Get Rich Education 163: Home Equity: Why Financially-Free Beats Debt-Free
#163: Home equity is a terrible investment - it is unsafe, illiquid, has zero ROI, makes your foreclosure risk greater, and it can leave your assets exposed to lawsuits.
Some have called today’s material shocking - a revelation. What you thought was black is white. What you thought was dark is light.
Home equity can never go up in value, but might go down value. You must embrace mortgages. I collect mortgages every bit as much as I collect cash-flowing properties.
I practice what I preach and only keep 15% equity in my primary residence, and minimum equity positions in investment properties.
You would be better off burying money in your backyard than using it to pay down your mortgage.
In the 1920s, a common clause in bank loan agreements stated that your loan could be called due at any time. That created fear which still resonates today. But it’s no longer true; banks won’t call your mortgage loan due anytime.
30-year vs. 15-year vs. interest-only mortgage loans are examined.
Homes are not meant to store cash, they’re meant to house families. Holding too much equity in any one property can kill your wealth potential.
If you want wealth, you need to consider dispersing your home equity among many income-producing properties across different geographies.
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Listen to this week’s show and learn:
01:37 Eliminating debt often postpones your financial freedom.
04:05 In the 1920s, a common clause in bank loan agreements stated that your loan could be called due at any time. That’s no longer true.
07:23 Paying off debt prevents you from accumulating assets.
08:48 Liquidity, safety, and rate of return are three reasons for keeping a high mortgage loan balance.
11:35 Why your foreclosure risk is greater if you have a high equity position.
16:33 Natural disasters.
19:56 Getting sued, asset protection.
21:40 The ROI from home equity is always zero.
26:15 Cash-out refinances and 1031 Tax-Deferred Exchanges.
28:12 Be your own banker. Create arbitrage.
29:00 30-year vs. 15-year fixed rate amortizing vs. interest-only loans.
30:42 Another example of home equity providing zero ROI and being unsafe.
33:04 Enjoy collecting mortgages. Equity transfers.
34:37 Those with less financial education want to pay off their properties.
36:55 Outsource lower use tasks.
38:56 Control.
40:04 Mortgage payments vs. housing payments.
42:27 A house is not an asset.
43:58 Act at RidgeLendingGroup.com for loans, GREturnkey.com for properties.
Resources Mentioned:
Here. It. Is. Hey, Welcome to Episode 163 of Get Rich Education - the show that at this point has created more passive income and financial freedom for busy people like you than nearly any other show in the world.
I’m Keith Weinhold.
Your financial forecast is going to be looking sunnier than ever after today. I’ll tell you why.
But you know what, your open mind might very well find the content in today’s show shocking.
Some people have believed the same old antiquated thing for so long, that they figure that the notion that has been believed for so long MUST absolutely be true - merely because it’s been believed for a long time.
Yes, just because you’ve believed something for a long time, doesn’t make it true.
It’s sort of like - I think Yoda even said it - “You must unlearn what you have learned”. A lot of times you need to unlearn the old before you’ve made room for new ideas.
Eliminating your debt can actually postpone your financial freedom. You need to form both the habits and the actions that produce income streams. Well, you can’t very well do that if you put your money toward retiring debt.
Focusing too much on becoming debt-free means that your money is being sent away to retire. That’s why you can’t retire. You can’t retire - or be financially-free - because you’ve sent your money away to retire - rather than work for you.
If you could invest in something that could never go up in value but could only go down in value, then how much of that invest would you want?
Well, zero - right? We’re intelligent people that invest for the production of income, not speculate on a hope for capital gains.
The investment that can never go up in value but can only go down in value is home equity - or even your rental property’s equity.
In fact, I have the ability to pay off my home’s mortgage but I refuse to do so.
I embrace mortgages. I don’t fear them.
Many Americans believe these following statements to be true, but in reality they are myths and misconceptions:
OK, here we go: Your home equity is a prudent investment. FALSE
Extra principal payments on your mortgage saves you money. FALSE
Mortgage interest should be eliminated as soon as possible. FALSE
Substantial equity in your home enhances your net worth. FALSE
Home Equity has a rate of return. FALSE
THERE IS A REASON WHY SO MANY PEOPLE FEAR MORTGAGES, AND WHY YOU SHOULDN’T In order to discover how our great grandparents and our grandparents and even our parents and perhaps even you - got the idea that a mortgage is a bad thing and a necessary evil at best, we must go back in time to the Great Depression - and then we’re going to bring it up to the Present Day here...
In the 1920s a common clause in loan agreements gave banks the right to demand full repayment of your mortgage loan at any time.
Since this was like asking for the moon and the stars, no one really worried about it.
Then, when the stock market crashed on October 29, 1929 millions of investors lost huge sums of money, much of it on margin. Back then, you could buy $10 of stock for a $1.
Since the value of the stocks dropped, few investors wanted to sell, so they had to go to the bank and take out cash to cover their margin call.
It didn’t take long for the banks to run out of cash - so they started calling loans due from good Americans who were faithfully making their mortgage payments every month. However, there wasn’t any demand to buy these homes, so prices continued to drop.
To cover the margin calls, brokers were forced to sell stocks and once again there wasn’t a market for stocks so the prices kept dropping. Ultimately, the Great Depression saw the stock market fall more than 75% from its 1929 highs.
More than half the nation’s banks failed and millions of homeowners, unable to raise the cash they needed to payoff their loans, lost their homes. Out of this the American Mantra was born and it said this: “Always own your home outright. Never carry a mortgage.”
The reasoning behind America’s new mantra was really quite simple: if the economy fell to pieces, at least you still had your home and the bank couldn’t take it away from you. Maybe you couldn’t put any food on the table or pay your bills, but at least your home was secure.
Since the Great Depression laws have been introduced that make it illegal for banks to call your loan due. The bank can no longer call you up and say, “We’re running a little short on cash and need you to pay off your mortgage loan in the next thirty days.” That just can’t happen.
Additionally, the Fed is now quick to infuse money into the system if there is a run on the banks, as we saw in 1987 and we sort of saw with Quantitative Easing later.
Also, the FDIC was created to insure banks. Still, you can see how the fear of losing their home became instilled in the hearts and minds of the American people, and they quickly grew to fear their mortgage.
In the 1950’s and 60’s families would throw mortgage burning parties to celebrate paying off their home. And so, because of this fear of their mortgage, for about 90 years now most people have overlooked the opportunities their mortgage provides to build financial security.
SO THERE’S A REASON WHY PEOPLE HATE THEIR MORTGAGE AND WHY YOU SHOULDN’T
Many people hate their mortgage because they know over the life of a 30 year loan, they will spend more in interest than the house cost them in the first place. To save money it becomes very tempting to make a bigger down payment, or to make extra monthly principal payments.
Unfortunately, saving money is not the same as making money. Or, put another way, paying off debt is not the same as accumulating assets. By tackling the mortgage pay-off first, and the investing goal second, many fail to consider the important role a mortgage plays in your effort toward financial freedom.
Every dollar we give the bank is a dollar we then...did not invest. While paying off the mortgage saves us interest, it denies us the opportunity to earn greater interest with that money.
Are you still doing something like this? “Hey Mr. Banker, here is an extra $100 principal payment. Don’t pay me any interest on it. If I need it back, I’ll pay you fees, borrow it back on your terms, and plus I’ll try to prove to you that I qualify again.”
Some people - a lot of people - still do that! That is fear, scarcity, and a lack of education rather than knowledge, abundance, and mastery.
Money you give the bank is money you’ll never see again unless you refinance or sell that property - whether that property is your primary residence, or it’s one of your income properties.
Why separate the equity from your home? Why would you want to have the equity removed from your home? There are actually three primary reasons: 1. LIQUIDITY 2. SAFETY 3. RATE OF RETURN - there are many more reasons too. But, let’s focus on those.
- HOW LIQUID IS IT? (Can I get my money back when I want it?) 2. HOW SAFE IS IT? (Is it guaranteed or insured?) 3. WHAT RATE OF RETURN CAN I EXPECT? Home equity fails all three tests of a prudent investment.
Let’s examine each of these core elements in more detail to better understand why home equity fails the tests of a prudent investment, and, more importantly, why home-owners benefit by separating the equity from their home.
So why SEPARATE EQUITY TO INCREASE LIQUIDITY? Well, what is one of the biggest secrets in real estate? It’s that your mortgage is really a loan against your income, moreso than a loan against the value of your house.
Without an income, in many cases you just can’t get a loan. If you suddenly experienced difficult financial times, would your rather have $50,000 of liquid cash to help you make your mortgage payment, or have an additional $50,000 of equity already trapped in your home?
Almost every person who has ever lost their home to foreclosure would have been better off if they had their equity separated from their home in a liquid, safe, conservative side fund that could be used to make mortgage payments during their time of need.
The importance of liquidity became all too clear when the stock market crashed in October of 1987, or March of 2000, or September of 2008. If someone had advised you to first sell your stocks and convert to cash, they would have been a hero.
Or, if you had enough liquidity you could have weathered the storm. Those with other liquid assets were able to remain invested. They were rewarded as the market rebounded and recovered fully - sometimes pretty quickly.
However, those without liquidity were forced to sell while the market was down, causing them to accept significant losses.
“It’s better to have access to the equity or value of your home and not need it, than to need it and not be able to get at it.”
Of course, I don’t advocate for people to have much exposure to stocks because that isn’t where the wealth is created. If you want to build wealth, keep your equity out of stocks, and maintain small equity positions in many income-producing properties.
TO REDUCE THE RISK OF FORECLOSURE DURING UNFORESEEN SETBACKS, KEEP YOUR MORTGAGE BALANCE AS HIGH AS POSSIBLE
Is your home really safe? Unfortunately, many home buyers have the misconception that paying down their mortgage quickly is the best method of reducing the risk of foreclosure on their homes. However, in reality, the exact opposite is true.
As homeowners pay down their mortgage, they are unknowingly transferring the risk from the bank to themselves. When the mortgage balance is high, the bank carries the most risk. When the mortgage balance is low, the homeowner bears the risk.
With a low mortgage balance the bank is in a great position, as they stand to make a nice profit if you defaults. In addition to assuming unnecessary risk, many people who scrape up every bit of extra money they can to apply against principal often find themselves with no liquidity.
When tough times come, they find themselves scrambling to make their mortgage payments.
Alright, just imagine this scenario.
Assume you’re a mortgage banker - you’re sitting in your plush leather chair in your corner office - and you’re looking at your loan portfolio as this mortgage banker that you are, and you have 100 loans that are delinquent.
All of the loans are for homes valued at $600,000. OK, so you’ve got all hundred of these $600,000 homes - and your borrower payments have become delinquent on every one.
Some of the loan balances are $300,000 and some are $500,000. Suddenly, there is a glut in the market and the homes are now worth $400,000.
Which homes do you as the banker foreclose on FIRST? The ones owing the least amount of money, of course. After all, as a banker you’d make money taking back those homes, however you’d lose money trying to sell a home for $400,000 when you still would have been owed $500,000 on it if you just keep that in your portfolio.
Banks have been known to call delinquent homeowners with high mortgage balances and offer assistance to those people - they’re not going to try to foreclose on them.
In that case, as a mortgage banker in your plush leather chair, you’re going to get on the phone with your homeowner / borrower and you’re going to say, “We understand you are going through some tough times, is there anything we can do to help you? We really want you to be able to keep your home.”
The last thing they want to do is take back a home that they will lose money reselling. Because that homeowner smartly kept their mortgage balance high.
So you as an owner of your own home or owner of income property want to keep your mortgage balance high and your equity position low.
If you fall ill or become incapacitated in a car accident and you’re not able to work, you want to be sure that your family is protected.
Well, while you’re in a hospital bed - or worse - or you’re gone - the bank is going to foreclose on those homes that have a low mortgage loan balance first. Those with a high mortgage loan balance will get the workouts. More equity is more risk.
So that’s why I wanted to put you in the position of YOU as the mortgage banker in your leather easy-chair.
Don’t vilify the banks with being ruthless with foreclosing on those with high equity positions - because if you were given two equally difficult tasks, which would you do first?
If you had two wheelbarrows sitting in front of you, you had to push each one up a hill, and one wheelbarrow was empty and the other one had 100 pounds of concrete in it that you had to grunt and struggle to push up the hill - yet both tasks paid you the same, then which wheelbarrow are you going to push up the hill first? It’s the light, empty one.
You know, it’s interesting to note too, during the Great Depression, the Hilton chain of hotels was deeply affected by the stock market crash and Hilton couldn’t make their loan payments.
You know what saved them from financial ruin? They were so leveraged, in other words they owed so much more on their property than it was worth, that the banks couldn’t afford to bother wasting their time foreclosing on it.
The Hiltons understood the value of keeping high mortgage balances thereby keeping the risk on the banks.
Closer to the present day here...
Hurricane-ravaged homeowners in Florida, or New Orleans, or Houston would have been better off if they had removed a large portion of their equity and put it in other cash-flowing properties around the country - or they would have been better off even keeping it in a safe and liquid side fund, accessible in a time of need.
Ask yourself, if you’re a California resident, and you own a million dollar home during an earthquake in California (and you didn’t have earthquake insurance like many don’t), would you rather have your equity trapped in your home, or would you rather have more of it in income-producing properties in the Midwest and South?
If it were trapped in the California home, your equity would be lost along with the house in the earthquake.
What about litigation? In the event of a widespread disaster where an insurance company could be at risk with making massive payouts to a ton of homeowners, that insurance company often has incentive to come up with reasons not to pay the insurance claim - or delay paying the claim - probably at a time where you and your family are displaced and you’re staying at a modest hotel while your life is in a shambles.
We saw this happen in national disasters recently. If your home is rendered uninhabitable in the event of a natural disaster and there’s a dispute about what exactly damaged your home -
You know, was it the hurricane’s wind or was it the storm surge or the wind that led to the storm surge or the hurricane’s rain that led to the flood - or - what can you make a claim for then?
I mean, do you want to be in the scenario where you have to hire a lawyer to fight the insurance company? Especially at a time where you or your family are vulnerable and uprooted while you’re all staying at the Holiday Inn?
Well, if you have a lot of skin in the game - a lot of equity - you’re going to be the one most likely to have to research what legal counsel is the best and then hire, pay for, and retain legal counsel against the insurance company.
If you don’t have much skin in the game, and you’ve left the bank with the greater equity position, then the bank is going to have the incentive to want to hire the attorney.
See, with every mortgage paydown that you make, you have increased the bank’s security in this property risk and you’ve decreased your own security and decreased your own peace of mind.
More equity is more risk.
See you thought it was the opposite. Previously you thought paying down a mortgage increased your feeling of security.
Sometimes, you can get insurance to prevent risk of loss in the event of a hurricane, or an earthquake, or a fire, but see, even then, there’s no such thing as property equity insurance.
The homeowners with the least financial education are more likely to get foreclosed upon first.
What if you’ve got a lot of equity in a property and you’re having a Cinco De Mayo party and a neighbor kid falls off your deck? Well, now the neighbor kids parents want to sue you. We live in a litigious society.
When that neighbors plaintiff attorney sees that you don’t have much low-hanging fruit as equity to go after, the lawsuit might never even come your way in the first place.
A low equity position is an effective asset protection strategy. Make the bank share in the risk with you. Again, that’s really an example of making OTHER PEOPLE’S MONEY work for you - other people’s money - the bank’s the helping protect you.
My home - our primary residence - has a market value of between $450K-$470K, and my mortgage loan balance at this moment is almost exactly $400K. I’ve intentionally taken proactive measures to keep my mortgage balance high and my equity position low. That’s about 15% equity in my home there - something like that. I practice what I preach.
This limits my risk, it’s increased my liquidity so instead I can turn these equity dollars into down payments on more income property across the nation, and it increases my overall rate of return substantially.
You’ve got to think about SEPARATING EQUITY TO INCREASE your RATE OF RETURN as well.
Here’s a question for you. What do you think the rate of return from home equity was in Boston for the last 3 years? What about Seattle for the last one year? Be careful, this is a trick question.
The truth is, it doesn’t matter where you live or how fast the homes are appreciating, the return from home equity is always the same, it is ZERO.
We have a misconception that because our home appreciates, or our mortgage balance is going down, that the equity has a rate of return. That’s not true.
Home equity has NO rate of return. Home values fluctuate due to market conditions, not due to the mortgage balance. Your home or income property’s value fluctuates on population growth, job growth, supply vs. demand and all kinds of other factors.
But the equity in the home has zero relation to the home’s value, it is in no way responsible for the home’s appreciation.
Therefore, home equity simply sits idle in the home. It does not earn any rate of return. Assume you have a home worth $100,000 which you own free and clear.
Or if you have a $100,000 property with just $20,000 of equity in it, if the home appreciates 5%, you still own an asset worth $105,000 at the end of the year. Now you’ve got a 25% return on your skin-in-the-game because you’re leveraged - not just a 5% return.
The market provides the return whether equity is in there or not.
I actually cover this topic quite a bit in my first book, which was published earlier this year.
Homeowners would actually be better off burying money in their backyards than paying down their mortgages, since money buried in the backyard is liquid (assuming you can find it), and its safe (assuming no one else finds it). However, neither one is earning a rate of return. It’s actually losing value due to inflation.
I’ll be back with so much more. You’re listening to Get Rich Education.
Alright...suppose you were offered an investment that could never go up in value, but might go down. How much of it would you want? Hopefully none. Yes, that investment is home equity.
It has no rate of return, so it cannot go up in value, but it could go down in value if the real estate market declines or the homeowner experiences an uninsured loss like a natural disaster sort of calamity, or your own body or mind’s disability, or a foreclosure.
That’s why rather than paying down any mortgage, instead, once equity accumulates, I use cash-out refinances and 1031 Tax-Deferred Exchanges to invest that dollar in more cash-flowing property.
The return from equity is always zero so I want to reduce my equity exposure that I have in any one property. But borrowing equity out of a property incurs an interest rate expense.
But as long as I beat that interest rate expense incurred with the return from that reinvested dollar, I’m dollars ahead.
...and if I can borrow at say, a 5% interest rate, sheesh, I’ve talked a number of times on how investing into new, cash-flowing turnkey income property with long-term fixed interest rate debt pays you five ways at the same time such that rates of return of 30% per annum are actually common.
This increases your velocity of money too - rather than letting your equity slowly cut too deep into any one property.
Accelerating loan paydowns would cut my leverage ratio. We discussed that last week here on the Get Rich Education podcast.
Let’s talk about THE COST OF NOT BORROWING (EMPLOYMENT COST VS. OPPORTUNITY COST) When homeowners separate equity to reposition it into more income property, or even a liquid, safe, side account, a mortgage payment is created on the portion that you’ve borrowed out.
The mortgage payment is considered the Employment Cost. What many people don’t understand is when we leave equity trapped in our home, we incur the same cost, but we call it a lost Opportunity Cost. The money that’s parked in your home doing nothing could be put to work earning you something.
So create arbitrage for yourself.
Learn to...effectively be your own banker. By using the principles that banks and credit unions use, you can amass a fortune. A bank’s greatest assets are its liabilities. You can substantially enhance your net worth by optimizing the assets that you already have. By being your own banker you can make millions extra.
It’s not necessary to have a large chunk of equity in your home to benefit from using your mortgage to create wealth. Many homeowners without a large equity balance have benefited by simply moving to a more strategic mortgage which allows them to pay less to their mortgage company each month, thereby enabling them to save or invest more each month.
Even if you don’t have a high equity position, if you have a 15-year loan, you can increase your monthly cash flow by switching it into a 30-year fixed amortizing loan. I once made the same mistake. I once had a 15-year loan on my own home and changed it to a 30 once I understood this.
Say the 15-year loan monthly payment is $700 more than the 30-year fixed amortizing payment - well wouldn’t I rather have that $700 either in liquidity or have the ability to put it into an income-producing investment?
On an income property if you have a 15-year loan rather than a 30-year loan - the property probably won’t cash flow either.
I actually favor interest-only loans the most. But they can still be hard to find these days.
Interest-onlys got a bad name 10-20 years ago because some people took out those loans because not paying principal was the only way they could afford a property - a property that didn’t even generate income.
I favor interest-onlys because rather than having my extra dollars go to principal, that goes right into my cash flow pocket instead.
With income property, both inflation and tenants make my mortgage principal balances erode without me having to get involved with principal paydowns which is something that only corrodes my cash flow.
Let’s just look at another example, I gave one similar to this in my new book.
If you’re in, say the U.S., or Canada or wherever and you own a $300K home, and just for ease of numbers your home appreciates 10% and goes up to $330K over some period of time, did it matter how much equity was in the home?
No. Again, either appreciation or loss in value has nothing to do with your skin-in-the-game - it has nothing to do with that equity inside the walls of your home, and everything to do with what’s happening outside the walls of your home…
...like demographic trends or the remaining availability of developable land in your geography, or a national tightening or easing of lending standards.
That’s what affects market value.
What if the value of your $300K home goes down to $200K in value? Well, then if you had $100K of property equity exposed, it’s all gone. So although the home fell in value 33%, your equity fell in value 100%. Now you understand why property equity is UNSAFE.
So, #1, prevent equity from accumulating, and #2, spread it around into other properties in different geographies.
When you do that, you’ve planted a small equity seed that has substantial room for growth in a new property.
So, I think big-picture, rather than retiring mortgages, I’m acquiring mortgages and integrating them into my financial plan.
Rather than fighting to get rid of mortgages, I’ve embraced them, brought them onto my side, and I don’t want them to go away. I use it as a tool.
You can think of your mortgage as a competitor, or as a collaborator. Life is a lot more harmonious and plentiful when you turn competitors into collaborators. I don’t just enjoy collecting properties, I enjoy collecting mortgages.
The way I’ve lived for a long time is that I don’t want to have my home or any income property paid off by the time I’m age 40, or 60, or 120.
When I pull equity from one property and use it as a down payment toward another property, I haven’t actually lost any equity (though I might have a corner chipped off for closing costs or agent commissions), but rather than losing equity, I’ve just transferred equity. It’s still my equity.
Now consider that when I pull equity from my home to put it into an income property, I typically incur a higher home mortgage payment than what I had previously.
But as long as the difference between the new home mortgage payment amount and the old payment amount is exceeded by the positive cash flow that I receive from the new rental property, I am dollars ahead on a monthly basis.
...plus I have all the other benefits of owning a real estate portfolio that’s greater in value.
I now have two properties to potentially appreciate in value rather than one. So before, rather than just having a $300K home, you might still have your $300K home, plus a $200K income property - for $500K of total property, plus greater tax benefits and monthly cash flow.
You know, as I go through life, I find that those with less financial education say something like, “I can’t wait until I have this property paid off.”
Well, it’s sort of like when someone tells me they have a boatland of money saved at the bank at under 1% interest. I’m thinking, “OK, that’s good. I see potential there, now what are you going to do with it?”
Money earning nothing at the bank is actually better than home equity because it’s more liquid.
Understanding this stuff and putting it into practice is how I, as an investor, got ahead farther faster.
Instead of learning about how to replace garage doors or how to clean a chimney in the most efficient way, learn about big picture forces like arbitrage. leverage, cash flow, inflation, and smart equity mgmt.
It’s going to get you ahead farther, faster. Outsource lower use tasks and replace them with higher-use tasks and you’ll be living better than you ever thought you could.
I think some people get content being their own landlord because they just don’t know what else they could do if they would only think big picture.
So those people instead beat around in an old Ford F-150 managing their own properties. They rationalize that their life isn’t so bad compared to those without clean water in Ethiopia or Malawi. So they stay content trying to fix the furnace at the four-plex themselves.
Maybe they’re ordering a couple meatball subs on a lunch break and then listening to sportsradio in the afternoon.
I mean, hey, if you’ve explored enough of the world to know of a different way of life and you still like the twenty-year-old Ford F-150 life where you’re managing your own property and storing canisters of touch-up paint where you’ve got al these lids labelled for the different rental units it goes with and it takes up 10% of your garage all that, then that’s fine.
As an investor, you’ve got laborers standing by just waiting to work FOR you - these laborers have names like “Tenants” “Leverage” “Arbitrage” and “Inflation”.
You need to know that there is a better, higher-use way to live. Outsource lower use tasks and replace them with higher-use tasks and you’ll be living better than you ever thought you could.
Now, if someone would ask me if I would want more property equity than I’ve currently got - someone was just looking to “gift” some equity to me.
Yeah, I’d take it, but I’d think of it as the ability to disperse and distribute seeds. Initiate that velocity and spread it into more properties.
The thing is that you can’t just understand this stuff or it isn’t going to help you.
You’ve got to do it. You must act. Mere knowledge doesn’t do you any good.
I’ve conscientiously decided that I’m going to be abundant. I’m going to go out and control more.
There are a few limits here. You probably don’t want to lock up everything. It’s good to keep some liquidity on-hand. I’ve talked about how it’s a good idea to have 3-5% of your total real estate portfolio value in liquid funds as reserves.
Consider that if you get underwater on your primary residence, it might make it hard for you to move if you have to move.
If you already live where you truly want to live, why would you have to move - and why would you live anywhere other than where you want to live? You don’t follow money. You’ve made money - income streams - follow you.
Think about your control of a property too. You know, whether you have a 5% equity position in your property or a 60% equity position or a 100% equity position in your property, you still have the same right to tear down the fence at your home or paint your home or add a carport to a rental property that you own.
Your equity position doesn’t affect your control at all. Less equity, same control.
Less property equity also increases your tax deductions because mortgage interest is typically tax deductible.
So, no one achieves financial freedom just by eliminating their debt.
This is a central tenet to the Get Rich Education paradigm: “Financially-Free Beats Debt-Free”.
Some people might just say, oh, eliminating the mortgage would just make me feel good. Well, consider what that good feeling is costing you. Once you’re educated, debt-free doesn’t feel so good. You’re actually taking steps away from being financially-free.
Plus, if you eliminate a mortgage payment, consider that you STILL have a monthly housing payment. You’re still going to have to pay property taxes, property insurance, pay maintenance, pay repairs, utilities, maybe pay HOA dues.
So even complete elimination of a mortgage payment doesn’t nearly eliminate your HOUSING payment.
Even though I have the ability to pay off my home, that would be one of the most reckless and financially uneducated things that I could think of. I’d probably have to sell some income-producing property in order to make the payoff.
Some people say that they don’t want to pull equity from their primary residence because they say that their existing mortgage is at such a low interest rate - 5% or 4% or lower.
Well, oftentimes, you can keep that first loan in place - not touch it - not reset its amortization schedule - not disturb that rock-bottom interest rate...I get it...my primary residence has a 3.5% interest rate on a 30-year fixed-rate mortgage.
And what you can do then is add a Home Equity Line Of Credit second mortgage onto the property so that you catalyze your velocity of money.
Homes are meant to house you & your family. Not store cash.
When money talks, do you listen? Or do you revert to thinking about what your Dad thought - or what your Uncle thought - or revert to that Depression Era of thinking.
You know, most all of these principles that I’ve talked about earlier here - these were even true when mortgage interest rates were 16 to 18% in the early 1980s.
You can take ever great advantage of this “Financially-Free Beats Debt-Free” plan today when mortgage interest rates are comparatively anemic.
You’ve got to go against the beliefs of traditional, old-fashioned thinking.
What you thought was black is white. What you thought was dark is light. If you act, your financial forecast looks substantially sunnier than you though.
You won’t be able to retire if you send your money away to retire locked up in a home’s walls. Now you’ll need to spend more of your life working.
The greatest-selling financial author of all-time, Robert Kiyosaki, who has been on the show with us here a couple times, of course - he famously said that a house - your primary residence - is not an asset. A house is not a financial asset.
It is a liability because it takes money out of your pocket every month. As asset puts money into your pocket every month.
So keep your skin-in-the-game in this liability - your home - to a minimum - and place that equity into assets - cash-flowing turnkey real estate in the best markets.
Your home is less of a liability to you when the equity is intelligently managed.
But importantly, you’ve got to act, rather than sit idle on this information.
These are the kind of discussions that shape you and your family’s life - that open up time for yourself and passive income for yourself…
...that got your kid the new hockey pads so that he could play on the hockey team and you had time to go watch her or him.
…that got you to Kauai when you and your family hiked that trail on the North Shore rather than deferring everything until some fictitious “someday”.
You’ve got to ACT.
You know the old Chinese proverb. Give a Man a Fish, and You Feed Him for a Day. Teach a Man To Fish, and You Feed Him for a Lifetime.
Well, which one sounds better - teaching a man to fish or giving a man - or woman - a fish? It is doing BOTH. That’s the abundance mentality.
So at Get Rich Education, we teach a man to fish.
We also give a man a fish, Ridge Lending Group specializes in investment property loans. They’ve helped more people realize their dreams of financial freedom through real estate than any other mortgage lender in the country.
So RidgeLendingGroup.com is in the Show Notes for you.
Well then where do you actually find the income properties in investor-advantaged markets with in-place property management so that you can intelligently reposition your home equity if you choose to?
We both teach a man to fish here at Get Rich Education and then we give a man a fish at GREturnkey.com - where there are - more than 10 markets that I’ve hand-selected myself - this is a lineup of markets and providers - many of whom I’ve invested in myself…
...where you can download a report on a few investor-advantaged metros, read it at your leisure, and then that report also has the provider information so that you can follow up with them should you so choose. Often, it’s those markets in the Midwest and South.
GREturnkey is in the Show Notes as well. So it has just never been easier.
Thank you for being here, but again, you aren’t here for me, you are here for you.
I will be back next week to help you build your wealth. Remember, home equity is a terrible investment, and financially-free beats debt-free.
Don’t quit your day dream.