how to get your own free house

i have a friend who has been expressing that he would like to buy a home for his wife and kids. yesterday i finally had a talk with him about this.

i asked if he was 'dead-set' on buying a home in the near future and he said yes. i then asked if he would like some advice from a homeowner? meaning me.

he said yes, he would be grateful for the advice.

i said "ok, thank you for listening. the first thing i will tell you, is that my house is my biggest liability and that the mortgage is literally eating me alive. i have spent the last two years becoming more financially literate because of this."

he looked confused after i said this, and i know that what i had just said contradicts everything he has been told about owning your own home.

"i will tell you how to get your own free house."

he looked even more confused, but replied "i like the sound of that!"

ok this is how it works. you are renting right now and have never had a mortgage. the bank will give you certain incentives to get your first mortgage. it is called a 'first time homeowner's mortgage'. this means that your down payment and interest rate will be better than if you were to buying your second home or applying for another mortgage. the down payment will be 5 or 10 percent down usually, where if it is your second time, it usually has to be 20 percent.

"yes i know this and this is why we are considering of buying a home now, also because rent is almost the same as a mortgage would be." he told me.

after hearing this, i told him that these were the same reasons my wife and i became homeowners. our rent was actually MORE than our mortgage payment. at that time it made sense to us as well.

and now, five years and fifty thousand dollars later, we have only paid down ten thousand dollars on our mortgage.

i told him that this did not make sense to me, even when we signed the mortgage deal, but i did not have any other alternatives at that time so we signed on the dotted line.

"we now know that it would have been better to have someone else pay for the house." i continued. "i do not care how good of an interest rate we get, i now understand that the bank is making hundred and fifty percent on this mortgage. i would much rather have someone else pay for it"

"what do you mean, 'get someone else to pay for it'?" he questioned.

"buy your first home and then rent it out." i smiled.

"i don't get it, where do we live?" he asked confused."do you mean, rent out a room to a stranger or something?"

i said to him that you could do that, i mean i have had friends who have done that. but that is not what i mean. i am trying to make the point to stay renting where you are, but also rent out the the house that you are going to buy.

you will always have a monthly payment in order to live somewhere, whether it is rent or for a mortgage, this way though, you now have someone paying for a house for you.

when you rent, you only have a monetary commitment from month to month. this is a small monetary commitment. when you sign a mortgage, you have a 25, 30, or even 40 year commitment now. this is a much larger monetary commitment, and it is better to have someone else take on that big of a risk for you.

besides, you will only buy a property that cashflows positively and this way, you will have extra money because of that. as well you have the equity that is building, instead of just the equity.

when you buy a house and move into it, you only have the equity that you are "hopefully" building, and remember: you are signed into a lifetime agreement with the bank. i mean how many people in your family do you know that have gone out and bought their first home, or even worse, moved "up" into a more expensive one and had to take on a second job just to get by.

whereas you could be renting and have a free house on the side.

you would be able to say to those people: "look who is smarter! i have a free house!"

when you do this they will probably say you are crazy, but you will also not be the one with two jobs just to pay for your house.

"but, isn't the money i pay for rent, just money i am throwing away then?" was his next query.

i said no, you have to pay to live somewhere no matter the situation. i mean, you are paying for someone else's property when you are renting, and it is working for that person. why not do the same? i mean, it works doesn't it? why not get it to work for you too?

if you want to talk about throwing money away, i have just spent fifty thousand to pay down ten. THAT is a losing situation.

with the extra money and equity that you are building, you can get a second one quicker and then a third one, by which time you may not even have to pay for it because of the rent money you are making from the other houses may pay for the one you want to live in.

by then you will have two, three, or even four free houses.

houses that someone else is paying for.

that is a winning situation,

but, it is unconventional thinking. look around and see where people are with conventional thinking; they are unemployed, married to a mortgage they can't pay for and are broke while working forty hours a week for the next forty years.

he stood silent and thoughtful for awhile. "i understand what you are saying." he admonished finally."what you are saying makes sense, and goes against everything i have been told."

yeah, i wish i would have been able to understand this too before i bought my own house. but i am also glad that i was able to learn this and be able to pass it on to someone else.

this is something you can teach to your children. this is something i can teach to my children.

i think of it this way, before they leave the house when they grow up, they can have one, two or three rental properties on the go, then buy their own home. this will teach them better financial literacy than what the school or the bank will teach them.

thank you,
Ryan Ossevorth