The other day I sat in a meeting ... to a young man extol the virtues of owning real estate. Much of what he said was true. However 2 things made me sit up and take notice and I couldn
The other day I sat in a meeting listening to a young man extol the virtues of owning real estate. Much of what he said was true. However 2 things made me sit up and take notice and I couldn't help but comment.
First, he said the interest on his home loan was tax deductible, so the government was underwriting his house payment. I asked how much the government was giving him. He said they were not giving him anything but allowed the interest on his home loan to be deducted from his taxable income.
Assuring him I didn't want to be nosey, I asked what that deduction meant to him. 28% of the interest paid he saved on taxes was the reply. "So, you get to keep 28 cents for every dollar in interest you pay?" Eagerly he responded, "YES."
He didn't see the problem with the math, so I decided to help him out. I took some change from my pocket and placed 28 cents on the table. I asked him if he would give me a dollar for the coins. Before he could answer I sweetened the pot. I put a total of 56 cents on the table. I said, "I'll give you double what Uncle Sam gives you. I'll give you 56 cents for every dollar you have or can scrape together." He didn't seem too excited about my idea as he understood the demonstration. "Pay off the mortgage." I told him.
But he wasn't through. he was looking to redeem himself. He mentioned that at least the property was going up in value. I asked him his age, he told me 30. I asked him how well he remembered the early 1980's. He didn't.
I told him real estate doesn't go up in a straight line, and on occasion it goes down. I told him I bought a home in the spring of 1980. Almost immediately the real estate market went flat. 5 years later my wife and I were certain if we wanted to sell our house we would OWE money to the bank at closing. It was 10 years before the market started to move up again.
Just recently it hit another bump in the road. In my area prices have dipped 3% in the past year. With easy money and low down payments, many new buyers are finding themselves upside down in their mortgages. Many people, who have taken a home equity loan up to or even exceeding the value of the property, find themselves in the same boat.
Did he understand the moral? Yes, he did. Borrow as little as possible, pay it off as quickly as you can.
The goal is living debt free... unless you want to give me a dollar for my 56 cents.
David Wilding http://www.debtattack.com Take Care Of Your Debt Before It Takes Care Of You
Mr. Wilding has, for the past ten years, been trying to help people rid their lives of debt. Through changing their attitudes towards, and their acceptance of, debt in their lives, he has help many to reach the goal : living debt free. Visit his website http://www.debtattack.com.