Real Estate Finances

To The Owner, It’s More About the Home

There’s nothing worse than media articles that continually pound the idea that your finances are in shambles. YOUR finances. I’m not certain what the analysts in the stock market are attempting to convey during these strangely unique economic times other than:

You’re going to lose your job soon.
Your interest rates are going to increase.
You should not by a house.
The world as we know it is gone forever.

ENOUGH ALREADY!

An article posted today at Marketwatch.com states that…

The purchase of a house is the ultimate confidence indicator, and if there’s anyone out there with any confidence these days after what the markets and the financial sector have been through, then you’re talking about the true eternal optimist.

Are you that optimist? Are you someone who wants to “indicate confidence?” We in the real estate business know the value of home ownership. We understand that when you buy a home, you put part of your payment into the value of the house, and part of it goes to the bank. When you rent, which is what many people who are sitting on the fence are doing, all of your payment goes to the owner of the home, and none of it is invested. Furthermore, none of your payment will help you reduce your tax liability at the end of the year. And historically over time, your home will increase in value.

Are you interested in giving yourself a raise? Then buy a house.

the housing market looks like a sunken soufflé

What a way to make a soufflé unappetizing. But we’re not talking about food are we. We’re talking about the concept of buying low and selling high, and the only thing that sunken represents to me is a low point, which is when I would buy. What about falling prices? When buyers hold out, sellers drop their price. That’s just basic supply and demand.

But why, ultimately, are you thinking about buying a home? Is it purely financial? I would hope not. This “sunken soufflé” could give you a perfect opportunity to finally secure a home. Not a house, not an investment for quick profit, but a home. Somewhere you can relax and entertain. Somewhere you can raise your children over the next 10 years. What you need is a place to call home.

If you look at the market in this light, it makes perfect sense to buy a home. Real estate is and always has been a long term wealth building investment vehicle, but more than that, it’s your little piece of America that you can rest upon every night when you come home from a long day at work.

Leveraging Your Money to Get Rich Part I

Can you get rich by borrowing money? Can you avoid risk by getting rich by borrowing money? Is it possible to buy a house without borrowing money?

The answers are Yes, No, Yes. But we have a more fundamental issue at hand aside from all that we hold dear to our hearts in this capitalistic world. The issue is that we’re greedy and we’re impatient. Realize that investing is a long term process. It requires patience and persistence. We’re not talking about wasting away our retirement in two seconds at the craps table. We’re talking about creating long term wealth for you and your family and their children and their children.

Can you get rich by borrowing money?

You bet you can. You can get stinking filthy rich. How? By using a little bit of money to push around a large amount of money.

Let’s say you had $20,000.00 to your name. That’s it, $20,000.00, no more, no less, and you wanted to purchase a home priced at $200,000.00. Do you have $200,000.00? No way, but you were patient and persistent enough about your spending to save 10% of that. Should you be rewarded for this type of behavior? Probably not. It’s just savings. Good for you. So how do you acquire an asset worth 10 times as much as you have in the bank? And, why would you want to do that?

Well, that’s easy. Firstly, you find someone who is willing to cough up the difference of $180,000.00, you pay them a premium for it over time, and voila, you have your $200,000.00 house. By the time you’re done paying for it, assuming you buy now, you will have paid $400,000.00 for your $200,000.00 home. Well, that’s sounds stupid. Why would I do that? Here’s your answer:

When you use a small amount of money to leverage a large amount of money, you have the potential to realize gains calculated on the larger amount rather than the smaller amount. So by the time you’ve paid off your loan in 30 years, it is likely that your home will be worth far more than the $400,000.00 that you paid for it. Let’s say that after 30 years your home is worth $620,000.00. You paid $400K for it, so your $20,000 grew in 30 years to $220,000.00. Not bad.

Stay tuned for the next in this 3 part series…