We recently sold the first house we ever owned and it’s been a bit bittersweet! Back in 2014 Mrs. Money and I were looking to become homeowners and although we were young and naïve, ended up having a great experience both as homeowners and landlords. Here are some of my reflections on the whole experience!

Reflecting on how we bought it

Mrs. Money and I got married in the summer of 2013. We knew pretty early on that we wanted to purchase a house one day, not only to have a place to call our own and make into a home, but also for the supposed financial benefits we heard financially smart people talk about. I knew vaguely that there were lots of tax benefits and I think I understood how on average, house prices crept up a few percentage points each year. It was a goal that Mrs. Money and I set together, and we worked to achieve it.

We first started tackling student debt, I had been blessed with a financial gift of having my college paid for by my parents, but Mrs. Money did graduate with some student loans. I’m not sure looking back what got us so fired up but we were bound and determined to get out of student loan debt. We watched our spending, and outside of building our emergency fund and saving through our 401(k)s, we went full force into paying off debt. Whether it was an extra $500 or $1,000, we got after it!

I think it was early 2014 that we paid off all the student loans, and it felt great. After briefly doing a ‘debt free scream’, we started towards the next goal – buying a house. We kept that energy and monthly money contributions towards a down payment. I didn’t know exactly how much we’d need to buy a house, but $10,000 felt like a good target. We put forth our energy and focus towards saving that amount up.

In spring of 2014, it seemed like we would be able to reach our goal of $10,000. We weren’t quite there but we were on target. We started looking at houses and hooked up with a realtor recommendation. The market was much slower back then compared to now, and there was a decent amount of inventory on the market. In terms of the neighborhood, we had previously identified the area of town that we were interested in (Westside, Atlanta) as we felt the prices were affordable and also the area seemed to be growing. We looked at a handful of houses and then once we figured out what we were looking for in a house, started putting in offers. We definitely lost out on a few, but eventually found a house we liked and a seller willing to sell it to us for a price we found fair!

We ended up only putting about 3% down and locked in a rate of I think it was 4.5%. We were at a stage of life that we could bribe our friends with pizza and beer to have them help us move and we shortly thereafter moved into our new home. We were homeowners!

Reflecting on how we decided to rent it

We bought our first house knowing that it wouldn’t be our forever house, which I think was a mature conclusion to come to early on, as we didn’t feel hindered by making a forever decision. I know that indecisiveness can be a real thing and we didn’t let it get it our way. A few years in to owning the house, we were preparing to welcome the arrival of BabyMoneyFinance. We knew that we wanted to make a change to accommodate our growing family, and decided that the present time was as good as any time to make that change! We didn’t know what having a kid would be like, but guessed that looking for a house and moving with a kid would probably be harder vs. without one. (fast forward to knowing what we know now and that proved to be an accurate statement).

We had some low key aspirations to one day become landlords and have rental properties but I didn’t think that the current time was the right time to give that a whirl. We were so young, we didn’t have tons of money in the bank, we knew nothing about being a landlord…there were plenty of excuses to share! However, there were 2 key moments that changed our mind.

The first was when our mortgage broker simply asked what we wanted to do with our current house; whether we planned to keep it or sell it. Our broker told us that based on our credit worthiness and current assets that there was a real possibility that we could hold onto the house and qualify for a whole new loan. What?!?! That got us thinking and after running the numbers a bit (obviously a favorite pastime of YMF), we determined that we could come up with a down payment for a new house and felt that we could pay the new mortgage each month. Interesting.

The second interesting tidbit was when we learned that in the US tax code, there’s a rule that says that as long as you’ve lived in your primary residence for 2 of the last 5 years, that you don’t have to pay capital gains tax on the appreciation in price. I knew that as long as you’d live in your house for 2 years that you didn’t have to pay gains on how much more you sold the house for, but I didn’t know that essentially you could have a 3 year free period to hold onto it. It seemed to me that by renting it out we could keep the house while it hopefully appreciated in value, and maybe even earn a little in the interim!

After doing a bunch of research and asking for advice from other friends that had been landlords, we decided to YOLO and give it a whirl!

How renting turned out

All in all, we had a great landlord experience. Of course there was the incident just over a week in where the tenants used the bathtub and it leaked and came down through the downstairs dining room. But hey $2,100 seemed to quickly get it fixed! Thankfully there were only a handful of minor issues during the 2.5 years we rented the house out. We kept the same tenants all throughout and they paid on time each month on the 1^st! We were cash flow positive each month and dutifully put that excess aside in a separate checking account. We ended up not touching a single penny of that money, keeping it aside for repairs, maintenance or other expenses that popped up.

I attribute a lot of our success as landlords to a) being professional and b) being firm. This was some advice I had received early on and it really helped. We were always polite, always prompt but were clear in the expectations of what our renters as tenants would do and what we would do as landlords. We kept our end of the bargain and expected them to as well.

Why we decided to sell

Towards the end of our 2^nd year out of the house, we had a decision to make. We could either sell the house within the next year and avoid capital gains taxes, or continue renting the house. There were pros and cons on both sides; we’d save a lot of money by not paying taxes compared to when we eventually sold, and it was a good house with good tenants. But, good houses can run into issues and good tenants can turn to bad tenants fairly quickly. That large number – the amount we’d avoid in capital gains was pretty compelling too, and things felt like the real estate market was hot, so maybe selling and taking profits wasn’t such a bad idea.

Ultimately we decided to ‘take the money and run’, i.e. sell the house and lock in our gains. It was a tough decision but it’s one I’m glad we made. There was always a part of me that didn’t love not having legal protections (i.e. a LLC) around our rental property so selling would help alleviate that concern.

What our plan is now

The big question now is around what to do with the gains we took from that property. I talk a lot about having your money work hard for you, and how just sitting in a savings account or under your mattress does it no good. I’m very aware that I now need to put this money to work for me!

Our big plan is to actually double down on real estate and continue being a landlord. It’s been a positive experience for us and I think that Mrs. Money and I make a great team in real estate. We’d like to carefully and cautiously become landlords again. Ideally I’d like to purchase 2 rental houses, but we’re definitely going to not rush into this. I think the secret to being successful in real estate is staying in your comfort zone and not taking too much risk. We’ll take our time in hunting for the right houses, at the right price!

Summary

I often reflect back to my 2014 year old self and pat him on the back. We ended up buying a house in a neighborhood that has really seen a healthy appreciation in price. Perhaps we got a bit lucky, but we also planned carefully and took a smart risk. It was an amazing first home where we made lots of memories, both personally and professionally and we’ll never forget our first house!