Move up home buyers

If you already own a home and are considering buying a new home this page is for YOU.

A large majority of move up home buyers “invest” their current home’s equity into their new home at purchase. They typically do this for 3 reasons--

Reason #1—My home’s equity makes me money

Imagine with me for a moment if your Financial Advisor or any Financial Advisor were to call you excitedly about this offer:

I just learned about a great new investment opportunity that will provide you with a Guaranteed Rate of Return of 0%, that I think you should buy!

Would you buy this investment?

Of course, not!

But, every year millions of Americans buy this investment unknowingly when they sell their current home and buy a new home! How so?

They do so, by “investing” the equity from the sale of their current home into the new home they buy. For example, you sell your $300,000 home on which you owe $180,000 and after your closing costs you net $100,000 from the sale of your home. You then, buy a $400,000 home and you put the $100,000 down on your new home.

Have you done this before? If so, you have purchased the investment with a guaranteed rate of return of 0%! This $100,000 investment will never make you any money trapped in your home.

Many people mistakenly believe that their home’s equity makes them money. However, your equity makes you no money if it is still in your home. In fact, it is no better than money under the mattress!

Let me explain. Your home goes up or down in value regardless of how much you owe on your home. The amount of your mortgage has nothing to do with the value of your home. Your home changes in value because of the home, neighborhood, and market conditions; not your equity. Yes, your equity grows as your home goes up in value; but not because of your equity making you money. Your home goes up in value because of your home, neighborhood, and market forces.
Your home’s equity makes you no money if it is trapped in your home.

Now, what would happen if you invested this $100,000 of potentially tax free money into the stock market? Let’s look at 3 examples over 10, 20 and 30 years—

(The average annual total return for the S&P 500 is 11.9% since 1950. My calculations do not account for taxes paid or investment expenses. Please consult your financial advisor for assistance. Your rate of returns may vary.)

Would you like to have an extra Million Dollars or more at retirement? If so, please consider avoiding the 0% investment.

Maybe, you are not comfortable investing all $100,000 into the stock market. Why not consider $50,000 or some other number that you are comfortable with?

For Reason #2, please click here

Reason #2—Peace of mind

Who truly has peace of mind?
Besides not knowing any better many people “invest” their home’s equity into their next home, because it provides them with peace of mind. Now, we will explore who truly has peace of mind.

Let’s assume both you and the Smiths are buying a $400,000 home. You choose to put the $100,000 down and the Smiths choose to put no money down. The Smiths invest their money back into the stock market or elsewhere.

Now, 2 years later both you and the Smiths are out of work. Because you ‘invested” all your equity into this home, you are very worried of how you are going to make your house payments and pay other bills.

The Smiths, your neighbors, are not worried at all. They have over $100,000 in the bank and can live off this money for over a year.

So, who has peace of mind now?

You? Or the Smiths?

The Smiths are the ones with peace of mind when it is truly needed!

You, however are wracked with worry! So, you call your bank and try to get a home equity loan. YOU ARE DECLINED because you are out of work and have no income.

Then, you remember the First Rule of Lending—
“To get the loan you must first prove
you don’t need the loan.”

Now, you start calling mortgage companies about a new first mortgage. If you have not waited too long you might be able to get a No Doc Loan. But, to refinance and obtain $50,000 in cash is going to cost you BIG TIME!

That, No Doc Loan carries a 1% higher interest rate plus you must pay closing costs of $15,000! OUCH!!!

So, who truly has peace of mind?
You? Or the Smiths?

I will also tell you who else has peace of mind--
YOUR BANK OR MORTGAGE COMPANY!

They know if they have to foreclose on you that they will get their money back (the amount owed by you) because you put $100,000 down. PLUS, they will get some of your money back as well!

For Reason #3, please click here

Reason #3--A smaller monthly payment

A third reason cited by many move up home buyers to “invest” their equity into their new home is they want a smaller monthly payment. But, let me explain how the numbers work.

At an interest rate of 6% on a traditional 30 year fixed rate mortgage each $10,000 “invested” into your new home saves you only $60 a month!
Each $100,000 “invested” saves you $600 a month!

Now, personally, I would rather have an extra $100,000 in the bank or investment account and have a larger mortgage payment by $600.
How about you?

Now, scroll back up this page and you will find out that $100,000 invested for 30 years at just an 8% annual return will grow to over $1 MILLION!!!

And this $100,000 in extra mortgage costs you only $115,838 in interest!

Would you pay $115,000 to make a $1,000,000 or more?

I hope, your answer is Yes!

To learn about the power of 2nd thoughts, please click here

Why not keep each home as a rental?

How many times have you had this thought? “WOW! I wish we still owned our first home, our second home, etc.” Maybe, 20 years ago you bought your first home for $80,000 and you wonder how much it is worth now? Probably, at least $450,000. And, 12 years ago you bought your second home for $120,000 which is now worth $350,000. If you owned each of these homes you would probably be in a much better financial position.
AGREED?

Ah! The power of second thoughts!

Most Americans choose to sell their current home and purchase the 0% investment instead. OUCH! We have covered 3 reasons why people do this earlier.

Now, why don’t people keep their homes as a rental or investment property? The top 2 reasons I hear are RISK AND PAIN IN THE BUTT.

Risk
Many people perceive real estate investing as risky. But, the numbers tell the truth. The worst year in Denver real estate history was 1988 and the foreclosure rate was nearly 3 times higher than the rate from 2006. And that year the average single family home declined in price by

A) 5%
B) 12%
C) 2%
D) 20%

The correct answer is C; 2.16% to be exact!

SURPRISED?

The stock market’s worst DAY was October 19, 1987. The Dow dropped 22% in one day!!!

So, is the stock market riskier or real estate? I think the numbers make the answer clear. Also, browse my real estate investing pages for more information on why real estate is less risky.

Pain In The Butt

Most Americans believe that being a real estate investor or landlord is a pain in the butt. I have learned other-wise from both personal experience and from the experience of my clients.

A few years ago I asked one of my clients who has owned 8 to 10 properties for over 30 years this question—“How many emergency calls in the middle of the night have you received that you had to act on?”
His answer: Only 2!!!

For us, the biggest “pain” has been picking up our rent check every month and depositing it in our bank. Ooh! That’s hard work!

The ABC’s of Real Estate Investing
I teach this basic “how-to” class occasionally for consumers and real estate agents. This class is designed to help you see why you want to own investment properties; but also how to manage them and how to build a profitable real estate portfolio for yourself.

If you would like more information on this class please call me or e-mail me. Also, I will keep updating my website with more information for you on this topic.