The Expert Podcast

So why should you buy a cheap house if you're not really looking to be a homeowner? What if you're a renter and you're not planning on buying a house for three or four years? Maybe you want to save up some more money, maybe a $200,000 house as the ones you've seen on our website don't really appeal to you. Maybe they're too old, too beat up, too small, too ugly that you don't want to get one of those houses. Well here's an example of where that might come in handy if you're planning on purchasing a house and becoming a homeowner.
Let's say in two or three or four maybe even five years, the way that the market is appreciating, that house that you're gonna buy in five years might be a hundred thousand dollars more than it is today. And this is supported by articles we've seen in Wall Street Journal and on Market Watch. And again, it's a prediction but it's supported by demographics. But let's say that you believe in that theory.
So let's say you buy a house that's - we put in $210,000. Our houses that we put on our website are all $200,000 or less, but we put a little more in case you've decided you found something that's a little higher than that. Five percent down payment is about six grand, interest rate three and a half percent. Here's your payment: your base mortgage payment is under a thousand. By the time you add taxes and insurance it's probably going to be $1,300-$1,400, might even be $1,500. And it could be an ugly old house that you don't like, but it's a house.
Number one, you're probably paying at least this much in rent right now, so you're probably gonna save a little money on rent. In reality, you're not gonna save any money because the extra two or three hundred or even five hundred that you save on rent, you're gonna have to put into the house. You're gonna have to buy curtains and there's always something to buy for a house. You have to fix the gutters, you have to repair the sink - that's going to happen. But you have some leeway here.
The other thing that will happen is you'll have a tax write-off, meaning that this interest that you're paying is tax deductible. So if you're in a 20% tax bracket, that's about 200 bucks a month, two or three grand a year that you can write off your taxes. The most important thing is this $200,000 house, if the market does appreciate, might be worth $250,000 in four years. Well that extra $50,000 cash equity that you get when you sell that house, you can put as the down payment towards your new house.
Let's say you're planning on buying a house that's $400,000-$500,000, maybe even $600,000 in four or five years. Well if you're not participating in the appreciation between now and then, the $100,000 or $120,000 that house goes up, it's just going to come out of pocket. Whatever, you're not going to save that much money in the next three years. So this is a way to jump on the bandwagon if you believe there is a bandwagon and put that equity appreciation to work.
And you know, if you don't believe that's happening, look at a house that right now is $250,000-$240,000 and go back in time in that neighborhood on Zillow and find out what those houses sold for two years ago. I guarantee those houses were under $200,000. So if you bought that house for $180,000 in 2019, now it's worth $225,000 or $240,000 - that's your appreciation, that's all cash in your pocket.
Look, it may not be as nice as the inside of your apartment. It may have old walls and old floors and old sinks and your apartment is brand new or newer. But you get to put some cash away in the form of equity. Now it defeats the purpose of the whole thing if you go out and buy a $300,000 house that you don't like or $400,000 house that you don't like because you're not saving any money, right? Your mortgage payment is going to be the same as your rent and then you're going to be putting money into repairs and you're going to hate the process. Only do it if you're putting a lot of money away because your mortgage payment is less than your rent and you're getting appreciation.
You notice that we put in 30-year mortgage. We don't recommend doing a 15-year if you're going to use this theory because a 15-year - look, it's going to make your payment go up. Well it didn't actually auto calculate here, it's going to go up and it's only going to give you more interest you're paying. Make the payment as low as possible if you're going to be flipping this house in a few years anyways, right? So it's a theory, it's a strategy you could use.
Certainly you and whoever lives with you is not going to be as impressed with the condition and quality of a $200,000 house as a $2,000 apartment, $2,500 apartment. Apartment's gonna seem nicer, it's gonna have new carpet, it's gonna have painted walls, it's going to have marble granite countertops. This house is going to be old, but it'll be a vehicle for you to have appreciation for the future. And it might have a yard, it might have a little more space, might have a garage.
So you can start to get used to how home ownership works out - what you have to fix, what you have to keep track of. Remember all those things that your landlord is doing? You might think, "Well it's worth paying the money so he has to do that or she has to do that." Bottom line is it's not that hard. It's a little work. You might have to spend a couple hours a week working on things, fixing the sink, you know, changing out light bulbs, changing filters in the air conditioning system, heating system. But it'll get you into that process to where you might have fifty or sixty thousand dollars in equity to put away towards your next house in two or three years when it's time to find the exact house in the right neighborhood in the right area that works for you and whoever is with you on that journey.