If You Are a U.S. Citizen, This Should Be Your First Business/Investment
Your government wants you to succeed.
There is one investment idea that wealthy people pass down through generations. Wealthy help their children get going. I was late getting started. Many never realize it. That investment is your personal residence.
There are many reasons why your personal residence is a great investment. One reason used to be that mortgage interest is an income deduction for taxes. Now the standard deduction is so high that many don’t deduct interest on their mortgage. It still might be something for you to consider.
Another reason is that there is no income tax on profit on sale of your personal residence up to $250,000 for an individual and $500,000 for a couple. Of course, there are some hoops to jump through. Generally speaking, you can only use the exclusion once every 5 years and you must have lived in the home for 2 of the five years prior to selling. There is a worksheet to determine if you meet the requirements.
I learned about the exclusion while watching the son of a friend of mine. He bought 20 acres and subdivided it into 5-acre parcels. He built a home and lived in it for 2 years. He paid his mortgage by building custom homes for others and building another home on a 5-acre parcel. He sold the second home and paid income tax. When he sold his personal residence, he netted less than $500,000 and paid no income tax. He seemed to be doing pretty well playing that game.
That is how I became interested in real estate. My friend and I became agents to help her son sell his property. One of my sons also became a general contractor and I continue to help him. Three of my four children are homeowners. One owns two homes and vacant land.
As for me, my education got in the way. One of my profs in the MBA program, told me that real estate was not a good investment. He thought real estate just went up due to inflation and when you sold you still had to buy another place to live. It was nearly 25 years before I learned how wrong he was. I still didn’t buy my first home as an investment.
We bought our first home because my wife wanted a home. We got lucky. We did everything right. We bought a 3 bedroom, 2 bath home with a 2-car garage. We had 4 children. We converted the garage to a laundry room, play area, and two bedrooms. We improved the landscape. Before selling we added a new roof, new carpet, and painted inside and out. About 10 years after we bought the home, we sold it and netted around $100,000.
I don’t know of any other investment where a bank will loan you 80 - 100% of the amount you want to invest. We bought the home and only put 3% down. There were some additional closing costs, but not a lot. Our mortgage was about the same as rent. If we had continued to rent, at the end of 10 years we would have had nothing. Because we purchased, we had $100,000 and could go back to renting. Compare that to what my MBA prof said.
You may know someone who lost money on a home. I do too. You either have to be lucky or savvy. When I took the coursework to become a real estate agent, I couldn’t believe how ignorant I was. I wanted to teach everyone what I learned. I wrote a book in 2004. You can still get the Kindle version here. If you would like a paperback version, let me know. They make a great graduation gift. ($20 includes shipping in U.S.) Of course, I’ve learned a lot more since then. I will be giving you ideas and may create a video podcast if there is enough interest.