If you had a pile of money…

Here's an interesting note from Bob Call, the managing broker at Coldwell Banker Bain in University Place:

I had a friend ask me the other day, “If you had a pile of money to invest and you weren’t going to invest into real estate, what would you invest in?”


I pondered ever so briefly then with a little research replied, “Let’s see, in 1973 when I started my career, the Dow Jones Industrial Average climbed to a high of 1051.7, the value of gold was $112.50 per ounce and the average home in Pierce County sold for $24,788. Today the Dow is at 8073.82 (668% change), Gold is over $900 per ounce (700% change) and the average price of a home in Pierce County is $258,775 (944% change)... And you don’t want to consider Real Estate? Clearly during this time period real estate has been the hands down winner; and real estate certainly has not been as volatile as the Dow Jones, which has lost over 25% of its value 6 times in this time period! Additionally, these numbers don’t account for the fact that you can live in “it”, rent “it”, and mortgage “it”! The next time you buy a stock or gold, try living in “it”; or, ask someone to rent “it” to help you pay for “it”; or, try getting a mortgage for the gold you buy… I don’t think so!

This mortgaging of real estate which we all take for granted is actually an investment strategy called leveraging, which is available to homeowner and investor alike. Over time, leveraging will typically enhance your return by 5, 6 even 10 times over a typical cash purchase as shown above. And that doesn’t even include the benefits of living in your investment, renting it, or best of all, having Uncle Sam help you pay for it with tax write-offs and incentives. The returns available to the average citizen clearly demonstrate: real estate is your best investment!

Indeed, I think it is easy to show that over time, real estate has added more personal wealth to more individuals than has any other commodity.

To add to your personal wealth, contact me today!

Pay off your mortgage IF . . .

Our friend Helen Rogers thought you might be interested in this good advice from Scott Burns, a syndicated columnist with the Seattle Times:


*Q:* Our youngest child graduated from college last year. Since then we have been able to save a bit more money. By June we will have 42 months left on our mortgage with 6.8 percent interest. The payoff is projected at about $40,000. Should we pay off the mortgage at that time, or ride out the remaining few years?

*A:* You didn't say where you lived or what your real-estate taxes are, but there is a good chance that you will receive no tax benefits from your mortgage-interest payments because all of your deductions may be less than the standard deduction.
This year (2009), the standard deduction is $11,400 for a couple and $5,700 for a single-person household. Until your itemized deductions exceed the standard deduction, you won't save any taxes.

Many couples start running out of itemized deductions right at your life stage — when the last kid is out of the nest. So here is your task. Add up your itemized deductions. If the total is less than $11,400, paying off your mortgage is a slam-dunk investment. You'll save the mortgage interest.

In effect, you'll earn 6.8 percent. You'll also eliminate the monthly mortgage payment, which will make it easy to increase your tax-deductible 401(k) contributions. And you won't have to pay income taxes on the piddling amount of interest you'll earn on the $40,000.

Real estate myths

I believe that an educated market benefits everyone. I had a conversation this week with an acquaintance who was clueless about the real estate profession. I have him in mind as I start this new feature. You might have heard (or even believe) these myths--they're often perpetuated at the neighborhood summer get-togethers.

I hope you find this information useful. Please feel free to comment!

Myth #1 'The bank owns most of my house'

"I hear that statement a lot, and it makes no sense," says Chris Mayer, a real-estate professor at the University of Pennsylvania's Wharton School. "Suppose you buy a house for $250,000 and you put $50,000 down. You might think that you own 20% and the bank owns 80%. But if the house's value goes down $50,000, you lose $50,000 and the bank loses nothing."

Fortunately, the leverage that comes with a big mortgage usually works to enrich homeowners. Consider that $250,000 house bought with $50,000 down. If the home's value climbs just 20%, to $300,000, the value of your equity would double to $100,000.

Still, because of the debt involved, purchasing a house is a risky proposition. To get a better handle on the investment bets you are making, it can be helpful to consider your house separately from your mortgage. If your home's current value is $250,000, that is your real-estate exposure.

Meanwhile, think of your mortgage as a bond, suggests William Reichenstein, an investments professor at Baylor University in Waco, Texas. But in this case, instead of buying bonds and receiving interest, you are effectively selling a bond and paying interest.

What are the implications? Suppose you are retired with, say, $300,000 in bonds and $200,000 in stocks. You might think your portfolio is conservatively positioned.

But if you still have $125,000 outstanding on your mortgage, you would need interest from roughly $125,000 of your bonds to pay your mortgage interest. The bottom line: Your net bond position is really just $175,000, and thus your portfolio has more in stocks than bonds.

Thanks to Jonathan Clements of The Wall Street Journal

Should you pay off your mortgage?

Time is on your side ...(and why getting the biggest mortgage possible may be the best choice)

-Renowned investment guru Roland Manarin lays bare the truth about your mortgage

While discussion about why homeowners should reconsider trying to payoff their mortgage as quickly as possible is not necessarily new, investment and finance guru Roland Manarin, President of nationally-renowned Manarin Investment Counsel, Ltd. and Lifetime Achievement Fund, promotes and explains this message like no other. In fact, his advice goes so far as to sometimes recommend keeping the largest mortgage possible.

He breaks his advice down into what people should do in good economic times and bad.


In good economic times:

"The crazy thing is, most people are thrilled to pay off their home ahead of schedule - doubling up payments, making lump sum payments; when in fact, they're hurting themselves financially," says Manarin. "In reality, by paying off the house they eliminate a good tax write-off throwing themselves into higher tax brackets."

His explanation is simple:

You buy a home for $100,000, and are shocked to realize that by the time you'll pay off the house you'll be paying a total of $239,000. Because real estate inevitably increases in value, by the time the home is paid off in 30 years, it will likely be worth $239,000.

If you pay the loan over 30 years, $139,000 of that was a tax write-off, which you saved on federal and state income taxes.

Rather than putting the 'extra' money you used to pay your mortgage off faster, putting it into conservative, diversified investments which over the long-term have averaged 10% returns, provides you with a 'win-win' scenario.

In bad economic times:

"Most people want to pay off their mortgage because they feel they will be safe if bad economic times hit and they won't have a mortgage payment to worry about," notes Manarin. "Savvy people know that if bad times are coming, they want the biggest mortgage they can get."

The explanation:

A depression hits and a house with a purchase price of $131,000 house could now be worth $10,000. A person has paid their mortgage off early and now lost $121,000.
Someone with a large mortgage could have diversified the difference and owned assets that could have appreciated such as gold and gold-mining shares.

Many people would lose their house in a depression because they would not be able to pay their taxes. With the money I have saved by not paying off my mortgage and diversifying part of it into depression hedges, I can now buy other pieces of real estate for taxes owed.

"People believe their home is a financial asset, but it isn't an investment," adds Manarin. "Investment assets make money for you, but a house is actually a liability because you have to pay taxes, insurance, upkeep, etc. The only way that I can turn my house into an asset is to take the money out of the house with a loan and own something that pays me more money than what the taxes, insurance and upkeep cost."

"For people who've paid their houses off, I ask them if they could borrow at 4% to earn 10% would they do it? If they answer yes, I tell them to borrow 80% of the market value of the house, take the money out, and own a diversified portfolio of good companies with a 5-10 year minimum time horizon."

"It's actually a fairly simple principle called OPM "Other People's Money" and one I have used 14 times over the last 28 years: You have to learn how to make money work for you. Having money is one thing, making it work for you is the key."

Roland Manarin is president of Manarin Investment Counsel, Ltd. and Lifetime Achievement fund. He has hosted his own radio show since 1986, and is a nationally recognized expert on a variety of financial and investment issues, and routinely presents free lectures on investment subjects. In 2004 he was named as one of America's top wealth advisors by Barron's Magazine.

http://www.blogger.com/www.manarin.com
http://www.blogger.com/www.LifetimeAchievementFund.com

Contact: Sandy Diaz
856-489-8654, ext. 117
http://www.blogger.com/dan@smithpublicity.com