Many people detest their monthly bills. Monthly payments include the car, electric/heat, cable, phone, mobile phone, insurance, wireless, VISA, department store cards, mortgage and on and on. In the full scheme of things, you should not fear your monthly debt so long as you are "mortgage heavy"; as long as you can afford it all.
Take your car as an example of the opposite effect. Aside from image, the car payment is not an investment. It is a cost. It is the vessel that gets you from point A to point B that depreciates without fail. The problem for many of us is that many times, our car is our identity, which does matter in a lot of cases. I happen to think it matters in my profession.
On the other hand, your mortgage is a great tool for generating wealth. In theory, your mortgage is the best savings account you can have. For most of us, we don't manage ourselves well enough to put the proper amount into a traditional savings account. This is the value of the mortgage. Every single month, you must... MUST pay that payment. At the same time, while you are "paying in," your house (in theory) should be appreciating. What I am saying is that you will get your payment back + appreciation. The key to this is that you either need to buy "right," or stay in the home for a while. After all, you have to live somewhere.
The same goes for investment property. Let's say you collect 20 $100,000 homes over 10 years, and put them on a 15 year mortgage. After your renters pay (almost) all of the payments for you over the 15 years, you now own $2,000,000.00 in brick,mortar and dirt BEFORE APPRECICATION!
Now, to be sure, this is quick math. Not all property is going to be a perfect investment, but the great majority will if you have a good Realtor.
Investments aside, your mortgage is the greatest payment of them all. It MAKES you pay. If you don't feel comfy, sell. If you can handle it, pay it. You will be rewarded over time. Again, you have to live somewhere.
11 comments:
Do you know any good realtors that can help find investment property ?
Good post. Concur that your house is your savings account, as long as your savings account isn't on 5 year interest only loan, which all your savings today, would be lost due to rising rates, but all in all it's the largest investment any of us will make and it pays to have equity in it, as it has proven to be a powerful asset when borrowing money for a new business or other homes.
anonymous,
I am your REALTOR, what are you looking for?
forge ahead,
You are smart. Recognize that I often say "in theory." Most of the time, you must either "buy right," or stay in your dwelling for a while for this to work correctly. Again, if you have a good Realtor, he/she will lead you down the right path such that you can reep some serious benefits later.
Let me add this, regarding return on investment, or "ROI". If you want the big fish, you have to fish with the big bait.
Additionally, you have to live somewhere...so why not make your dwelling your biggest savings account?
there seems to be alot of "shop worn"
property available but it is pricey
with zip value in it.
investors would still buy but everyone still wants fixed up prices for their dogs.
who do you recommend for investment type mortgage loans?
anonymous,
No kidding. There are a ton of "wholesale" houses out there that are trying to get full "retail" prices. Many people think that they should be able to get what their neighbor got 2 years ago. This creates a glut in the market.
I will sell a great house for $165/ft one year, then the 5 door neighbor down the street will want the same thing the next year. The problem is the new listing will have shag carpet throughout, or something.
If a house is "wholesale," dont be afraid to make an offer. Many times a seller will force a Realtor to put it on the market at a certain price. The seller says to the Realtor, "let's just see what happens. Just get an offer."
You are right though. This month, the MLS book is about as thick as the Cola phone book.
anonymous,
I can put you in touch with dozens of lenders. I have many, many friends in the business.
Do you want me to list some names? It may be long.
If you get a chance, email me at fjones@cbunited.com and I'll try to fit you with the right person.
Thanks!
I have received a few comments about the picture above. Some of my buddies are wondering if I took a picture of the $100's on my desk. Not so. The money fan in the picture was taken from www.photobucket.com.
Thanks to everyone for worrying about my safety!
If you buy and finance even one $100,000 investment home loan with 6% property taxes and insurance you
are going to be kicking in each month over what your rental income is. You must be saying that if you a $200,000 with $100,000 down you can rent it for enough to cover the $100,000, 15 year mortgage. We're talking having to get over a $1,000 a month rent on a $100,000 house in
a $100,000 house neighborhood?
You might get 5-7% appreciation which you can almost match in a good MMA.
People who own rental property outright are cash flowing. The rest of the investors are kicking in monthly or selling out when they get tired of kicking in.
anonymous,
You are correct. You may lose a little every month, especially on a 15 year mortgage. However, the reward at the end of the term should be enormous.
Not many people have $100,000 down on a $200,000 house, but there are many who can lose $100 - $200 per month, that accept the bigger goal in the end.
Investors have a very hard time "cash flowing" homes in downtown Columbia, but they scoop the houses anyway. They lose every month knowing there is a cash cow later on. It is hard to make a property cash flow if you buy now in downtown Columbia.
4%-6% appreciation per year is correct considering the entire midlands market. However, if you find a good house at a good price downtown, you should reap larger rewards. This may not work out every year, but if the you can hang on, it can be great.
Say you open an account with $10,000, throw in $100/month for 15 years at a 5% interest rate. At the end of the term, you have roughly $47,000. This is fantastic, but many of my downtown clients seem to be reaping this sum in half of the time. Furthermore, in real estate, you can accelerate your equity/return at any time via the right improvments.
Most all savings methods are good. Folks just have to find what's right for them. Real estate is just more attractive to many because they can touch and feel the bricks they own.
Are you into renting or flipping?
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