Make real estate a design tool for life

Flickr photo by Gene1138.

Q: I bought my first home about five years ago. Since then, I bought a multifamily home and moved into it, renting out my first home, and then bought another house and that's where I live now. I got a great deal on this house, which is in one of the best neighborhoods in my area, because it needs so much work. Now, with the economy, I'm concerned that I'll never be able to do the needed repairs.

It's too broken down to rent, and I couldn't cover my expenses on it, even if I were able to rent it out. In fact, I'm nervous that if we have a big earthquake my foundation problems will cause major, irreparable damage to the house.

On a lark, I went to look at some new condos and lofts that are being rented downtown -- I loved them, and I could rent one for less than half of what I pay to live in my current home. I believe that real estate is a big part of building wealth, but I'm seriously thinking about selling this house and living in one of those rental apartments. What do you think?

A: Well, you are certainly not alone. I have had a number of my personal real estate clients and friends make the decision to either buy investment properties before buying a home, or to sell their homes, rent and focus their real estate efforts on buying homes to rent. The situation you propose is very similar: staying in the real estate market as an investor while renting the place you live.

Mindset Management

First, you must get a clear understanding of what real estate ownership means to you. You'd be surprised at how differently different people answer this question. To some, owning a home is the American Dream. To others, ownership is primarily for wealth-building, strictly for investment.

Still others think owning a home is a burden or a blessing, or something you just have to do versus something optional that you can do someday. Many people, when asked what their home is to them, will repeat the refrain: "My home is my biggest asset."

No matter where you fall on this continuum of beliefs, I want to propose a new view of property ownership to you. I submit that your home is not actually your biggest asset. It is, of course, most people's largest financial asset.

But yourself, your wellness, your relationships, your education and career, your talents and skills, your hopes and dreams for the future: any or all of these might, perhaps, be larger life assets than your home.

It follows, then, that the measure of a good real estate decision is not necessarily one that gets you or keeps you in a property at any cost, for its own sake. Rather, a wise real estate decision is one that nurtures and develops whatever your biggest assets in life actually are. The decisions to avoid are the ones that threaten to harm your largest assets.

Your ownership decisions each present a singular opportunity to impact -- for better or for worse -- virtually every single element of your life and daily lifestyle. They impact your surroundings, your finances, your relationships, your stress level: everything. For that reason, I believe that the best view and use of real estate is as a tool for designing your whole life.

The vision of a new way of life -- half the living expenses and twice the living experience -- is what you are glimpsing and starting to understand that you might want to reach out and grab. Selling your current residence and renting might be a means to do that. Don't stay stuck in a house you can't afford to repair out of someone else's sense of what you should do.

Before you make this move, honestly analyze any opportunity costs you might experience by selling and renting, including the tax advantages of owning your home and the appreciation you might stand to build over the years you had originally planned to be in the home. ...CONTINUED

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