Own your home

Many people have become financially independent just by owning their own home although usually they achieve this over an extended period. Owning your home makes a lot of sense. You are managing the investment as you live in it. It has a good record of capital appreciation in the long term (i.e. a decade or longer). You are your own tenant, so risk of non-payment and bad maintenance are non-issues. There are tax advantages in some countries.

Strive to own your own home as early as possible. Paying rent is wasted money. Make do with a smaller place if necessary. Sublet some rooms, or share the ownership and mortgage with another person.

Own it for as long as possible. It is best to own a property for several decades. Find a location and size that you can live in not only for now but also for the longer term. This may mean a larger one than you currently need if you are just starting out and it could mean a much smaller one if your children will be leaving home soon.

Choose a good location within your price range. The importance of location can never be overstressed. Choose a good neighborhood, then a good street – you don’t need the best house on the street. You can renovate a house but you can’t shift the property. Properties in high-income areas tend to appreciate more than low-income areas. Put some sweat equity into getting your house. See Buying properties cheap.

Buy land and build on it. Alternatively, pay for a partially completed home, and finish the construction yourself. Work for a developer who gives you a good discount. When I worked for a developer in Malaysia, the company offered its staff a 10% discount. It was a significant portion of many staff’s salary, especially since it was tax-free.

Obtain favored financing if possible. The next best thing to having a discount is having financing on special terms. In some countries, this requires you to work for the government, banks or certain employers. Example: A friend worked for the central bank and his wife was a government teacher. Because of the generous terms and large loan available, my friend bought a bungalow in one of the best parts of the city. When the property boom eventually came, the money he made from the capital gain was more than the total income from his entire working life up to that point.

Shop around for the best financing if you are not entitled to special loans. The best provider changes over time so analyze carefully when you are buying a property. The financial institution that you normally deal with may not provide you with the best financing. Example: When we bought our first home, we got the best rate from the largest lender.

When we bought our second home, the mortgage was much larger. We shopped around and found a different lender that offered us half a percentage point lower.

Caveat: Unless you have a favored loan, don’t buy a house that is so expensive that it takes up too much of your income. A friend bought a large house in a prime area that was 7 times his annual income. He was constantly fearful that if he lost his job he would only have cash to cover a few weeks of living expenses.

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