Bob O'Brien
Head Instructor
bobrien@mywealth.com
There has been a lot of talk in the media recently in regards to the housing bubble and financial crisis. The American “dream” of home ownership has become a total “nightmare” for some with foreclosures and sinking home values at all time highs. One of the things that has led to this mess is that people never asked the question “Should I Buy a Home? It was a no-brainer prior to the housing bubble. In fact, most people believed firmly that they should “do whatever they had to do” in order to get yourself into a home of their own.
This led to many unscrupulous practices such as people falsifying income and assets figures on loan applications in order to get approved for loans. Lenders practically encouraged lying on mortgage applications and real estate agents were exceeding their boundaries with financial and tax advice to prospective buyers in order to make their commissions.
In our financial planning course, we cover numerous misconceptions about home ownership. Here are a few of them:
1. Home ownership is a great investment. Home ownership definitely has great advantages over a long period of time, but it is not always a great investment. Let’s say you buy a house for $300k with a 6% rate on your mortgage. In addition you have expenses for property taxes, maintenance, and repairs etc. runs $10,000 a year with a 3% inflation rate and the home appreciates 6% per year. Your return on the investment after 30 years would be about 54%. Let’s say you contributed $15,000 a year to a 401k with a rate 8% a year for 30 years. The return on your investment would be 277%. We can help you with investing your 401k!
2. Buy the biggest, most expensive house you can possibly afford. People believe this is a good strategy because they will have greater appreciation. You have to make certain you are accounting for greater expenses that go along with this strategy i.e. interest, property tax, utilities, maintenance and repairs are all higher as well. In our financial planning course, we discuss a commonly used and easy to calculate formula to help you determine how much you can afford to spend on a house based on your income.
3. Renting is a waste of money. People that did an analysis a couple of years ago and decided they could not afford a home and therefore continued to rent are getting the last laugh. Sometimes it makes perfect sense to rent and if you do not plan on being in a home for at least five years you should avoid buying. In our course, we show you a formula that helps you to better answer the renting vs. buying debate.
4. Home ownership is a great tax deduction. Even though mortgage interest and property taxes are deductible, this certainly should not be the only reason to buy a home. Many people forgo contributions to a 401k, IRA, and Roth IRA which in most cases is a better tax-saver and greater wealth-builder over time. We can help you with investing your 401k, and IRAs!
SO WHAT DOES THIS ALL MEAN?
A lot of people just jumped right into this real estate market during the real estate boom and never looked before they leaped. Many of them never gathered all the facts, and stopped to ask themselves some of the vital questions we should all ask before making such a large investment. Many couldn’t even afford a house and should have continued renting. It’s no longer a question of “when you should buy a house” but “if you should buy a house”
SO WHAT SHOULD YOU DO NOW?
I hope my points make sense to you, and I understand that this kind of information can be a little confusing. This is why we created online courses to teach people how to plan ahead for such things like buying a home, and investing in a 401k / IRA. The course is only $25 and I’ll be on hand to answer as many questions as you have about all the areas of your finances. I invite you to visit our website www.mywealth.com and to learn more.
I look forward to teaching you in an upcoming course!
Bob O’Brien
Senior Instructor
bobrien@mywealth.com
