My First SEVERAL Mistakes in Real Estate

My first home purchase, my first SEVERAL mistakes:

You've read about my first home purchase, it was a good move and it got me into the real estate market. But buying a property is the easy part. What happens next is where I totally screwed up.

So, I liked my little starter house, but I HATED the neighbors behind me. My bedroom was at the back of the house, very near the back wall of the property line. The neighbors behind me had a garage that was very close to that wall, where they partied all the time. It sounded like they were partying right in my bedroom. And they would party on a Wednesday evening until 4:00am. It was brutal. I called the cops on them several times, but they just kept partying. And they had a dog that barked like crazy. And then a new neighbor moved in across the street. His backyard faced my front door and his noised echoed through my front door if I left it open (no air-conditioning). I would hear him scream at his wife to fetch him another beer. It was ridiculous.

So, I went temporarily insane, called up my agent, and put my house back on the market without any planning. I sold the place and got out. Sure, I made $55,000 holding the property for less than a year, but I could have made way more. WAY MORE.

I had to pay a lot of taxes on the $55,000 since I held it for such a short period of time. This is called short-term capital gains, and you are taxed at your normal tax bracket. This can be avoided though. If you buy a place to live in, YOU SHOULD OWN IT FOR 2 YEARS. PERIOD. Once you've owned and lived in your primary residence for two years, then the appreciation you've made on the house is TAX FREE when you sell it! If you're single, the house can appreciate $250,000 and you wouldn't have to pay taxes on any of that when you sell. If you're a married couple, the property can appreciate $500,000 and you don't have to pay any taxes on that gain! The rule is that the property must be your primary residence 2 of the previous 5 years before you sell.

So, in my case, I should have planned to own that property for 2 years. I was a noob, a rookie, not knowing what the hell I was doing. I should have tried to live there for 2 years...I had one more year to go. But if that was too painful, I could have still moved out, but rented out that house! I should have done everything I could to keep it.

Keeping and renting this house serves two purposes. First, I would postpone paying those taxes and instead be making rental income. Secondly, in a hot housing market which this was, every month you own a property, it goes up. So by keeping this house and renting it, I'm making more money on the backend.

And even though I bought my second house with the proceeds I made on the first, there's another way. If I had kept that house and rented it out, I could have still purchased my new house. The solution is BORROWING or REFINANCING. I could have taken a loan out on the appreciation of the house, and used that as a down payment on the next house. I could have borrowed much of that $55,000 with a second loan, or cashed it out with a refinance, and used that as my down payment.

Then, I would have had 2 properties. So, these are important lessons for those of you who are starting out. You should think about buying and collecting properties. Be very sure if and when you want to sell, because maybe, you don't have to.

My first house that I sold for $280,000 is worth $780,000 today. I'm a donkey. Don't you be one.