Buy a Home (and pay it off fast!)
You may not think of it this way, but buying your own home (you know, the one you live in) and paying it off is an investment in and of itself. Personal homeownership forces you to save money as you pay off your mortgage and build equity. And it boosts your net worth since the value of your home will likely keep going up as long as you own it. And here’s the best part: Once you pay off your home and kiss your mortgage goodbye, you won’t ever have to worry about losing it (as long as you pay taxes and insurance, of course). You can stay calm regardless of the ups and downs of the real estate market. Plus, when you don’t have a mortgage, you have a lot more money to put toward other investments, like your 401(k) or Roth IRA. Imagine how much wealth you could build by investing a house payment every month! That’s why paying off your personal home is the first step to investing in real estate—and something you should do before investing in any other properties. If you’re currently renting and want to become a homeowner for the first time, start by paying off all your debt and saving up an emergency fund of 3–6 months of your typical expenses. Then, save up enough cash to make a down payment of at least 5–10% (or 20% if you want to avoid paying for private mortgage insurance). You’ll also want to make sure your payment on a 15-year fixed-rate mortgage (the only type of mortgage you should use) isn’t more than 25% of your take-home pay—that way, you’ll have plenty of margin in your budget. Purchase a Rental Property Once you’ve paid off your personal home (along with any other debt), purchasing a rental property can be a great way to bring in extra cash— potentially adding thousands to your yearly income. And if you decide to sell down the road, you could earn a nice profit if you take good care of the property and its value goes up.
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