Financial Scam of 20th century

Robert Kiyosaki was the first and was the sole financial expert to think that your house is not an asset. As they often do, Kiyosaki statements go against the prevailing financial wisdom.

David Bach, author of Automatic Millionaire, and not just said that your house is an asset, he says that home ownership is the first wrung on the ladder of wealth creation in America. It encourages everyone to buy a house as soon as possible to begin to build their wealth.

CNN Money Millionaire did in the profiles, and I am shocked to see that in almost all cases, 50-75% of the family's wealth profile is locked in their home. Because people should have a place to live is a problem.

Does home ownership or to produce wealth wealth and home ownership of its product by producing rich financial habits?

The Economist, monitoring of real estate over the last decade, concluded that the economy no longer support homeownership.

I bought my first house in 1991. The housing market in the North-East has not recovered. The collapse of savings and credit of the depression of the mid-1980s the prices of homes and condo market has brought to a stop. Multiunit condominium properties were vacant. Many properties have continued to sit vacant because the banks have ratios strict owner occupancy of a condominium. Mortgage money was tight. The first time buyer programs have been put on the market and is a minimum of ten percent. I was raised to believe that a home is an investment. My mortgage broker told me Saturday, "it is preferable that you think of your house as a roof over your head, not as an investment." It's incredible advice. Prices have fallen by 10% after I moved into my house. After 3 years of life in my house and renting it for 2 years, I sold it for what I paid for it. After closing costs and agency fees, I received a check for 447 dollars, significantly less than the $ 14,000 dollars that my family gave me for closing costs and down payment. I always intend to pay them back with the proceeds of the sale. In total the property market was depressed in the North-East for over 10 years.

Even in assessing the market, the house is not a good deal. And a house is not an asset.

Let's face the question of equity as a component of wealth. Say you buy a $ 100,000 house and put money down. This deposit is 20%. In real terms, at the time of closing you have 20% of your home. If you had $ 20,000 dollars in your bank account, you have $ 20,000 in wealth creation. If you move the money into your home as a down payment, you have $ 20,000 in May the creation of wealth as the market remains at least flat. For this example, we will say that it is. You have $ 20,000 wealth stored in your home. Now, what can you do with this?

If you borrow on your home, you erode your equity and your wealth. If you sell your home and your $ 20,000 back, then what? You have to live and live some money. The net value of your home is essentially dead. You can not do anything with it. Sell your house and you reinvest that money into a new house, borrow on your capital and you lose.

In short, the equity in your home, once in your house, stay there. Needless to in real terms. That equity will do something that is very dangerous, however. It will make you feel rich, richer, in fact, that you are and spend money, money that you really do not have.

It might be useful if I feel a strength here. Kiyosaki calls an asset anything that retains or appreciates in value you pay. For Kiyosaki a house does not meet this definition. I define an asset as anything that retains or appreciates the value that I can sell it and dance around my house to launch the sale in the air and have a merry time. Can not do with a house, because, once again, I need a place to live.

Someone might say they want to downsize. Sell their home, get something smaller banks and the remaining profits.

The numbers do not match. One of the chroniclers of the WSJ wrote that he doubted what he had done a lot of money at his home when he was valued at half a million dollars. He had lived in her house for 10 years and paid just under $ 300,000 dollars for it. When he took into account taxes, insurance and maintenance, he understood that it was even. Broke even!

What this means is that he actually spent $ 200,000 on his house by other means, and the sale of the house just return the money to him. Two hundred thousand dollars of equity and wealth when you look past the numbers. So much for the great benefits! So much for the calibration and bank the difference.

Here is an example of what happens when you refinance or draw on equity. For the amount of time I lived in my house, I made $ 82,800 dollars in payments. These payments were mainly the interest, then deduct the tax rate. The top tax rate is the best case, a lower tax rate means you deduct less and pay more. Least $ 27,324 and $ 55,476 obtain. Taxes and insurance paid is $ 20,460. Now the total amount paid is $ 55,476 + $ 20,460 = $ 75,936. Maintenance, landscaping, updates, repairs totaling $ 29,779. Add two, $ 75,936 + $ 29,779 and $ 105,714 to obtain. I refinance the house to take the money and buy my first property investment. Add in the unpaid balance and the total amount due, paid and placed in the home is $ 188, 715.

Critical Concepts: improvements on a house does not necessarily increase the value of this house. Each neighborhood has a trading range. The trading range for a zone is based on the location, size of homes in this area and amenities. Trade houses high-end or low end of a quarter on the basis of these factors. If my house has sold for $ 170, 000, gurus say that I have $ 87,000 dollars of wealth based on the difference between the unpaid balance and the selling price. Because you've seen the numbers, you know better. In fact, I lost $ 18.715 dollars. When I take into account the money I borrowed to buy my first investment property, I broke even. I suppose I sell my house myself. Using a real estate agent to my loss of 6% of the selling price.

How can I call the property the greatest financial scam of the 20th century? I call it a scam when you buy something (a house), he expects to lead to something (wealth) that at the time of purchase can in no way produce that result. I call it a scam when the brokers who sell the house, you know, it will not.

Healthy financial habits lead to wealth but home ownership in itself will not. Home ownership can only lead to poverty as people struggle to make payments and that they are unable to maintain their homes. And they could sell more because the house is worth. Stay and their standard of living is reduced to pay for the house. Sounds like a winning formula for wealth for me.

While 20% of households in this housing bubble has investors who speculate in the markets, 80% of homes have been people who believed that home ownership, not sound financial habits, were the first wrung on the scale of wealth creation. They just believed what the gurus, the realtor, the mortgage broker and banker told them. In a consumer society where everything is reduced to the lowest common denominator, they believed that the house can be purchased for just over a moderate-price flat-screen TV and that the payments were a nuisance. They do not understand that the worst case, payments are actually insurance against downward fluctuations in the housing market. Many people find that the place of the wealth they expected, they have a financial nightmare.

Perhaps the way forward in the 21st century, we will decide that the habits of sound financial management and financial education are the first steps on the path to wealth. Maybe we'll decide that wealth is created through work and due diligence and not relying on the proceeds of the day.