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Why College Grads Should Run Away from the First Time Homebuyer Tax Credit

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Have you ever found that perfect job, business opportunity, or even person on the internet? Let’s pretend for a moment that you just found the job of your dreams online and are so thrilled that you shout out loud… just a little… remember, we’re only pretending here… but that’s how excited you are.

You read it over and over on the internet and say, Wow, that’d really be a great opportunity and something I’d excel at. You ponder for moment, scratching your chin and daydreaming about that perfect job in the perfect location (thousands of miles away) with all it’s perfect qualities. Soon you become infatuated and engulfed by the idea and decide to pursue your passion!

But wait!

I’m sorry, but you just bought a house and you’re too poor to go chase your dreams… Tough Luck! If you really want that job bad enough, you’re going to take a hit of thousands of dollars… And last time I checked, losing thousands of dollars is not a good investment strategy or even possible for college grads with a ton of debt.

My story – Dodging the Bullet Three Times.

My parents are real estate investors and I absolutely love the stuff! Capital appreciation, tax write offs, debt pay down, sweat equity – How is that not exciting! Okay, I might be a bit of a nerd, but you have to admit, real estate has some pretty sweet ways of building wealth, and no matter how cool you are, you should enjoy wealth.

In high school I would look for possible investment properties and drool over the classifieds and newly minted internet. Then college rolled around and I kept trying to convince my parents to co-sign on a college house with me. They politely said no, in their all knowing and understanding ways, God bless them. After studying abroad I took a job my senior year as a Realtor to learn the ins and outs of the business and was thrilled at the chance to follow what I thought was my passion.

Being a Realtor taught me this: times and people change, including me.

I was the worst Realtor out there, I’m not ashamed to say it. I was completely unmotivated by the product because I began to realize I wasn’t impressed with huge houses like I used to be and pulled a 180 by realizing I wanted experiences, not a huge McPrison. When sitting in with clients this is how it typically went:

Her: “Honey, what do you think about siding color?
Him: “Oh Darling, I’m not sure, what color do the Joneses have?”
Her: “It might be burgundy… or… oh wait, is it mauve?”
Him: ” I thought it was a bit of a lavender in there as well”
Her: “Well what do their neighbors have, I liked their neighbors siding…”
Him: “I think it was a taupe, that’s a shade that’s really in right now.”
Her: “Maybe we should go drive out there and have a look? Ryan, would you mind taking us there?”

It took all my effort not to just stand up and shout… “It’s a f***ing spec home, they all look the same, who cares!?! When you die nobody will mention the color of your first home’s siding!!!”

However… since I couldn’t shout at my clients I silently floundered for a year and a half until I made the best decision of my life… I quit! Free at last, free at last, the shackles of un-fulfilling work were off!

But let’s backtrack a moment here…

What I didn’t mention in this story is that during my time as an assistant siding color picker I had put in offers to three properties, one even with my sister, which all fell through… THANK GOD! If I owned a home back in Wisconsin I would not currently be writing this article a few blocks from the beach in Hawaii, which is where I moved to follow one of my passions. I would not have taken a gamble with my life to follow a dream and have come up better than I had ever hoped. Nope, I’d be shoveling my driveway, making mortgage payments, and doing work I didn’t enjoy.

Looking back I realize that although I may have made a few bucks in real estate, I would have completely restricted my mobility and the ability to follow potential passions and opportunities, which is why…

Houses could be one of the worst investments ever… especially for young people. You know, all the recent college grads clawing their way to get the $8,000 tax credit, because it’s soooo much money. If you’re a college graduate reading this who has passions and career goals outside of the city you live in… Don’t do it! Don’t give into the lure of the tax credit!

The world is becoming more and more mobile, career opportunities across the country or even world are no longer uncommon. Therefore, if you’re buying a house, you’re limiting the opportunities to grow in new cultures, experience a more fulfilling career, and advance in your field of choice. Although you may not have as much equity in a house, you sure as hell put a lot more equity into yourself.

The choice is yours, but I choose freedom.

About the author: Ryan is a blogger over at Planting Dollars where his ramblings include Personal Finance, Investing, Mobile Living and Following your Passions. When he’s not compulsively checking his email or blog stats you’ll find him following his passions for scuba diving, weight lifting, and exploring his home state of Hawaii.


Published or updated December 30, 2009.
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{ 9 comments… read them below or add one }

1 Peter

I think you make an excellent point in this post – that just because people say it’s a great time to buy a house, doesn’t mean it’s the right time for you. There is no shame in renting, and allowing yourself some freedom, especially after college – is a great idea.

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2 Ryan @ Planting Dollars

I’m glad you guys agree… $8,000 is a lot of money dangling there as incentive, especially for broke college grads. However, in the long term it isn’t really worth it if you’re not happy and end up house poor.

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3 Derek

So true, I’ve talked myself out of looking into a new house a couple of times. Though I’m dieing to get out of my apartment, you never know where life is going to take you.

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4 Financial Samurai

Nice job Ryan on two guest posts in one day!

Yes, you really did dodge a bullet by not closing on your home right after college. That’s just waaaaay too young to be saddled with a mortgage, unless you know at least 90% for sure you want to be there for the next 5-10 years.

After working for 4 years, and experiencing San Fran for 2 years, I pretty much knew I wanted to be here for a very long time. The balance of life and the outdoors (Tahoe, Napa, Hiking, golf, tennis, everything) and work was as optimal as I could find and so I took the plunge. The property is now a cash flow rental, and I will use it towards my retirement.

Save 30% of the value of the property, and work AT LEAST 2 years (whichever comes first) before considering buying something.

Best, Sam

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5 Ryan @ Planting Dollars

Leo –
I think being a Wal-mart greeter in your 70’s would be a blast! haha, but seriously, I agree with you on the 2-4 family bit.

Two of my offers were on 4 families that cash flowed even when I occupied one unit using and FHA loan with only 3.5% as a down payment. I liked the numbers on them, which is what got me excited. The other offer with my sister was a fixer upper that would’ve been flipped in 2 years to avoid the capital gains tax. The tax credit was just a bit of icing on the cake for those scenarios.

I’m glad you have the perspective you do. If people steadily invested in real estate they could have the ability to retire in 20-30 years quite easily. My parents didn’t start until they were 30 and are “semi-retired” in their early 50’s, which is still young in today’s terms.

Thank you for sharing your thoughts.

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6 TheMoneyMan-Leo

Couldn’t agree more Ryan.

As Robert Kiyosaki says…a single family home is just about the worst investment a young family can make.

I advise young people all excited about real estate ownership to buy a 2-4 family place to start.

Yeah yeah you don’t want to be a landlord. I then point out that 2-10 other people will be going to work everyday to pay their mortgage. You get to learn all about the upkeep of a home and someone else will be footing the bill. It puts a different perspective on it for them.

Better to be a landlord when you are young…doesn’t have to be forever…than to be working at Wal-Mart in your 70s.

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7 Jesse

Ryan,

Two posts for you, two comments for me – slow and steady progress. I enjoyed this article just as much as the other one – you have an entertaining style. *I was on the floor reading the color picking synopsis.

Hopefully, the readers will even see past the content itself and pick up what you’re throwing down in the last paragraph. You are absolutely spot on.

Some more “fun facts” to add about the credit.
If you purchased your home in 2008, then you’re only getting a really great loan. You’ll owe the money eventually.

What happened between ’08 – ’09? Not only was the credit increased, but you don’t have to pay it back!?!

No worries! we’ll jet on down to the Imagination Inflation Station (better known as the Bureau of Engraving and Printing) and get a few more rolls of $8k bills. In essence, you’re paying for this too.

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8 Curious Cat Investing Blog

I don’t agree. It can be mistake for some but it can be a very good move for others. You do have to understand the potential of deciding to move (perhaps for a job). That should be weighed against the advantages. Like any investment, real estate can be a bad investment but it can also provide a very good return. People that get too excited about recent results make bad choices. Those that thought real estate was not risky learned the mistake in that thinking. But just because we have had a couple bad years for real estate does not mean it is now a bad investment.

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9 Ryan @ Planting Dollars

Hey Curious Cat,
I’m not sure if you read the whole article, but I never said real estate was a bad investment. I only said it wasn’t right for college grads who have passions and dreams that require them to move outside the city they would be buying real estate in. That said, real estate is still a great investment… if someone is ready for it and okay with staying in the same location for the next 5 years at least..

Your comments seem to mirror the article, so I’m curious what you don’t agree about?

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