Marriage & Dating Essentials

Homeownership is considered by many to be part of the american dream.  For others, it is viewed as a pinnacle in their quest for success.  Well, I see a home as a tool to create wealth.  Owning a home isn’t for everyone.  There are new obligations and expenses that did not have to be considered when renting.  But for those willing to take on the risk and responsibility, the rewards can be tremendous. 

I will give you the short and sweet of my point.  Equity is the “Holy” word when considering homeownership.  In case you don’t know, equity is the difference between what you owe on the home and its current market value.  If you owe $100,000 and the home is worth $150,00, your equity is $50,000.  The equity gets added to your balance sheet as an asset and increases your net worth.  

Now single people or married couples that don’t have children in school will love this.  Here’s the scenario:

Once you’re properly pre-qualified, you patiently search for the right opportunity.  This is about creating wealth, not growing roots on Elm Street with a white picket fence.  Not right now at least.  Determine how much money you want to earn with each move or purchase.  That determination allows you to know when the right opportunity has appeared.  If your goal is to earn $25,000 per home, then an ideal scenario may be a purchase price of $150,000 with a market value of $200,000.  This means you got a 25% discount and your loan to value (LTV) is only 75%.  That’s a great deal!  

Now you have two options to get your money.  First, you can live there for a couple of years and potentially gain an additional 3-5% a year in equity and then sell the home.  There would be no capital gains tax on your money if you live in a home for two of the previous five years.  Sell the home for $190,000 and you now create a great opportunity for your buyer and put your $25,000 in the bank.  Of course when $150k is subtracted from $190k you don’t get $25k.  That’s because you have fees associated with selling a home.  That will be another discussion.

The second way to get your money is by refinancing the mortgage and taking the cash out of the new loan proceeds.  This approach allows you to sell the home in less than two years and not have to pay capital gains tax.  Why?  Because the money is borrowed, not an investment gain.  The borrowed money is promptly paid back when the home sells.

Imagine being a 20 year old that’s able to buy a home, which is an investment.  If this process is repeated every two years until age 30, you now have at least $125k in the bank.  This does not even include savings from your paycheck or interest that may have accrued over the ten year period.  What an opportunity?  My advice to you would be to not buy a lot of furniture during this process.  Travel light as you move often.

Always remember to buy in growing areas with increasing home values and good schools.  This usually makes a home sell more quickly.  A mortgage should not be just a home loan.  It should be part of your wealth strategy.

When you’re ready to start, I can do your loan.  Invest wisely and create wealth!