|
Ohio Home - Refinance Your Ohio Home and Safely Invest the Proceeds First, you need to direct your attention to the word invest. In recent years, promoters of every type of cockeyed Ohio scheme including speculation have claimed to provide Ohio investment opportunities. Peddlers of Ohio financial products, purveyors of financial services, demagoguing politicians, including even new car dealers tell us to buy what they are selling because we will be making a good investment. Commodities, jewelry, condo timeshares, baseball cards, including old Mason jars all are marketed as worthy investments. Even items we used to call luxury goods or extravagances such as $5,000 wristwatches including $50,000 cars are now advertised as investments. Wealth-Building Ohio Investments If you are going to borrow against your Ohio home equity to invest, choose assets that could yield both a growing stream of income including a near certain increase in value. Naturally, you should favor Ohio rental houses including apartments. In terms of cash flows, absolutely no other asset beats income proper ties. In terms of inflation protection, absolutely no other asset beats income properties. Yet, at the time inflation falls, interest rates fall. Property cash flows go up due to lower Ohio mortgage payments. Values go up because of increased consumer buying power. With rental properties, you win at the time inflation runs rampant; including you win as it declines. In addition, Ohio rental properties give numerous tax advantages such as tax-free, cash-out refinances (to further pyramid your wealth), noncash tax deductions for depreciation, tax-free trade-up exchanges, including deferred taxes on capital gains through the use of installment sale contracts Double Leverage To pursue the Ohio investment strategy, you will use a cash-out refinance (or a particular Ohio home equity line of credit) to raise, say, $25,000 or $50,000 (perhaps more). You will then apply that dollars as a down payment to acquire a rental property. Your interest costs (at today's rates) should total less than 7 percent, but the rental income from your property should yield (after expenses) 8 to 11 percent. With the spread between borrowing costs including yield, your leveraged rate of return will skyrocket. Yet, if you chose your Ohio rental property according to sound investment principles (as explained in my books on real estate investing), you could achieve these very high returns with little risk. (You will never need to gamble your Ohio home equity with risky ventures.) What regarding Stocks? During the late bull run, numerous financial writers including advisors urged homeowners to cash out their home equity including invest it in the stock market. In his 1997 best-selling book, The Strategy: A Homeowner's Guide to Wealth Creation (Key Porter Books) Garth Turner painted a wealthy, risk-free future for homeowners. Imagine wealth virtually without risk. it is now possible thanks to the amazing convergence of low interest rates, solidly rising financial markets in the long run including a particular economic rebound in North America that could last well into the new millennium. . . . Today you might dip into your real estate equity including put that dollars into financial assets with confidence as long as you are a long-term investor. Turner goes on to tell his readers, The new rules of real estate: |a home| is now just shelter, not a particular investment. . . . What you ultimately need including need is wealth, not a house. . . . The future is in financial assets, not in real estate. Likewise, in his best-selling including highly influential book, Stocks for the Long Run, 3rd ed. (McGraw-Hill, 2002), esteemed Wharton professor Jeremy Siegel additionally enthuses over stocks as the salvation for all investors who could keep the faith.5 Buy including hold through the market's ups including downs, Siegel advises. You could become wealthy. Virtually guaranteed. Similar to Garth Turner, Siegel suggests (though not so emphatically) that homeowners leverage up their home financing including put the cash proceeds into the stock market. The Reasoning From a casual perspective, the idea seems to merit attention. Borrow Ohio mortgage dollars at a tax-deductible rate of 5 to 7 percent. Put that cash in a tax-sheltered, stock-based retirement plan. History shows that over the long run you might expect stocks to yield returns of 10 to 12 percent a year—albeit with bumps including jolts along the way. Hang on for the ride, including you could eventually end up with far more money. Why let that wonderful opportunity to borrow inexpensive including invest high go to waste? Sounds pretty good, including it could work. If stocks for the long run do yield a near certain 10 to 12 percent annual return, the strategy could pay off big. The Fallacy Unfortunately, the 10 to 12 percent stock return figure does not hold up under close review. Stock market volatility creates far more uncertainly than the stock enthusiasts admit. If your retirement years coincide with a bear market, you could end up flipping burgers at McDonald's, or maybe greeting customers at Wal-Mart. Contrary to the stock enthusiast’s claims, financial assets do display considerable long-term risk that is why you should favor long-term investing in real estate rather than stocks: Not only do safely leveraged real estate returns out perform the stock market's supposed yield of 10 to 12 percent, but real estate (housing) experiences far less downside volatility yet gives near certain upside potential. Less Risk with Real Estate For proof positive that Ohio houses experience fewer including less severe price slides than stocks, try the experiment. Call several mortgage lenders. Ask them if you might borrow 80 percent of a home's purchase price for a duration of 15 to 30 years at a fixed rate of interest. Of course you can. Now, ask those same lenders—or even your stock-touting brokerage firm—if they could make you a similar deal on a portfolio of stocks. What? Are you crazy? they'd respond. Or just as likely, they'd tell you to pay cash for your stocks with dollars borrowed with a low-interest-rate home equity loan. This simple, commonsense approach to risk assessment speaks volumes. If stocks were less risky than Ohio real estate, why could not lenders grant stock portfolio loans for the same duration, terms, including cost that are widely available with Ohio mortgage loans? (Remember, too, property loans never include a margin call.) More Income with Real Estate Ohio rental properties outperform stocks as a particular investment because they yield a dependable including growing flow of income. Over time, rents for well-kept homes including apartments consistently go up. In contrast, at current market valuation, most stocks pay dividends of only 1 to 3 percent a year. More than 125 companies in the S&P 500 pay absolutely no dividends at all; therefore, stocks include a large component of speculation. You buy stocks not for their income, but because you think you might later sell them for a higher price to someone else—and of course, your buyer feels the same. But at the time confidence in the greater fool theory wanes, the bear roars. Stock prices free-fall. All true investments yield enough current income to justify their current price. If you are paying for hoped-to-be future outcomes, you are speculating, not investing in Ohio mortgage, financing, including mortgage loans.
Click here to get Refinanced >> |