I made a mistake when I bought my first house. I didn’t “run the numbers” on the property and bought on pure “gut” feeling. I’m still a proponent of following your gut, but you HAVE to run the numbers if you have the time – not doing it is crazy and WILL cost you money.
So… what the heck am I talking about? Back in 2006 I found out I would be moving to Augusta, GA (stationed at Ft. Gordon, GA) and fresh off a high from “Rich Dad, Poor Dad” by Robert Kiosaki and other similar books I just KNEW I wanted to be the next Donald Trump and I was going to make my start with this house. I made a plan to spend no more than $125k on a house and I’d picked out neighborhoods that looked great (online) and many houses that I thought looked “quaint” and then I headed out to Augusta on a 24 hour whirlwind trip to look at properties. Well, to make the store short(er) the properties and neighborhoods I looked at online were real dumps in person… I quickly realized this and got the realtor to show me some other places… She showed me a couple that were in the price range and new or newish but my own untrained inspection showed fairly low quality workmanship… so, the realtor being able to pick up on my cues stepped up the pressure to look closer at the slightly more expensive properties (I was with another Captain who was already looking at the higher priced homes – $160k). Well the other Captain found one she loved and I found one I liked a lot ($165k) and when she put her offer in that same day… did I wait to run numbers? did I say “but that wasn’t the plan?” No… I said “and so will I”… sigh…
Now, three and a half years later I’m moving again (thanks Army!) and the market isn’t up… If I’d stayed in the original pricing I could rent out the house for enough to cover the mortgage (PITI), management fee, and a little left over to cover vacancies or repairs… not to mention the tax benefits! …but I didn’t… I bought a house that can’t be rented for enough to cover the mortgage let alone anything else. In the long run I will still be making a good profit from this place… but the shortfall, even when rented, in my month to month cash flow isn’t fun! (Robert Kiosaki would not be pleased)
So, what do I hope you’ll take away from this? Run the numbers (or have someone else do it for you). Keep emotion (like fear or just doing what others are doing) out of the decision making process. BUT… don’t let your fears keep you from taking action! Ready, Fire (no Aim) is MUCH better than Ready, Aim (and never Fire)… Problems can be overcome… but it’s better to make good sound decisions up front.
Errant Adventures 