Adventures in Real Estate: I Bought a House at 21

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In our Money Mic series, we hand over the podium to people with controversial views about money. Today, a certified financial planner shares how she bought a home when she was just 21—and why she now considers it a financial mistake.

I’ve been told my whole life that I’m so young. I skipped third grade, and I’m an only child, so I’m used to doing things before my time. When I bought a house at the age of 21, everyone was shocked–but I’d been planning it for a few years.

Even from a young age, I’ve tried to be thoughtful about money.

Before I had any idea what a certified financial planner (CFP®) was, I read “Smart Women Finish Rich” by David Bach. I was a theater major in college, and I was determined not to become a starving artist. So I started my Roth IRA at the age of 18, convinced that I needed to buy a house when I graduated from college.

The problem? While I was in college, I kept watching real estate prices go up, up and up.

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My plan was to buy a one-bedroom condo, but my dad convinced me that I should at least have a yard and a garage. I ended up putting in an offer on a 1-bedroom, 1-bath home with a 2-and-a-half car garage. I had lovely gardens. A fenced-in backyard. And the basement was partially finished, so I was able to turn that into a second bedroom. I often joked that I had the smallest house on the block, with the biggest garage.

What It Was Worth Then … and What It’s Worth Now

I bought my house in 2005 for $189,000. In retrospect, I shouldn’t have taken out a mortgage that big. I was only making $32,000 a year, so I could only afford half of that! My then-boyfriend-now-husband was living with me, so we made it work.

It seemed like such a good idea at the time, but then the housing market crashed and things started to go down, down, down. The part of the city where I was living was nice, but as the economy started to tank, crime went up. My neighbor got jumped, and another one had his house broken into. I’m a city girl who never thought I’d want to move to the suburbs, but even I was ready to call it quits.

According to Zillow.com, at the height of the real estate market, my house was valued at $239,000; about a year ago, it had dipped to around $130,000.

Trying to Get Out

We were underwater on our home. Although we were willing to take a loss of up to $30,000, we just didn’t like the thought of it. After stressing over what to do, we heard that a friend of a friend needed a dog-friendly place to rent.

The stars had aligned.

We rented our house for roughly our monthly mortgage payment and our tenant signed a two-year lease. We agreed to pay the water/trash bill, so we are out about $100 a month. But that still feels a lot better than losing thousands at one time!

In the meantime, we moved in with one of my husband’s friends for a year, renting the upstairs of their big, beautiful house in the suburbs. A few months ago, we moved in with my in-laws; his mom was retiring, so paying rent would help them out financially, too. We are actually very happy living with my in-laws, which surprises a lot of people. Living with family isn’t a big deal for us—it’s more important to keep our fixed costs low and save for retirement and another eventual down payment.

What I Learned From All of This

At 26, I cemented my love of finance by becoming a certified financial planner (CFP®). It should go without saying that making a career out of advising people on their personal finances has given me a unique perspective on what I could have done better at the tender age of 21.

Here are some words of wisdom that I pass onto my clients now …

  • http://twitter.com/SenseofCents Michelle

    These are all great tips! We bought our first house at the ages of 20 (I have a post on that http://www.makingsenseofcents.com/2012/12/buying-a-house-at-20-how-i-did-it.html).

    I got some flack for it, but not too much. I have 5 other good friends who are ALL homeowners as well, so it makes it easier on all of us :)

  • Ana

    What do you think about coop apts? We bought a 2 bedroom in 2004 when we got married because we could afford it over buying a house. We got a very good price on it and still live there now. Eventually, we’d like to buy a house.

  • Single Female Addicted to Reta

    I think the biggest issue with this is the fact the young lady purchased a house that she could not afford. If she purchased a house that was about $50 – $75 K, that would not have allowed her to be so upside down. I built my house when I was 24.At that time I made about $65 K per year. It was $113 K then and worth about $180 K or so now. I made sure that my payments were no more than $1000/month including dues, taxes, and insurance. I think that purchasing a house that is within a person’s income is the key.

    • http://twitter.com/SenseofCents Michelle

      I agree. I made sure that I could afford it. Right now our payment is at $964 and that includes insurance, taxes, etc.

  • fred mertz

    She talks about the error because the market crashed. That was rare and was long coming. The real problem about buying at 22 yrs old is that you are not flexable enough to move and advance in your career. The biggest jumps in salary occur when you relocate.

  • http://www.facebook.com/Ms.JessicaKruse Jessica Kruse

    I was twenty when I purchased my 2b2b condo for $62,0000. 8 have rented it out all these years. It will be paid off in three bringing in $700 monthly profit in rent then. I have also purchased another home. Can’t wait to get that property paid off and to use my excellent credit to buy another. I am 32 now with three kids and hope to some day make a living doing this. Any input would be appreciated!

  • Sherry

    It also helps to have a spouse or significant other who shares your goals. Although I wanted to buy a house, my husband didn’t because he only saw the burdens of home ownership (repairs, real estate taxes, etc). Plus he always hoped we’d move back toward the Midwest where he’s from so he didn’t want to get locked into a home here on the East Coast. So during our first 19 years together, it never occurred to me/us to start a downpayment fund. But then an opportunity for a home in the area where he hunts came up and suddenly buying a home was a good idea to him. Fortunately, his salary covers our bills because I haven’t found a steady job yet and our savings are pretty much depleted. I don’t know what we’re going to do if his company follows through with its plans to cut down on employees’ OT hours.

  • Sunny

    I bought a house at 19 and it was one of the best decisions I’ve ever made! I don’t think buying the house was the “mistake” for you. I think that living beyond your means was the mistake. Does this make sense?

  • Dotti

    I too bought a house at 21 but to be honest it was in the early 80′s and those were different times. I put $500.00 down and financed $15,000.00. Not a high end neighborhood even then but close to school. I intended to live in it till i finished school and then swap it up. Unfortunately, i was burglarized 3 times in 6 months. I had to move out. Renting was difficult, unless you wanted seasonal student renters. I went through a nightmare tenant, and sold it to a local who rented out rooms to students.

    The good news is that i used the money to buy half interest in a 4 unit /3bedrooms property in a high end beach city. My mother went in the other half and lived there quite happily until her death. The property is problematic. Horrenously restrictive Rent Control makes a profit unlikely but the value of the property is worth 4-5 times what i paid for it, i live paying a fairly modest monthly stipend and pay for improvements, but it worked out. Biggest thing is consider the debt load. You may be willing to live like a nun short term but it never lasts long. No one should give up their life for a piece of property

  • Dotti

    One other thing, stay away from condos. Yes, they serve a pupose, letting people buy when they can’t afford a hoyse or units, but it costs a bundle monthly and you can get hit with big costs if major renovations need to be made. Big projects are difficult. Dealing with cc&r’s and bloated boards and self-important board members will drive you to near insanity.

  • Robin

    Timing is everything. If the author had bought this house at the beginning of the bubble and made a hude equity gain, then this would have been a sucess story.
    I bought my first (and only) house with my husband when I was 25 and everyone told me I paid too much. Even with all the bubbles etc it has been consistently worth 4-5 times what I paid for it over the last 15 years.

  • Diane Darcy-Schmidt

    We too bought young & stupid with an 80/20 loan. Can’t get those puppies anymore & for good reason! We bought in 2006, for $280k (was listed originally at $355k, but after watching for a few months, knowing it was empty and on the market for 2 years on & off, we got a “good” deal). Now, houses are selling for under $200k and we’ve put $65k in fixing – new roof, windows, air conditioning, furnace, water heater, insulation, new kitchen & baths (hey, a 1928 home needs a lot of love when it’s neglected for years). We thought we’d be here 5 years and then move on – everyone told us, make sure you buy it’s an investment, it’ll appreciate, blah blah blah. It’s now 7 years and we’re trapped. It sucks, but we’re on target to pay off our mortgage in 2019, so that makes me feel a little better.

  • Logic101

    I disagree with your theory about being underwater. If you hadn’t purchased a house and you had rented instead you would have been out a significant amount of money on the rental. Instead you have the opportunity to sell and recover some of your investment (or rent until the market recovered as you chose to do). If you had paid $700 per month in rent for 7 years you would be out $58,800. So only being down $30,000 on your house you are still ahead. Most people holding onto a mortgage forget this fact. In addition, when the housing market goes down unless you want to move to someplace completely different the amount you lose on selling will be recovered when buying because the new house will have been much more expensive at the height of the market and will have lost value as well so it is generally a scratch unless you are downsizing.

  • http://twitter.com/w_moorhouse Moorhouse

    bought 1st in ’08, similar to you, value dropped. I’m still underwater with PMI and have enough liquid now to get 20% equity but to be honest, can’t bring myself to drop that amount on the house. Its funny how ones opinion of something changes when the value drops. Anyway, in process of buying #2 with ~ 30% down @ ~92% of appraised value with the hopes of getting 1st place rented.

  • http://www.homeexpertsrealty.net/ Home Experts Realty

    I am 31 and still not able to buy a home so living with my family, in todays economic harsh times it is not easy for everyone to do what you did.

  • CrankyFranky

    I was 26 when my girlfriend encouraged me to put $3k as half share (of 20% deposit with 80% loan) in a $29k house (thanks to her – otherwise I wouldn’t have thought about it) – over the years I’ve reborrowed on the equity to purchase a few more – several decades later my real estate is worth several mil, and I’m ready to retire – sweet – (I’m in Australia so YMMV).