Real Estate

Deflation – How a Mortgage Can Destroy Your Real Estate Wealth

real estate deflation

“Thus inflation is unjust and deflation is inexpedient. Of the two perhaps deflation is, if we rule out exaggerated inflations such as that of Germany, the worse; because it is worse, in an impoverished world, to provoke unemployment than to disappoint the rentier. But it is necessary that we should weigh one evil against the other. It is easier to agree that both are evils to be shunned.”   – John Maynard Keynes

This is the 3rd in a series of 4 posts about investing in real estate. The last post, Inflation – The Secret To Building Wealth in Real Estate, is about how inflation is essential to building wealth via your real estate investments. While most people subconsciously understand that real estate has all of the features listed in that post, they may not be sure why real estate has those features. The key is inflation.

This week I will be discussing the other side of the coin, and what happens when there isn’t inflation to make your real estate the wealth building tool that it has been for over 50 years.

This week I will be discussing deflation and how it would affect your real estate investments. Many notable economists have made deflation the economic boogieman. They have claimed that it is the worst possible outcome in an economy. When you hear someone talking about deflation, it is highly likely that Japan will also be mentioned in the same sentence.

Deflation is rare in the global economies of today. This is primarily because central banks around the world have engaged in a campaign to create a consistent inflationary environment for their own economies. This has worked for a few decades without hyper-inflation or persistent deflation in developed economies. Except for Japan.

Japan is one notable example of deflation which has taken hold in an economy and created a deflationary spiral. This is the essence of what economists fear. While this may sound scary, it isn’t, or doesn’t have to be. This week I will be discussing how deflation affects real estate, and why you should understand this if you want to protect your wealth.

Read More…

The Real Estate Investor’s Guide: Using a Self Directed IRA to Buy Real Estate

Using a self directed IRA to buy real estate

 

“Every nickel I make gets put back into real estate.”

This is what an investor told me my first week of working on Wall Street. At the time I didn’t understand it, but this quote epitomizes the mind of the typical real estate investor. All they know is real estate, all they trust is real estate, and they are not remotely interested in any other type of investment.

I get it. Real estate is a very attractive asset class. I discussed some of the reasons for this here, These Top 7 Powerful Tools Can Create Legacy Wealth from Real Estate, and Inflation – The Secret to Building Wealth in Real Estate. Real Estate is unique in a number of ways. One of which is the ability to use massive amounts of leverage. When leverage is paired with inflation, you have a powerful combination.

As great of an asset class as real estate is, many real estate investors still come up frustrated.

While real estate investors may choose to invest every nickel they have into real estate, they are reluctantly forced to invest their retirement accounts into stocks, bonds, and mutual funds. Some investors are so turned off by non-real estate investments, they choose to not contribute to their IRAs or 401ks at all. This is mainly due to the “inadequacies” (in their mind) of the other available investments.

If they only knew the truth…

So rather than saving for their retirement in a tax-deferred or tax-free account, and potentially getting the significant tax deductions, they choose to ignore the retirement account option completely. Until now…

Read More…

What is the True Cost of Owning a Home?

 

Cost of owning a home

 

In the prior post of this series, Should You Rent or Buy a Home?, I wrote about the pros and cons of home ownership vs renting. It is important to start here when you are considering whether to rent or buy a home. The decision of where to live should not be solely made on emotional attachment or financial considerations. It should be made up of both if you are planning on living in a home for many years. You want to love where you live.

This week’s post will be focused more on the financial considerations of renting vs buying a home. More specifically, what is the true cost of owning a home. If you have never correctly run these numbers before, the data may surprise you.

This week I will give you an example of what the true costs of owning a home are. In next week’s post, What You Don’t Know About Renting vs. Buying a Home Can Cost You Money, I will compare some real life examples of costs of renting vs buying a home.

I hope I am able to forever change how you look at buying the home you want to live in.

Read More…

What You Don’t Know About Renting vs Buying a Home Can Cost You Money

 

renting vs buying a home

“If you rent a home, it is an expense. When you buy a home, it is an expense. If you buy a home and rent it out to a third party, it becomes an investment. A better way to put it is that when you are renting, you rent from a landlord. When you buy a home to live in, you are renting from yourself.”

This is the third and last post of this series. The first post, Should You Rent or Buy a Home?, examined what factors you should consider when renting vs buying a home. The second post, What is the True Cost of Owning a Home? , examined the true cost of owning a home. In this final post I will be examining whether it makes sense to rent or buy a home. Numbers don’t lie, so lets look at some real numbers.

There are many calculators available online to help you figure out whether to rent or own. Unfortunately very few include the true costs of owning a home in their calculations. If you read the prior post, you will have some understanding of what was left out and how to calculate it. The math in post this will be relatively straight forward and a bit more fun.

I will be showing you some examples of real properties that I have found in the past year to illustrate this secret that very few people know. Whether you are a real estate investor or looking to buy a home to live in, you will want to know this secret.

“you are paying someone else’s mortgage, so why don’t you pay your own?”

There is a myth out there that when you rent, “you are paying someone else’s mortgage, so why don’t you pay your own?” This is a farce. It doesn’t matter whose mortgage you are paying, what matters is your costs to live in that home.  No matter where you live, your cost to live in that home is an expense. If you rent, you pay rent to a land lord. If you own, you pay a mortgage, taxes, insurance, maintenance, etc. There are costs for both options. Unless you live in a tent you will be paying for a home either way.

The reason many people think that owning is better than renting is that they equate owing a home as an investment rather than an expense. Once they make the realization that it is…

Read More…

Should You Rent or Buy a Home?

American dream rent or buy a home

“But there has been also the American dream, that dream of a land in which life should be better and richer and fuller for every man, with opportunity for each according to ability or achievement. It is a difficult dream for the European upper classes to interpret adequately, and too many of us ourselves have grown weary and mistrustful of it. It is not a dream of motor cars and high wages merely, but a dream of social order in which each man and each woman shall be able to attain to the fullest stature of which they are innately capable, and be recognized by others for what they are, regardless of the fortuitous circumstances of birth or position.”

James Truslow Adams

Is the American Dream Really an Illusion?

There is a great illusion when it comes to real estate. This illusion is that owning your home is an investment.

When you own real estate and use it to generate monthly income… it is an investment.

When you buy real estate and develop it to sell for a profit… it is an investment.

When you buy real estate to live in… It not an investment. It is a personal expense.

Where did this idea come from that every American should own their home?

I heard that Fannie Mae came up with the “American Dream” idea as part of a marketing campaign that everyone should own their own home. Great idea on their part, but I have not been able to confirm that they were the ones to initiate this idea.

Should I Rent or Buy a Home?

Most people believe that owning a home should be considered an investment. Some go as far to become “house poor” so that they can leverage themselves into a bigger home. What they don’t know is…

Read More…

10 self directed IRA tips to help real estate investors maximize profits

 

self directed ira tips
 

“Self Directed IRAs are one of the best laws the US government has ever passed”

Can I invest in real estate with my Self-Directed IRA?

“Self Directed IRAs are one of the best laws the US government has ever passed”, an investor once told me. It is hard to argue that point. In 1974, congress passed the Employee Retirement Income Security Act, often referred to as ERISA, enabling US taxpayers to save money for their retirement in a tax deferred manner. The best part of this program (outside of the tax deferred nature of it) is that they allow you to self-direct your savings.

ERISA established the individual retirement account (IRA) as a staple in many investors toolbox for retirement savings. The IRA allows investors to invest in virtually any investment. While most investors think that they are restricted to stocks, bonds, and mutual funds, the choices are much more interesting. Some ideas that I have seen include: real estate, tax liens, private mortgages, dressage horses, farmland, sports franchises, timberland, physical gold and silver, raw land, private company stock, oil & gas LPs, franchises, and more. With all of these choices and more, you should have already come up with some ideas that could make for interesting investments.

Real estate and real estate related investments is definitely the most common asset type when it comes to self directed IRAs. Whether you are a professional investor or a novice, you probably have at least a basic understanding of how real estate works. Here are 10 self directed IRA tips for investors who want to invest in real estate with the IRA.

Read More…

Scroll to Top