When you're in winter's favorite town, the snow-covered mountains surround you, a historic Main Street charms you, and every day brings a new adventure. Welcome to Park City, Utah, naturally winter's favorite town. Join the experience at visitparkcity.com. Welcome to Radical Personal Finance, a show dedicated to providing you with the knowledge, skills, insight, and encouragement you need to live a rich and meaningful life now, while building a plan for financial freedom in 10 years or less.

My name is Joshua Sheets, I'm your host, and today on the podcast, we continue our series of financial goals that everyone should set. This is a series dedicated to shortish, simple podcasts devoted to one single foundational concept of a goal that everyone should set. These are as close to universally applicable goals as I can come up with.

And the idea behind this series is that by giving you clear and specific goals, you are more likely to accomplish a financial abundance by someone simply telling you here's a goal you should set, and here's why. So let's have a quick recap, 'cause it's been a little while since we have visited this series.

Goal number one was get a job. All else being equal, if you wanna make progress financially, you begin by getting a job. Goal two is when you get that job, set a goal to live on half your income. Spend no more than half your income. Save half, spend half.

Just from the beginning, 50% of your income. If you're not able to do that in the immediate here and now, work towards that. Goal number three was give away 10% of your income. We talked a lot about the enormous benefit of consistently giving money away. So goal three, give away 10% of your income.

Do it consistently, reliably from the very beginning. Goal four, begin a job or career that has the potential to help you to become, in the fullness of time, a top 20% income earner. Basically, if you're working at a dead-end job, then set a goal to start a job that could lead to your earning top 20% wages for your context.

You wanna have a growth path in front of you. So you can switch from your dead-end job to a job that has a long-term potential. And that way, over the next decade or the next two decades, however long it takes you, you will know that you have the ability to grow and to become a top 20% earner, which in the fullness of time, will solve virtually all of your financial problems.

Goal number five, get as much of the highest quality education that you possibly can as soon as you can. Education, more education, is always a good idea. And so you should get as much of it, of the best quality education, as quickly as you can, as early in your life as you can.

Goal number six, fully fund a Roth IRA. We talked about the power of a Roth IRA. That was the first of these discussions that is US-specific. So for my international listeners, you will have some version of that in your area, and we'll come back to other kinds of retirement accounts later in the series.

Goal seven, I encourage you to own a dwelling place, free and clear. And I use that weird word, dwelling place, to include a house, but I specifically talked about the value of just having some place that is safe. And that safe place, for some people, might be a car that you could live in, or a tent that you could set up.

For some people, it might be a small cabin somewhere. And for most of us, it will be a house that you own, a place that you own consistently. But I wanted to make it clear that if you don't yet have the ability to own a house, you should at least have some kind of dwelling place that you can live in, or that you could retreat to if your current rented space doesn't work out for you.

Goal eight, I talked about being debt-free for life. And I said that if you avoid borrowing money, everything works better in life. And so we talked extensively about becoming debt-free for life. Today, we're gonna give goal nine, and probably this is gonna be 9A, but I'm just gonna characterize it as goal nine, which is buy a house.

Now, everything I said in goal seven of dwelling place still applies, but here specifically today, I'm going to talk about the value of your simply buying a house. And to define my terms, what I mean is that you are the owner of a residence. I think that for most people, the goal should be to buy a house, a separate single family house of some kind.

That's the type of real estate structure that has the longest potential and the best long-term potential for most people in most areas. There will certainly be many contexts in which that's not really doable. And so if you need, given your context, to hear the term house as buy a condominium to live in, buy an apartment that you can live in, or something else, that's fine.

But I don't want you to just buy a box truck and live in that. I think it's nice to have a box truck that you could live in. And for somebody who's living in an apartment, having a box truck stuck away somewhere that you could live in is probably a really useful backup plan.

And it could be really fun in terms of being part of your life. It could even be a fun thing, meaning what I mean is you go and travel with it, and maybe that provides you with a comfortable place that you can work on the road. It can be a fun adventure to do something like that for a couple of years, to live in an RV, or to live on a boat.

But in the fullness of time, you're most likely going to want to buy a house. I've been doing this for a little while, and one of the things I've noticed is that for people who make the idea of just a dwelling place, and they're open to any idea, they make that their goal and they stop there, things change over time.

As much as I myself think it's cool to live on a narrow boat, or to live on a sailboat, or again, live in an RV, or do some kind of unique alternative lifestyle, I think that's cool, but it's not a great long-term plan for the vast majority of people.

Most people long-term are going to be best provided for by owning a house, a traditional house that's connected to the earth in some way. So use those other strategies as a great backup plan. Use it as a great launching plan. In the previous episode, I talked about a firefighter who was living in his back of his pickup truck.

He did that for a couple of years, saved probably a couple hundred thousand dollars, then used it to go on and move on to the next step. So use those things strategically. But you should have a goal to buy a house. Whenever I think of universally applicable advice, I always argue both sides or all sides of the issue.

And so the first thing I think of is simply, when is it not a good idea to buy a house? Generally speaking, there are very few scenarios that I can create, hypothetically, in which it's not a good idea to buy a house. If I were going to create such a scenario, it would include many of the obvious factors that you intuitively know.

For example, you might be broke. Well, if you're broke, you probably shouldn't buy a house, but that's why we've already talked about these other goals and why I positioned this at goal nine, not at goal one. So if you're broke, you don't have any money saved, you don't have a job, you don't have any income, then this advice is out.

It should be a goal for you to do after you've accomplished that. If I were going to create a scenario in which it were a bad idea to buy a house, I would have to inject a huge amount of uncertainty because buying a house for a very short-term period is usually not a great idea.

So if you know that there's a good chance that I'm going to move across the country three months from now to take a new and exciting job, you wouldn't buy a house. If you knew there's a good chance I'm going to get divorced in six months, you wouldn't buy a house.

If you have any sense of clear impending uncertainty, then you wouldn't buy a house. The third set of hypothetical situations that I could design in which it might be a bad idea to buy a house are actually the hardest for me, meaning I have to acknowledge and concede that these things could be true while simultaneously saying they're probably not true for you, and that is market conditions.

There can clearly be some kind of market condition where it would be a bad idea to buy a house. If housing prices are very, very high and there's some reason why those housing prices are going to fall catastrophically, then you would say it's a bad idea to buy a house.

And for my generation, this is basically the defining characteristic because many people in my generation bought their houses for the first time somewhere around the Great Recession, the great real estate crash of the 21st century, at least the first one so far. And many people went out, bought houses they couldn't afford, note the first hypothetical I said, and wound up losing those houses because the house has plummeted in value.

Now, interestingly now, we have enough distance from that event, from those events, to see that on the whole, if you could just keep the house, things would have worked out. And this is why we come back to it being, in essence, a universally good idea for you to buy a house.

If overall you have general stability in your life and your plans, where you live, what you're doing, what job you're doing, and if overall you can afford to buy a house, you should move forward and simply buy a house. Statistically speaking, if it winds up being a financial mistake, it's most likely going to be a modest financial mistake.

A modest financial mistake would be the kind of thing where you buy a house, you have all the fees to get it, you put some money into getting it livable, and then a year later, you turn around and move. That might cost you some money, and you may have been better off renting, but on the whole, that would have been a modest mistake.

In virtually all other scenarios, though, you're going to be better off having purchased the house, lived in the house, and in the long run, you're going to be really well off by that one simple decision. Now, astute, very long-time listeners of "Radical Personal Finance" should be pointing out at this very moment that this is different from the tone and attitude and advice that I gave in the early history of "Radical Personal Finance." This is one of those significant things that I've changed my perspective on in time.

Early in the podcast history, I recorded podcasts about why purchasing a house very well might not be a good idea, and I talked about things like flexibility. When people own a house, they might be less likely to be willing to move across country to take a better job. I talked about the costs of a house.

In some cases, living in a rented house can be significantly better than a purchased house because of all of the straight-up costs of purchasing a house. I went into the calculations of purchasing a house, and I showed how, if you factor in the pure costs of a house, things like insurance and property taxes and even interest payment on debt, in many circumstances, those pure costs are similar to the cost of renting.

And while that analysis wasn't entirely wrong, what I wound up doing by going down that pathway of advice was underestimating the long-term value of owning a house, and that's why I have changed this and corrected this. One of the books that I really appreciated that helped me in this process was a book written by John Reed called "An American Principal Residence "Is the Most Advantaged Investment on Earth.

"Maximize Yours." And I want to share with you a few of Mr. Reed's comments from this book in the context of purchasing a house to live in from a financial perspective, to say nothing of the lifestyle benefits. Let's begin with a little bit of Mr. Reed's story. He writes, "When I was a cadet at West Point "from 1964 to 1968, I changed my mind "about making a career of the Army.

"I also wanted to get started studying "whatever civilian career I was going to choose "while I was still at West Point and in the Army. "When my senior year at West Point started, "no civilian career had captured my fancy. "So I decided I needed to force a choice. "I knew I wanted to get rich young, "financially independent, I called it.

"So I researched how to go about that "in the West Point library." Admittedly, a far cry from what the Army had in mind when they decided cadets needed a library. "One article ended up being my main influence. "In 1967, I believe, Time Magazine did a cover story "about young millionaires.

"One was the guy who started Airstream Trailers. "Another was a Manhattan sandwich shop "with a line around the block during weekday lunches. "At the end of the article, "a summation paragraph said the way to do this "was to have your own business or to invest in real estate." Couple of comments here.

I think that this is something that many people, many young, aggressive young men often do. As they say, I wanna get rich. So what's the most direct pathway to getting rich? This is something that I myself did. I had many friends who did it. And as Mr. Reed talks about, you often wind up in the areas in which information and inspiration are most easily sold.

You wind up taking a real estate investment seminar, a stock trading seminar, an options or futures trading seminar, or business seminar of some kind. And this, by the way, I find very frustrating because while those could be pathways, I think generally they're pathways for people who don't have other good options.

And so we really should give more attention to good career planning because you can become wealthy in the fullness of time through almost any career. And in many cases, much more easily than pursuing one of these sensationalized careers. Back to the story. Army officers cannot have their own business.

Upon graduation from West Point, you become a second lieutenant in the army. When I graduated, you had to be an active duty officer for five years. So my plan was to study real estate investment in my spare time as a cadet and as an officer. Then get out of the army on the fifth anniversary of my graduation, June 5th, 1973.

I also planned to buy my first real estate investment, a duplex, which I did on April 15, 1969, while I was a second lieutenant in the army. I never lived in it. It was 16 Harvard Avenue in the town where my mom lived, Collingswood, New Jersey. And she received the rent and occasionally called someone to get something fixed while I was in Vietnam.

One thing you'll notice from the story, by the way, is that most things in life favor those who take action. And in general, people who own real estate, things work out. And so you'll always see that as a consistent pathway. The key is to be the kind of person who goes ahead and takes action.

When I'm counseling somebody who's thinking about buying a piece of real estate or buying a rental or not buying, I usually advise, buy it, try it. Because in general, it's simple and understandable. It's hard to mess it up entirely. And you'll learn a lot from the actual process of doing it, lessons that can't be gained in any other way.

Fixers, the basic plan I was following was to buy income, rental properties in need of fix up, fix them, raise the rents and thereby the property value, then trade up to another more expensive income property and repeat. An income property is an apartment building or a smaller rental property like a duplex or triplex.

William Nickerson wrote several books on that. And I was following his formula. If you're interested in that, I recommend my own book, "Fixers" to you. Nice, but I wanted to be big time. Just owning a duplex made me feel special, but I was anxious to move up to apartment buildings.

Then I would be commercial, a big shot, a mogul, not a mere duplex owner. Joe Schmo owns a duplex. I wanted to be big time. This book is about only owning a principal residence throughout your whole life. It is a manifestation of my concluding from hard experience that the only property I needed to buy or should have bought was a series of principal residences.

I did buy and live in a series of homes. 1972, a home in New Jersey. 1973, another home in New Jersey. I'm going to skip all the addresses. 1974, a home in New Jersey. 1980, a house in California. 1983, a home in California. My wife and I designed Bryan Drive, the final house that he purchased, and had it built as a brand new home, raised our three sons there, and we still live in it.

But I also owned a duplex in Collingswood, New Jersey, another in Haddon Heights, New Jersey, a 12-unit apartment building in Mount Holly, New Jersey, a 37-unit apartment building, the Greenbrier in Corsicana, Texas, the 25-unit Cottonwoods Apartments in DeSoto, Texas, the 33-unit Las Brisas apartment in Fort Worth, Texas. So we can see from Reed's accounting of his history of property ownership that he did it.

He accomplished the dream of owning dozens and dozens of doors. He hit the big time. Tenants and employees are too often a pain in the neck. We got sued. We had to fire bad employees and try to replace them with good ones. The main problem was the savings and loan debacle in Texas in the 1980s.

To make a long story short, we lost $750,000 in apartment buildings in Texas. And I checked and learned that if, instead of the apartment buildings I owned there, I had owned single-family homes across the street from my apartment buildings, I would have lost little or no money. That is when I decided my wanting to be a big shot, mogul, commercial, apartment building-owning guy was the biggest financial mistake of my life.

Classmate and I bought at the same time, but different results. More recently, a college classmate and I each bought separate, unrelated homes in the San Francisco area for about the same price in the same month in 1983. My wife and I bought Bryan Drive, the brand new house I described above in Alamo, a suburb of San Francisco.

My classmate and his wife bought an old house in one of San Francisco's more prestigious neighborhoods, St. Francis Wood. Another long story short, when they sold theirs for over 4 million in the mid-20 teens, ours was worth about $1.8 million. Why the difference? Partly, they did more fix-up on their old house than we did on our new one.

Mainly, the Silicon Valley economic boom affected the city of San Francisco more than our East Bay suburb. I was happy for them. I preferred our new house in the nice weather, uncongested East Bay hills to the cold, blustery old neighborhood they lived in. They sort of felt the same way, and that was why they sold it.

They relocated to La Jolla, a gorgeous oceanfront neighborhood in San Diego. But think about the numbers. They made more on that one house than I made and lost on my apartment buildings. Hell, so did I with my less spectacular gain in one suburban house. Plus, I had no tenants and no employees and no lawsuits with my principal residents.

Now, pay careful attention to this next section. I should have only bought principal residences. The light bulb went on. I should have bought nothing but single-family, owner-occupied principal residences. My principal residences cost $32,000, $30,000, $36,000, $122,000, and $356,000, if I recall correctly. But during that time, I also bought 68 rental units.

If I had put all those down payments and negative cash flow into my personal residences, I could have bought something like double or triple on the last three houses, call it 2 1/2 times bigger. That would have been $90,000, $305,000, and the $890,000 purchase in 1983 in Greater Silicon Valley would today be worth something like $10 million.

Suppose I had pursued that strategy my whole adult life knowing what I know now. I can't do that now because I am 74 years old. But with my help in the form of this book, you can. And maybe my three sons can, too. Also, the list of advantages of an owner-occupied single-family principal residence is extremely long and beats not only apartment buildings, but also stocks, bonds, commodities, and almost all other investments.

The only reason to invest in other types of assets is to diversify against the risks of principal residences. They do have some risks, and there is a chapter about those risks in this book. Now, I'll give you the list of advantages in just a minute, but I want you to pay attention to that.

Reed made his business first by investing in real estate after he got out of the army. Then he became a real estate guru, publishing books on real estate and maintaining an active real estate newsletter. And here at the end of his career, at 70 years old, he discovers that all he had to do was buy a house and live in it, and then systematically upgrade that house over time.

And that's basically the essence of his book. When I read that book, combined with other influences, I realized I cannot short circuit these benefits. And that's when I became a much more consistent advisor to say you should purchase a house and live in it. Now, one more paragraph here, and then the list of benefits.

Main asset for most older Americans. For most Americans in their 60s, their net worth is composed mainly of their principal residence, equity. A website called newretirement.com says in 2020, the average American 65 to 74 years old had $51,948 in savings and $153,300 in home equity, amounting to 72% of their net worth.

Only about 36% of retirees have an IRA. Those have an average balance of $123,973, although those held over 20 years have an average balance of $283,200. The average 401(k) for people in their 60s has $182,100. Why is home equity the largest asset most seniors have? Three main reasons. One, mortgage amortization is forced savings.

Two, appreciation. Three, leverage. Each time you make a mortgage payment on a 30-year fixed-rate self-amortizing mortgage, you pay down the balance of the mortgage loan. That is like savings, but no one makes you put money into savings. Your mortgage lender most certainly does make you pay the mortgage payment.

That's good for you, like exercise and watching your weight, although you should also keep your home equity percentage of the current value of the home as low as is still safe at all times because appreciation is generally far larger than amortization. By the way, you can set up automatic deposits into your savings account by various means, and you should.

So the key fact that we need to wrestle with is if you look at the actual finances of Americans in the back part of their life, you find that their home equity is generally the single most valuable asset for them. Now, when I was younger, I found this very hard to believe because I was obsessed with stocks and retirement accounts and all the many benefits of that.

I dramatically underappreciated the value of a forced savings system, of making mortgage payments, and of stability, of just living in a place and letting assets grow. I was intoxicated with the idea of high returns. Today, with a few more years under my belt, a few hundred more financial consultations, and I realize the enormous importance of owning a house that you live in, and I believe that it's entirely appropriate for you to count that house as part of your financial savings.

Now, Reed continues and talks about why home equity is the biggest asset for most seniors and talks about all kinds of the benefits, and he lays out the basic strategy that he wants you to focus on. This book urges you to maximize your principal residence value and to minimize your equity percentage safely throughout your adult life.

But there are three ways to do that, and I only want you to use the first. The three ways are one, location; two, size; three, finish and amenities. Some of the houses that cost a million dollars cost that much because they're in a great location, even though they have a normal size lot, say a third of an acre and normal finish.

I want you to stick to normal size houses, 1,500 to 3,500 square feet, and normal size lots, fifth of an acre to one acre. Finish refers to extravagant fixtures like gold faucets or extravagant amenities like an indoor basketball court or pool or multiple kitchens or a restaurant-type kitchen. In other words, I want you to buy more and more expensive houses, but I want that increased value to be in the location, not the size of the building or the lot, and not in terms of lavish, extravagant fixtures or amenities.

For example, in my area, San Francisco, your final $10 million or so house would probably be in Palo Alto, where many Silicon Valley billionaires live, or a view property on San Francisco Bay, like in Tiburon or Belvedere. And it would be a 2,500 or 3,000-square-foot house on a half-an-acre lot.

It goes on, talks about the benefits of a house. You can live in it, store things in it, work in it. You don't have to sell it to use it. Gives all kinds of ideas on active profit strategies. And then the rest of the book-- that's just from the initial chapter of overview-- the rest of the book is dedicated towards all kinds of detail and advice on how to do it.

The benefits of homes over other assets, leverage, use value, active profit strategy, price variations, life phases, transaction costs, risks, working at home, school district, climate, property taxes, energy, insurance, telecommunications, parking, living off your land, durability, pool, and a conclusion. It's a good book, as are most of his books.

But the basic lesson is buy a house and factor that into your overall planning portfolio. Younger Joshua, in the early days of radical personal finance, said to himself and also in public that we should exclude the value of personal consumption assets from our financial planning framework. So if I have a house that I'm living in, I should think of that as just simply a consumption asset, not as an investment asset.

This is basically an extrapolation of the classic Robert Kiyosaki idea of assets and what they actually-- and liabilities. And while there's usefulness in thinking that way sometimes, it understates how valuable buying a house is in the long term. So to make it simple, I think you should set a goal of owning a home, buying a home.

And if you don't have all the money that you need for it, then I think you should be perfectly fine with taking out a mortgage and financing the property. And you should have a goal of owning a home. This decision should be the default choice for all people who have an income and who have a little bit of money saved and who are at least somewhat consistent in their lifestyle and have at least basic expectations of what the next few years could be.

So let's walk through a life cycle, and let's talk about the applications of this. If you are young and you start working when you're young and you start saving money when you're young, and let's assume that you become an adult and you're thinking about going to college, I think that you should consider very seriously owning a home.

Some colleges may have rules about your living on campus the first year. That's fine. Go live on campus the first year. But after the first year, buy a home near the campus. And then go ahead and get a couple of roommates. Live off campus, own the home, have your roommates pay you a rental payment, and enjoy the benefits of having an asset that you now own instead of purely renting or paying money to the school for the school's real estate.

That's a good strategy. Now, when you finish college, you can sell it or you can keep it. That's always the choice that you have when you're ready to move out of a house. And while you can go both ways, you don't have to generally choose in the short term.

So you finished up college, great. Keep the apartment. Keep the house. Keep it rented out to college students. Have a management company or do it yourself from afar. It's not that hard to do. Let's say that you're moving around getting a job. No problem. If you move to a new city, stay in a long-term Airbnb for three months or six months.

That's fine. But in the meantime, if you're looking around and you have a job and you think, I could be here for at least a few years, go ahead, purchase a home. That's actually a great time to go ahead and list the first house that you bought when you were in college for sale.

After all, you're living in an Airbnb. So you can just simply take that time to go through the selling process and then go ahead and purchase your second house while you're still deciding, is this job going to work out going through the probationary period. If you know that you're only going to be somewhere for a year or 18 months or two years and you're sure that you're only going to be there for a short time, then that's a good reason to rent.

Better to just rent inexpensively or, if necessary, pursue some kind of alternative housing. But if you're going to a place and you're not sure if it's going to be two years or four years, go ahead and buy a house. It'll probably work out. And if it doesn't, you probably won't lose much.

Going on through life, be willing to just simply repeat that process. And each time you sell a house, trade up. Trade up to a house that is in a better location. And make sure that you generally always own a home. If you are renting, it should be a strategic decision for a specific reason.

I'm only here for one year for a contract. I'm specifically looking for a house, but I've just moved to a new area, and I don't know where specifically I want to live yet. It should be a strategic move to rent rather than the default option. The default mindset that you should instill and install into yourself, into your children, and into anyone around you that you want to win with money is that all people should have a goal to purchase and own a home.

Do that process consistently over a lifetime, and there's a pretty decent chance that you will have millions and millions of dollars of real estate equity that will perform a very valuable function for your financial planning in the fullness of time. There's much more that could be said. Comments about the tax deductions, the leveraging ability, the security, the asset protection.

I could make this podcast four hours. I'm choosing to make it 30 minutes in hopes that it will reach more people and allow you to interact with those you love around you. So in conclusion, goal number nine, goal that everyone should set, own a house, a home for yourself and your family.