Okay, not quite $200,000. If you want exact numbers, it was $178,193.81.
It’s not everyday that someone hands you a check like that.
So how’d we do it? I’ll tell you, but it’s not exactly a harrowing death defying story involving gun battles and police chases…
This one’s a little bit tamer. But still worth the time to read.
It involves two words…
Now before you click the x in the top corner of your screen, I want to ask you a question.
Is your principal residence an investment?
It’s not a trick question. Actually it’s an easy ‘yes’ or ‘no’ question. So it shouldn’t take you long to answer.
There’s actually no right or wrong answer. BUT….I tend to lean towards the idea that it is an investment IF treated as such.
I mean, I could ask you if buying cow manure was an investment too.
Well, if you bought it for $3 and turned around and sold it for $5, I guess you have an investment, or a business, however you wanna look at it.
According to Investopedia, an investment is simply an asset purchased that will be sold at a higher price for profit (shortened and simplified). So essentially my manure scenario could be an example of an investment. It doesn’t matter what your selling, if you made profit, you made an investment.
There are many people out there who would argue for days that your principal residence is not an investment. But I beg to differ, here’s why:
Here are two scenarios:
Scenario 1: Fred and Wilma buy their forever home at the ripe young age of 21. A cute little house that they plan on raising a family in. They purchased the house with the plans of paying off the mortgage slowly over the next 25 years and then retiring comfortably in the home for the rest of their lives.
Nothing wrong with that.
Scenario 2: Barbie and Ken buy their first home after getting married in a newly developing area just outside of the big city. They purchase the house with the plans of staying in it for a short period of time, just enough time for the area around them to develop and real estate prices to climb once the area becomes a little bit more established. Then they’ll sell the house for profit and reinvest it elsewhere.
Nothing wrong with that either.
Both scenarios are good. The difference being, in scenario 1, the house wasn’t exactly treated as an investment (for the short term at least). But in scenario 2, it was.
Now, obviously this can’t be done in any market. Some areas develop slower than others, markets change unexpectedly, stuff happens….
So essentially it takes a little mix of risk and luck. But what doesn’t?
When I bought my first house, I was terrified. Me, own real estate? I didn’t even own a screwdriver. What if something broke? What if I couldn’t keep track of all the bills? Wait, who pays the taxes?
Of course these fears melted away over time. As with anything. Fear of the unknown can be paralyzing. Until you do it.
But the idea of renting a basement apartement for a few hundred dollars less than owning a house seemed ridiculous to me.
I mean, I could afford a few hundred dollars extra a month, right?
Of course I could. Once I knew that I had no choice but to pay my mortgage, I found a way to pay that mortgage. Even if it meant taking an overtime shift here and there.
Before I knew it, 5 years had passed and I sold the house with an agent and pocketed $90,000.
Not bad for a few extra hundred dollars a month.
I saw how quickly that house had sold and what the agent did to sell it and thought to myself, hey, I can do that.
From that point on I knew I’d sell the next house I owned by myself to bypass the 5% commission. (Nothing against real estate agents, I just thought I’d try selling the next house on my own next time).
My next purchase wasn’t so scary. This time I also had my future wife to buy the house with me. We were just about to get married and there was a new development going in just North of the city (Toronto, Ontario).
The price tags on the houses were a little steep, but we could swing the monthly mortgage if we put our heads (and salaries) together. The average house price in the area we were looking at was 2.1 million. But new houses were going in for about 600k.
Now, here was the logic. My father (who used to be a real estate agent) told me never to buy the biggest house on the block. I won’t get into the million and one reasons why. But basically the biggest house on the block may just end up being the most expensive house on the block, and there may be resale issues too.
I thought this to be pretty sound logic.
So, the area was perfect. If you were to reference a Monopoly board, this house would be Boardwalk. Hey, you gotta play outside of your comfort zone sometimes, right?
So we put a downpayment on a house and JUMPED…
We signed on the dotted line and owned a house in the prestigious area of Kleinburg, Ontario.
We purchased this house with the intention of treating it as an investment, not as a forever home. Actually far from it. I mean, the house was awesome and everything but, we didn’t see ourselves living in an end unit townhouse for the rest of our lives (not that anything is wrong with townhouses).
We wanted more land eventually. Further away from the city. This house was just a stepping stone to our next investment.
Our prediction was that the house prices would increase in this brand spankin’ new community rather quickly. The city had proposed a large amount of development around us, so we knew that people would be attracted to the area as time went on. There were proposed schools, parks, highways…the whole lot.
So we lived our lives, worked, and watched as development happened around us.
The area developed as proposed and the values of houses went up an average of 10k a month. A MONTH!
Much more than we’d anticipated. But great nonetheless.
We are glad we had the foresight to get a 2 year fixed mortgage instead of the 5 year term (which is always tempting). We wanted the option to get out in a short period of time if need be.
Just before the two years were up (19 months to be exact). We put the house up on the market (ourselves-private sale) and the house sold in under 24 hours. Full asking price, zero conditions.
A few weeks later we had a check in our hands for $178, 193.81.
Points to consider.
If we were to do it again, we’d buy two houses. Just kidding (not really).
The house that we currently live in is in a nice, quiet area with 1.3 acres of land. That’s what we wanted. And the price tag was a lot less than the area we were living in in our previous house. And…we love it here.
The main takeaway for us was realizing that our primary residence could be treated as an investment, if we wanted it to be.
We currently have shifted gears and are more in the mode of paying off our mortgage so we don’t owe “rent” to anyone (more on this in another post).
We don’t tell you this story to brag about the money we made or anything like that. In fact, we wished we had read more information like this when we were buying that house. Most of the information we found tended to say that your primary house was not to be treated as an investment.
I guess we wanted to disprove that theory.
We would have had to pay rent somewhere, and even if you add up the mortgage payments and down payment put down on the house, it was still a pretty good amount of money to make, just for living. We had to live somewhere anyway, may as well make some money while we were at it.
In the end, the money was made while we slept. We didn’t have to go to work for it, do extra shifts, or do any heavy lifting. We lived our lives for 19 months and even travelled… and walked away with $178k in the end.
It’s passive income at its finest.
So, if we were to give any advice from this long ass post. It would be, don’t be afraid to treat your primary residence as an investment. You never know what might happen at the end of the day (or how much money you could make).
As Warren Buffet (legendary investor) said:
“If you don’t find a way to make money while you sleep. You will work until you die.”
Thanks for reading!