out of thin air by buying an undervalued property and making some improvements.

I know people who take this idea to the extreme and actually earn a full time living from buying undervalued properties and flipping them after living in them for a few years so they can avoid paying the capital gains taxes. Of course, in order to do this, you have to have a family that is willing to move the instant a new deal is found. My wife isn’t very good with change, so that won’t work for us.

There are a lot of people these days who believe that renting is actually a better bet than buying. As my sister struggles to sell a house that she paid too much for just a few years ago, she would certainly argue the rent side.

That’s the key difference. Just like with trading stocks, you have to check your emotions at the door when looking at purchasing a home. For many people, their home is the biggest purchase they will ever make. That is even more reason to make sure it is a financially smart investment.

In my experience, the fastest and most reliable way to achieve financial freedom is through having multiple streams of income. Owning a home that appreciates in value is a great way to add another income stream without doing much work, but you must be cautious to buy the right home.

Photo Credit: MarkMoz12