WHERE DO WE GO FROM HERE?
As the year 2015 slowly picks up steam to make it out of here before being replaced by 2016, it is time to take a quick look back and a long look forward to
see how we can live through the next decades without disaster. I state a quick look back instead of a long look because of two things: the damage that has been done and our inability to do anything about it. The problem we cannot do anything about, or so it seems, is the insane borrowing by the government from investors, other nations and of course my favorite, the social security fund. We have made borrowing a national sport seeing how many projects we can have that need borrowed money and increasing the borrowing each and every year.
The second reason to keep the look back short is that "We the People" cannot do anything about it. We are told time and again that if we don't shape up our social security will be cut by the politicians. We paid it in all our working life and the government "borrowed it, starting with Lyndon Johnson's Presidency and carried on by each and every President since then. Just to point out the ridiculousness of this, the elected officials get a private pension, not Social Security, and a private medical plan, not Medicare or Obama Care. Why?
We are less than one year away from our next national election and all the politicians fall basically in two groups: Spend more and it will all work out or spend less, cut taxes and it will all work out. Both plans will work out but NEITHER will stop the deficit from going up or help pay off the old $18-$!9.
Trillion Dollar Debt.(This number doesn't include the unfounded government
pensions which makes the aforementioned number seem reasonable).
We as a Nation are broke and the blame for it is us. Why us? Because the vast
majority of people, young and old don't believe they can make a difference so they
have surrender to those who are stealing not only their money, but their future.
I find it easy to say everybody in Washington gets the proverbial free lunch and worse than that is we are being charged for the full course free dinner.
Your only choice for a secure future is to pay off your house as quickly as possible. You will not experience financial problems as your residence will be paid for and what ever additional money you make will keep your standard of living steady and you and yours will survive.
The following rules will help you "stay in the game" financially.
1. If you refinance always shorten the amortization so you are
not paying the additional interest you would be charged if you
started over on the same amortization you currently have.
2. Do not pull cash out to pay current debts unless the interest rate
on the current debts are much higher than your home mortgage.
3. If you can refinance to a shorter amortization this will pay off your
mortgage even quicker.
4. Keep in mind you will be eligible for a reverse mortgage at the age
of 62. If your house is free and clear or have a mortgage that is low
enough you might be able to refinance to a reverse mortgage and never
make another mortgage payment until you move or are carried out of
your house for the last time.
5. Make sure you have the right amount of insurance on your house and
yourself so that an unexpected occurrence can ruin your retirement plan.
6. Maintain your house and property as if your life and happiness depends
upon it. It does!
7. Pay attention to politics and politicians and do not be afraid to let them
know what is on your mind.
Set yourself up for the future and you will be better off than 99% of the populus.
Retirement Starts At 25
If you haven't been paying attention let me bring you up to date. The Social Security Fund
is in a bad way at this time as the Baby Boomers who are now retiring are taking more from the
Fund that is coming in. If you are over 55 you may be okay when it is your turn to retire and start drawing your Social Security check. If you are younger than 55 years of age I would start working
on another way to get cash once you have reached 65 years of age. Those 40 and under should realize that your retirement is on you, and if you ever get anything from Social Security I would consider it a bonus.
That is why I am writing this column to explain how you can live your life to its fullest and still
build yourself a retirement package that ignores any income from the Social Security Fund. it can
all be done with real estate. First you must realize your residence is more than a home for the family it is an investment that can pay huge dividends in the future. This requires planning and the use of the right financing to make it all work.
Next comes the simple investments in real estate that have medium and long term consequences. Included in this are two types of investment: a primary residence and a pure investment. The primary residence aspect is simply realizing your house or condominium is more than just a place to live. It is an investment as well and can be short term or long term and with the right financing it should be profitable. The right financing is the shortest amortization you can afford, as it will yield the most profit.
A real estate investment can also be making the real estate part home and part investment. This comes about by buying a duplex, triplex or fourplex. You would live in one unit and the other unit(s) would be an investment. The right financing vehicle has extra importance on this type of situation. You should be able to take a much shorter amortization because you have the extra help in paying the mortgage with the rental income you collect.
The simple investment is purchasing a house, units or a condominium for rental purposes.. The property does not have to be expensive; it should be, however, as much an investment you can buy with a loan that is amortized over 15 years. Once the 15 years passes you will enjoy a major increase in your investment income which you can keep, or sell the property and receive capital gain tax advantages. If you keep the project you should begin again buying another property, as soon as your are ready financially. If you decide to sell you should seek a more expensive project as long as you use a 15 year loan. The idea behind this is to increase your assets and your income at the same time with an eye toward retirement on your terms.
There are other ways to use real estate to help your retirement in the distant future. You can
buy a second home, which should be in a nice recreational area, as a beach, lake, ski lodge, golf course, horse riding facilities or the mountains. The reason behind the various recreational facilities
is to have the opportunity to get vacation rentals for your unit. You can make a lot of money on vacation rentals which helps you pay down a shorter amortizing mortgage, which in the long run will get you a very nice capital gain on the sale of the property. Regardless of the vacation rental second homes also go up in value which fits nicely into our plan.
I am ending this report at this time because there are sophisticated maneuvers that can
come into play with options, buying and flipping and trading. I will write a column on the more
unusual ways to make money in real estate in the near future. For now concentrate on what I have outlined today.
Not Everyone Wants to Build Equity in Their House
The title of this piece suggests that a certain percentage of home buyers aren't interested in building equity, which means they are buying houses for the tax write off from the interest paid and the property taxes. They are doing it for several reasons: they have a net worth from investments that exceeds the loan they have and can use these investments to pay off the loan.
A second reason is they are buying a house to remodel or fix up to be sold at the end of the work. Having an interest only loan is one of the lowest payments you can have which keeps the cost low while they are doing the work to prepare for the sale.
A third reason is that interest only loans have lower payments than fully amortizing loans and the borrower can get a more expensive house by going interest only
If the borrower is 62 years of age or older he can take a reverse mortgage if his current equity position and age give him enough of a credit that he can either pay off the current mortgage and take the reverse, Should the borrower have a house free and clear or a small loan it is possible to pull out cash on the reverse mortgage. In both cases there will not be a mortgage payment until those on title have passed on or in a medical facility and will not return to the house. In the reverse mortgage case the borrower is exchanging equity for no payments for life on the property except property taxes and insurance.
Those are the major reasons for lack of interest in building equity. There are some pit falls that you must be aware of when exercising this type of loan. The interest only loan is generally an arm, with a 30 year term and either a 3,5,7,or 10 year fixed period. After that period the loan becomes a variable, fixed for one year at a
time based on the index being used and the current interest rate on the index chosen. The amortization at the time the fixed period runs out will be 27,25,23 or 20 years, all of which will bring a higher payment. Most arms lose the interest only feature when they become a variable. If the payment on the variable is too high you
then need to sell the place or refinance.
Before you think of going interest only please read the above, digest it and realize
that it isn't necessarily the best loan for every borrower.
Three Ways With a House
Rent, fix and flip or make it your retirement but you need to make up your mind. Each of the above is a strategy that can work for you if you plan your work and then work your plan. Let's take a quick look at each while I demonstrate why, how and when. After digesting the ideas it is your turn to make it happen.
Renting is as much a plan as fix and flip or the retirement plan but you must have a idea of why you are renting, how long you will rent and what you will be doing throughout the rental period. Renting is generally the least expensive way to have housing for you alone or for you and your family. The lower expense can help you accumulate a down payment or building fund when you purchase a home. Renting also can give you an idea of what type of house, how many rooms and an idea of what type of floor plan works best.
Set a time limit and get to saving or investing the money!
Fix and flip is for those who want to find something in a good growing neighborhood that is under valued and buy something that you can fix up and sell hopefully for a profit. You must be careful of the neighborhood and be quite sure it is getting better, not worse with both the houses and the people. You should take an ARM, at the lowest interest rate you can get because you will need your money for the remodel. Today you can get a 5/1 arm in the high 2% range to the low 3% range. To save on the income tax on your profit you need to be there 2 years and make it your owner occupied house.
The last plan is the retirement one even if you are in your 20's or 30's. You want to do that because paying a home mortgage has limited advantages, deducting the interest on your mortgage and deducting your property tax bill. The big advantages comes when you use this house as an owner occupied for a minimum of two years and are married. The 1st $500,000 in profit is tax free for married; $250,000 if single. With a 15 year mortgage you will have
paid the house off in 15 years; half in a little over 8 years. During that time your house can easily increase by some significant number, which when sold, would give you a nice tax free amount of cash. Do it several times and you may just have a $1,000,000 in your bank account.
Any plan can work for you if you understand it and are willing to work
it. I know that to be true, because it has worked for me!