After owning 3 homes, there are 8 lessons I've learned about making money on real estate

Eric Rosenberg

Mar 1, 2020, 19:50 IST

After owning 3 homes, there are 8 lessons I've learned about making money on real estate

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The author is not pictured.

I bought my first home in 2011. In total, I've owned a condo and two houses in three different states.
Buying a home can be an expensive and stressful experience, but certain experiences have taught me how to find more joy and confidence in the purchase process.
Planning ahead and adding wiggle room to your budget can help you avoid the worst aspects of homeownership.
Read more personal finance coverage.

Since 2011, I've owned three homes and refinanced one of my mortgages, and in that time I've learned many valuable lessons about what it's like to buy and own a home. However, my homeownership path has not been a straight line.

Here are some lessons learned along the way that you can use when shopping for a new home or budgeting for an existing one.

My condo in Denver

I bought my first property in my longtime hometown of Denver, Colorado. The condo, located in the trendy Capitol Hill neighborhood, was the last unit to sell in a conversion of a building from apartments to condos. I was able to negotiate a great deal that included all of the model unit's furnishings and a great final price.

About a year in, I refinanced from a 30-year to a 15-year mortgage for a much lower interest rate and an affordable, though higher, monthly payment. I owned the condo for about two and a half years. I bought the unit for $137,500 and sold it for $215,000. That's a gain of about 56% in two and a half years.

Lessons learned:

Buy below your means: I had the budget to afford a home worth more than $137,500, but buying well within my means meant little stress making the monthly mortgage payment.

Know your local market: Buying a hard-to-find condo in a hot location propelled the value of my unit up dramatically in a short period of time. Zillow estimates the unit at $300,000 today, further evidence of a great location.
Don't be afraid to negotiate: The unit had a slightly awkward kitchen and layout, so I pushed hard on the sale price. A couple of rounds of counter offers led to a win-win deal.

My house in Portland, Oregon

I moved to Portland in 2013 and rented a condo for a year before buying a house of my own. The home my wife and I bought was one of two brand new houses built on a lot that formerly held just one house. While some Portland neighbors were against this type of project, we were thrilled to find a brand new house that met all of our needs at the time.

Again, I bought a home in a hot real estate market and saw the home price increase dramatically. While we only lived in the home for a little over a year, we ended up with a profit of nearly six figures on the house. We bought it in 2014 for $460,000 and sold it in 2016 for $550,000.

Lessons learned:

Location really, really matters: Just like in Denver, I made a lot of money in a short period of time. Buying in a great market helps. Strategically picking the best neighborhoods and properties is also key.

Save money on your real estate agent: We bought the home using a traditional agent but sold it through Redfin. Redfin is a nationwide brokerage that charges a 1% listing fee instead of the typical 3%. I had a great experience with Redfin and loved saving 2% on the sale price.

My house in California

After another year of renting in our new hometown of Ventura, California, my wife and I started the hunt for a house of our own.

Living in California is far from a bargain. While our new home cost us quite a bit more than the Portland house, I give credit to both of my prior homes for the funds to afford my current one. Had I not made so much on my Denver and Portland homes, the one I have in California would have been out of reach.

In the mortgage approval process, the lender required a higher down payment than we originally planned to meet its debt-to-income requirements. We were able to scrape together enough for a more than 50% down payment, which made our monthly mortgage less than the price of the place we'd been renting by the beach in Ventura.

I've already lived in this house longer than the last two combined. It's the only home my oldest child remembers and the only home my other two have ever known. I'll never say I'm never moving again. If I had an extra $500,000 to spare, I'd love a beautiful house in the hills with an ocean view. But barring a lottery win, I'm not planning to go anywhere anytime soon.

Lessons learned:

You may have to be flexible on financing: I had to come up with more than $50,000 over our planned down payment to get approved for a loan while newly self-employed. If we hadn't initially started shopping below our planned budget, that wouldn't have worked out.

There are always things you want to change: There are probably things you won't like about a home when shopping. Those features probably won't grow on you and it can be expensive to make changes.

Paradise is worth a premium: We knew we were paying more to live in a place where high temperatures average 65 to 75 degrees year round and only about 20 rainy days per year. After getting spoiled with 272 sunny days per year, I can't imagine moving back to the cold, even for a lower house payment.

Make a smart decision when deciding where to live next

Since finishing college, I've rented four times and bought three times. There are definitely pros and cons to each. If you're worried about budgeting for repairs or want the flexibility to move in the future, renting is a smart choice. But if you are going to be somewhere for the long-haul, owning a home can make a lot more sense.

I made $167,500 in appreciation on my first two homes. That covered a lot more than just real estate transaction fees and helped facilitate the purchase of my current home. While no property is perfect, planning well and buying in a great area is a tried-and-true path to real estate success.

Once you buy, you control your own little chunk of the world. When you're your own landlord, there really is no place like home.

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