Can You Buy Smarts?

Can You Buy Smarts?

Written for Greater Nashville Realtors

We can buy beauty.  Some say we can buy time.  You like my hair?  Gee thanks, just bought it.  But can we buy smarts?  What do I mean by “buying smarts”?  Rephrased, can we buy wisdom?

The Britannica Dictionary says wisdom can be defined as “knowledge…gained by having many experiences in life” or “good sense or judgement”.  We gain knowledge either by experience or by heeding the advice of our predecessors, and the latter costs us less time.

I remember my biggest purchase of smarts.  I was a successful, well-routined 34 year-old, and a proud keyholder to the church.  I was religiously there four days every week.  My life was a cycle of work, home, church…rinse and repeat.  One day, I was sitting at the dinner table with my mom, my dad, and my grandparents.  My grandpa turned to me and asked if I knew who the oldest person at the table was.  I responded, “Grandma, of course”, thinking he forgot I knew she was four years his senior.  “No. You are,” he replied.  I asked what he meant and his explanation provoked massive change in my life.  “You are old because you do not take risks.  Life is all about getting out there, taking risks, and taking in the experiences.  You’re not really living life.”  I bought it.  Those words took me off the path I was on and started me on a totally different journey and this new year, I’m ready to take the a huge leap of faith.

They say there is no reward or accomplishment worth earning if there isn’t a risk involved in achieving it.  What is something you want to achieve but you haven’t yet?  Why haven’t you?  With the turn of the year, many of us will resolve to lose weight, travel more often, or take up a new hobby.  What will your resolution be?  My resolution is to take leaps ahead, financially.  This will be the year that I follow in the footsteps of the previous generations of my family.  I’m going to invest in real estate properties, and I have great examples in family and friends from which I can buy smarts.

My biggest financial step this year will be to buy a property for the purpose of renting it out.

I probably won’t be buying in Nashville’s urban core or in Williamson County.  I’ll probably look outside of Davidson County, towards Dickson or Ashland City, where “affordable housing” can still be found.  Thanks to Realtracs, the MLS that REALTORS use in Middle Tennessee, I know the average house in Ashland City is currently renting for $1.20/SF (or $2,400 for 2,000 SF).  The median single-family house in Ashland City has been selling for $330,000.  Those figures tell me it’s possible to buy a 2,000 square foot home, rent it for $2,200/month, and one could be building equity while their tenant is paying the mortgage note.

Over the last three years, property values in Ashland City have been appreciating at an annual average of 13%.  At that kind of rate, the tenant would have paid down the mortgage note by about $4,000, all while the house could be worth an additional $42,900.  In five years, the tenants would have paid down the mortgage note by around $21,000 and the property owner  could have netted an additional $12,000 or so in profit.

That’s what buying smarts looks like – and someone else is paying for it!

Oh – and once a tenant in place with a signed lease agreement, that mortgage debt doesn’t count against one’s debt-to-income ratio anymore.  You could then repeat that cycle of buying a property and placing a tenant all over again.  For those who haven’t been diligent to invest in their own retirement or into a secondary education fund for their children, this is one way to make up for lost time.

Before you and I go head-on and start buying houses though, let’s be sure to ask ourselves:

·      How will I pay for this?

·      Will this be an expensive house to maintain or repair?

·      Will I be able to easily rent this house?

·      How soon could I liquidate it for a profit, if I wanted to?

In the words of my grandpa (who I called today for more advice):

·      Make sure your agent knows what’s happening in the area.

·      Be sure the house fits people’s needs now so that you could sell it later.

·      Don’t rent out a house unless you are close enough to keep an eye on it if you need to.

In closing, my spouse was just reading this article and he asked me, “Aren’t interest rates high right now?”  I had to remind him that mortgage interest may be deducted on our tax returns, so I’m not too terribly concerned about where the interest rates are right now.  We could benefit from the deduction – and one day when interest rates drop again, we can refinance into a lower rate.  I think I may have just sold him some smarts!