Owning a home can be a dream of many young people, but purchasing a home too early could be a big financial mistake. On a Fool Live episode recorded on March 5, Fool contributor Brian Feroldi shares his life experience with rushing into homeownership and why he would have done things differently, knowing what he knows now.
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Brian Withers: Mr. Feroldi, why don't you start out. Tell us how old you are, the size of your family, and what your home story is.
Brian Feroldi: Sure. I'm 38. I am pretty sure, yeah, 38. [laughs] You know, you have to do the math every time and you're like, [laughs] "Yeah, that's right." [laughs]
Withers: If you stumble on how many kids you have, I'm really going to wonder. [laughs]
Feroldi: Really sure that I have three kids, so we are a family of five. My home story: I graduated from college in 2004, and that was right when, it wasn't the peak of the housing market, but it was like two years before the peak. When I got out of college, I was really into, like, the Rich Dad, Poor Dad series. If you read those things, you know that like buying houses and renting them out is like the path to wealth that he recommends, and he recommends using debt and all that kind of stuff.
I was a renter at the time in Massachusetts, outside Boston, where the housing market was very expensive and still is today, even more so today. But I really wanted to become a homeowner, because I thought at the time that renting was throwing your money away. I put that in quotes on purpose. Now, at the time, I made like less than like $40,000 per year, so it was a weird situation where I really wanted to become a homeowner and I didn't make a lot of money.
I actually qualified for this low-income housing program where they severely limit the number of houses that you can buy, but there is a small pool of houses that you could buy. You get into the housing market, and one of the pros is you get these houses for much cheaper, the downside is you have to sell them down the road to somebody that's also in this program. So I found this condo complex that met all of my needs, was near where I worked, and was like $170,000. It was like more than four times my annual income, but I bought it anyway when I qualified for the mortgage and all that kind of stuff. I lived in this thing for about 18 months, and then a job opportunity came up within the company I worked for in New Jersey. It was a much better paying job, and it had all these benefits and stuff like that, and I was like, yes, I want to do that.
I then decided to sell this thing that I owned for 18 months, literally 18 months. It took me over six months at the time, even though this was like 2006, 2007. It was like the housing market was still red hot, but because of all the stipulations around my selling, it took me over six months to sell the place, which even looking back, that's not terrible. That's not great, but that's not terrible. So I sold it for the same price that I bought it for.
But the big mistake that I made is, I was in a rush to buy. I didn't know if I was going to live in Massachusetts for the long term. There was no reason for me to rush into homeownership, but I just had the mindset that I don't want to pay rent anymore. I have since completely flipped. I no longer view rent as throwing your money away. In fact, I think that renting is a fabulous [laughs] choice for so many people.
When I own this condo, my mortgage and stuff was like, I think, 1,300, 1,400 bucks a month, but I also had to pay about 250 bucks a month in condo fees. Condo fees are just, here's my money; thanks for nothing. [laughs] Thanks for literally nothing. Not to mention the home repairs and upgrades and everything else. I would've been way better off if I just rented and if I could go back. I wouldn't have bought that first place.