Home ownership from the perspective of Indian immigrant living in USA — PART 1
I am an immigrant in USA. Just like most of the first generation immigrants, I came here with a dream. Buying a home is part of the American dream. I never dreamt of buying a home in USA few years back. After fighting finances and immigration for few years, I am relatively better off now. I dared to make the next step defined by the society. Buying home…..
Amateur Phase
I saw many of my peers buying home. I never cared or compared myself with them. When I saw my daughter’s face first time, everything changed. From that time onwards, I often play life of my daughter without me. I want to ensure food and education security for her even when I am gone. That’s the driving force for me at this point in life.
Real estate has been a portrayed as a way to build wealth in American society. It is true to a certain extent but not always. I started paying attention to real estate around 2020. I was looking to buy home specifically in the San Francisco bay area. At that point in time, I had no knowledge about real estate. I got most of the information from my friend who bought home in Phoenix area. Being on a visa with no prospect of getting permanent residency in a decade, it’s not a good investment strategy. But I wanted to buy home anyway. I don’t exactly know why!
Buying homes in San Francisco Bay area is a liability NOT investment
Realtors and Indian community might voraciously deny this. Most of them don’t realize we aren’t in the same market that was a decade ago. Let me try to explain.
Let’s say someone buys home for $1 Million. There are no new homes for $1M in bay area. Most of the houses in that price range are built between 50’s–70’s. There will be things to fix and yearly maintenance for these old houses. On average the property tax will be 1.2% yearly in most of counties. Mortgage on 30 year fixed loan with 20% down and 6% interest rate is $5200. Most of the mortgages fall under jumbo loan in Bay area so 20% down is mandatory. We can round it to $5K.
Down payment: $200,000
Mortgage: $5K*12 = $60,000
Property Tax: $12,000
Yearly Maintenance: $5,000
Total amount owed first year: $277,000
Basically you are committing to $77K/year for next 29 years. This is a pretty conservative estimate.
Of course there are other aspects like building equity, property value appreciation and selling the house for profit in few years. Remember everything is based on forecast and predictions from historical trend. Beginning of this year everyone predicted strong real estate and employment, now all those predictions are proven wrong.
Real estate will always go up
I can’t deny that. Eventually it will go up. But no one knows when and how much. Sadly there are cities that once flourished and then went bankrupt (Like San Bernardino, Detroit). Some might argue NO WAY San Francisco bay area will go bankrupt. Bankruptcy is not the only thing that could cause real estate to spiral down. I would encourage the readers to check the history of East Palo Alto. How a once thriving suburb turned into a ghetto in matter of months due to racial bias. There are lots of unknown factors that could affect the price of real estate.
Dude you are pessimistic
Well yeah. When making an investment for a million everyone should have an exit plan. Unfortunately lot of investors don’t have an actual exit plan. Most of the immigrants don’t even know the procedure for selling house if they loose the visa status and had to go out of this country. Please be aware. Back in 2008 during housing crisis, lot of immigrants had to foreclose their home loans and move out of this country. Never assume it won’t happen to me. Even if you are financially stable with a lot of liquid cash, I would suggest avoiding poor investment that won’t give returns.
Are real estate investments bad?
Definitely no. Not all real estate investments are bad. You have to pick the right place and time. It also depends on investor’s financial strength as well. One of the worst advice given to prospective buyers is this
“There is no good time to buy a home”
Unfortunately thats not true at all. There is always window of opportunity in the real estate investments. Patience is the key. Listening to Youtubers and millionaires who have vested interest can be detrimental to your future. Listen to Dave Ramsey giving dangerous advice to his viewers few months back. I am fairly confident he knew real estate was gonna slow down at that time.
Do research, Do NOT FOMO
I personally know investors who made millions from real estate investments. That doesn’t mean it applies or works the same way at this point in time and place. There is a saying
“Numbers don’t lie”
This is what I believe in
If you have confirmation bias, you can make the numbers lie
I do believe there are still profitable real estate investments out there. But you have to be patient and unlearn the popular “real estate advice“ peddled by people with vested interests. Most of the time fear of missing out get the best of us. It almost got me a few months back.
To be continued……
