The Wall Street Journal Complete Homeowner’s Guidebook Book Review

Boom! I’m releasing two book reviews in one month (actually one week since another was posted earlier this week) because there has been such a generous and incredible response on these posts.

If you haven’t yet, check out my other book reviews as I dive into the beneficial results tied with book as opposed to simply restate the good/great/terrible info found in the book. Each post takes me a good 6-8 hours as I recall where my head was at during my first read and often, during the multiple readings I’ve had since then.

Anyone can search for a summary on Google, but it helps to combine experience with the knowledge in the book to see what the potential outcome can and really ought to be.

With that out of the way, let’s dive into:

The Wall Street Journal Complete Home Owner’s Guidebook Book Review

The Basics

Despite growing up with both parents being real estate brokers, I still learned a lot of the basics when it comes to real estate buying, selling and overall investing in real estate.

Here’s what you need to know: nothing is truly that complicated, but there might be a lot of legal paperwork or housing situations that take some extra time to piece through. Don’t be discouraged with the process and be sure to ask questions if something is unclear.

Ready to Buy?

The book does a great job of focusing on the question of being ready to buy. The first chapter on “how to buy” doesn’t actually start until page 113!

Prior to that it covers the essentials such as debt and the big question, “Why in the world do you want a house?”

This question is difficult when we try to understand the numbers and the cost of owning vs. renting, which leads into my next beneficial outcome from having read this book.

TRUE Cost of Homeownership

Thanks to the book, I am now aware of the true cost of buying, maintaining, and selling a property.

Many mistake the TRUE cost to be the listing price or the final price at closing, or even worse, they factor in the maintenance costs, insurance, taxes, and the total cost of the interest over the life of the loan and expect to only pay this amount.

These are all good approaches, but the best approach is layering on top the additional funds needed to move in, minor/major renovations, sales commissions, and close out costs.

When someone says they sold their home for $600,000 and bought it for $300,000 ten years ago it might sound like a 100% return and a $300,000 profit.

But, over this span of time the lucky fella was likely to have paid nearly $150,000 in interest (yes, there is a marginal tax benefit here in the US, but I will leave this out for now). So, we can say the interest payment before tax benefits is $150,000.

For simplicity, we will use similar numbers from a great book example where insurance is $10,000 over ten years, minor/major renovations are $50,000 and property taxes are another $50,000.

Lastly, layer in 8% for moving out and closing costs for an additional $45,000.

For an extra bonus we’ll layer in the new move-in costs of 3% to complete the full cycle and go from living in a home to living in a new home.

The total profit on the sale of the house went from $300,000 to a $14,000 LOSS.*

Here’s a visual of these numbers:

The Wall Street Journal Complete Home Owner’s Guidebook Book Review 2

Identifying the true costs is a freakishly clarifying experience!

Lifestyle Adjustments

The book tackles the costs so well that it really puts into perspective the question, “how will buying this specific home impact my lifestyle?”

To implement a beneficial policy after this book I now deeply analyze the differential and specifically, how it will impact our lives. “Upgrading” our lifestyle to a 2Bed/2Bath might backfire and yield tremendous stress as more of our spend is directed to the home and away from other areas. What was once a dream house can quickly turn into a nightmare.

I also want to emphasize the word “lives,” in “how will the new place impact our lives?” because the short term hit to our lifestyle is different from the impact on our lives in the long term. Buying a short term rental that damages our lifestyle may improve our lives if its a financially superior move in the long run.

On the flip side, buying a huge 2 bedroom non-rental today would vastly improve our current lifestyle at the expense of damaging our future financials and, therefore, future lifestyles.

To prevent this mistake, we focus on keeping costs in perspective. Our current rent is $1,700 a month so any new housing cost is instantly measured up against this benchmark. We know we were lucky and fortunate to have negotiated successfully for our current price — so we could theoretically expect our new lifestyle cost to rise to anywhere from $1850 to $1950.

Next Level Homebuying

The analysis in the paragraph above is described as Analogy vs. the Elon-Musk-Made-Famous approach of Principles First. What I mean is, it helps to take a step back and ask how much house should we afford?

These were the specific questions we ran through:

  • Is $1,700 waaaaay too high an amount to spend each month on housing in Chicago?
  • Should we downgrade and find something closer to $1,000, or less?
  • Is house hacking the best option and we make our monthly payment be a cash inflow instead of an outflow?
  • Should we upgrade and pay more?

We gained clarity after running through these types of questions in our housing search.

1% Changes and Losing Focus

The book made a great point to avoid focusing on the small adjustments and instead focus on the major items. Negotiating the overall closing price or closing fees were considered bigger items and I completely agree.

The book goes on to say there are smaller items not necessarily worth sparring over, such as drapes or a specific piece of furniture.

One extra note here: it seems completely natural to be wrapped up in the tangible things we can see. Phrased another way, it is much easier to ask the seller to keep the drapes than to ask for $10,000 off the closing price.

The moment the seller tells ya those drapes…were TAKEN!!!

Small items aside, the focus of buying a house should be the big items.

The big takeaways in our current process is that we can better appreciate the magnitude of what we’re about to do.

It helps to dive into the numbers and see what the lifestyle adjustment might be, but it also helps to step back and ask if this house can be a home!

Any great takeaways from The Wall Street Journal Complete Home Owner’s Guidebook that directly led to a beneficial impact on your finances?

-Matt

*Needless to say you can argue the $24,000 loss is really a $24,000 payment to live in a great place and being able to renovate it over ten years. This post focuses solely on costs so we can all gain a better clarity on it.

4 comments… add one
  • Mrs. Picky Pincher Jun 8, 2017, 8:13 am

    All great points! It does suck though, because there’s a lot of scary-ness to buying a home already. This would have made me even more afraid to own a home. We were financially prepared for it, but mentally we definitely weren’t.

    • Distilled Dollar Jun 10, 2017, 11:05 am

      Well said, definetly a lot of “scary-ness” hah. I found the whole process to be, A) relatively easy in many respects but also, B) much more difficult in many regards (especially on the relationships/emotions side of it).

      The one benefit I saw with seeing it all on paper – the good and the ugly – is that it can remove some of the mental clutter over “what-if” scenarios. As I mention in the post, clarity brought us a great deal of relief. 🙂

  • Lance @ My Strategic Dollar Jun 18, 2017, 8:20 pm

    Great review! There are a ton of costs associated with homeownership the real estate market doesn’t want you to know about. However, owning a primary home is still better over the long run than renting. Additionally, rental properties is certainly one of the best ways to grow your net worth!

  • Counting Quarters Jun 19, 2017, 9:35 pm

    People need to watch out for all the websites that estimate what your payment will be. So often they are drastically off because they do not take into consideration utilities, repairs, tax increases.

    We were lucky to have had the opportunity to rent our home before we ended up buying it so we knew most of the costs, although the tax increase was definitely disappointing.

Leave a Comment