Real Estate
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Perhaps the single most important decision and action you can take in
your entire life to help you take control of your personal finances is to
invest in real estate!
Real estate is basically property that is immobile, usually land or house
and land. Investment in land or house and land always generates returns
that set you on a path to wealth and real success. This contrasts with what
we refer to as your virtual estate comprising all other assets you may have.
your entire life to help you take control of your personal finances is to
invest in real estate!
Real estate is basically property that is immobile, usually land or house
and land. Investment in land or house and land always generates returns
that set you on a path to wealth and real success. This contrasts with what
we refer to as your virtual estate comprising all other assets you may have.
What is real estate?
Why invest in real estate?
Real estate investment is the best investment you can make. But to
understand the reasoning behind this let us consider the following
scenario.
Let us suppose you have the option of renting a property for say $1,500
per month and taking out a mortgage for say $2,000 per month. Which
would be your choice?
Well, many people incorrectly would choose to pay rent of $1,500 per
month instead of taking a mortgage for a host of reasons. We discuss
some of these reasons on our mortgage myths page. But consider this.
After five years the renter would have expended $90,000 but would own
nothing! All he or she would have gotten would be a place to stay which
does not belong to them. As such, they would have not built any equity or
ownership in the property.
However, the person who took our a mortgage for $2,000 per month
would have expended $120,000 and would have built equity or ownership
in the property. As such the property would have become his or her own to
some extent, depending on how much was deposited and how much is
still outstanding. So, let us suppose the property was worth $300,000
when the mortgage was started and between payments and initial
deposit they had paid $150,000 after five years, then that person would
have become a fifty percent (50%) owner of the property.
But it gets even better than this! Let us suppose a net annual appreciation
rate of the property of 5%. By this we mean after taking into account
money spent for repairs and maintenance the property value increases by
5%. Then after five years the property would be worth approximately
$382,884. With an outstanding balance of $150,000 on the mortgage the
equity holding of the owner would be sixty one percent (61%)!
understand the reasoning behind this let us consider the following
scenario.
Let us suppose you have the option of renting a property for say $1,500
per month and taking out a mortgage for say $2,000 per month. Which
would be your choice?
Well, many people incorrectly would choose to pay rent of $1,500 per
month instead of taking a mortgage for a host of reasons. We discuss
some of these reasons on our mortgage myths page. But consider this.
After five years the renter would have expended $90,000 but would own
nothing! All he or she would have gotten would be a place to stay which
does not belong to them. As such, they would have not built any equity or
ownership in the property.
However, the person who took our a mortgage for $2,000 per month
would have expended $120,000 and would have built equity or ownership
in the property. As such the property would have become his or her own to
some extent, depending on how much was deposited and how much is
still outstanding. So, let us suppose the property was worth $300,000
when the mortgage was started and between payments and initial
deposit they had paid $150,000 after five years, then that person would
have become a fifty percent (50%) owner of the property.
But it gets even better than this! Let us suppose a net annual appreciation
rate of the property of 5%. By this we mean after taking into account
money spent for repairs and maintenance the property value increases by
5%. Then after five years the property would be worth approximately
$382,884. With an outstanding balance of $150,000 on the mortgage the
equity holding of the owner would be sixty one percent (61%)!
So, with the example above we see that renters remain poor while
owners grow rich! Renters do not build equity or ownership in the
property they are occupying, so as a result after many years of payments
they end up worse off than before.
If you presently rent a property we encourage you to seriously consider
owning your home as a matter of high priority. Owning your home is of
course a big decision so you need to carefully review all the issues and
facts before making a decision. Our mortgage page contains lots of
useful information in preparation for your decision to take a mortgage.
owners grow rich! Renters do not build equity or ownership in the
property they are occupying, so as a result after many years of payments
they end up worse off than before.
If you presently rent a property we encourage you to seriously consider
owning your home as a matter of high priority. Owning your home is of
course a big decision so you need to carefully review all the issues and
facts before making a decision. Our mortgage page contains lots of
useful information in preparation for your decision to take a mortgage.
Renters versus owners of real estate?
Repaying your mortgage
A final point on real estate is the repayment of a mortgage. Most people
fear ownership of real estate because it normally implies a mortgage
over a lengthy period of time. So psychologically the fear the burden of
having to pay for their own place of dwelling most of their life.
But this is really a myth. The fact is that as long as you are a skilled
individual there will be a demand for your labor and so you will be
employed. And, once you are employed you will be able to make your
monthly mortgage payments. So, it's a question of how you think. If you
think positively then you simply have to convince yourself that you can and
will be able to pay your mortgage.
Like our discussion on credit cards we indicated that if you keep your
minimum monthly payment as stipulated by the bank, then it can take
upwards of 20 or 30 years to pay off your credit card. However, by making
an increase in your monthly payment you can significantly reduce your
repayment periods and total interest paid.
Well the same principle applies with a mortgage taken for the purchase
of real estate. By increasing your monthly minimum payment you can
effectively reduce the number of years over which the mortgage is paid
and hence the amount of interest that you pay.
So, in negotiating your mortgage with your lender you can first ask them
how much would you have to pay monthly over say 20 years for a
particular sum borrowed. Then increase the monthly payment by a
certain amount (within your means) then ask how many years would be
needed with the increased monthly payments. You can keep doing this a
few times until you reach a comfortable monthly payback amount over a
reasonable number of years. Ideally, target paying off your mortgage in
10 to 15 years or less.
You can do this by a combination of good negotiating for your first
mortgage and mortgage re-financing as your income improves and or
you can receive a better interest rate than when you first contracted your
mortgage.
fear ownership of real estate because it normally implies a mortgage
over a lengthy period of time. So psychologically the fear the burden of
having to pay for their own place of dwelling most of their life.
But this is really a myth. The fact is that as long as you are a skilled
individual there will be a demand for your labor and so you will be
employed. And, once you are employed you will be able to make your
monthly mortgage payments. So, it's a question of how you think. If you
think positively then you simply have to convince yourself that you can and
will be able to pay your mortgage.
Like our discussion on credit cards we indicated that if you keep your
minimum monthly payment as stipulated by the bank, then it can take
upwards of 20 or 30 years to pay off your credit card. However, by making
an increase in your monthly payment you can significantly reduce your
repayment periods and total interest paid.
Well the same principle applies with a mortgage taken for the purchase
of real estate. By increasing your monthly minimum payment you can
effectively reduce the number of years over which the mortgage is paid
and hence the amount of interest that you pay.
So, in negotiating your mortgage with your lender you can first ask them
how much would you have to pay monthly over say 20 years for a
particular sum borrowed. Then increase the monthly payment by a
certain amount (within your means) then ask how many years would be
needed with the increased monthly payments. You can keep doing this a
few times until you reach a comfortable monthly payback amount over a
reasonable number of years. Ideally, target paying off your mortgage in
10 to 15 years or less.
You can do this by a combination of good negotiating for your first
mortgage and mortgage re-financing as your income improves and or
you can receive a better interest rate than when you first contracted your
mortgage.
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