THE BEST LAS VEGAS PROPERTIES
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Stop Paying Rent And OWN Your Home Instead!! |
As you know,
renting has two big problems - the rent can go up, and you don't have anything
to show for it except a pile of rent receipts. Me, I like knowing that every
month I'm $50 or $100 richer, no matter what. That doesn't sound like much, but
if you saw a $100 bill lying on the ground, you'd sure as heck pick it up,
wouldn't you? Owning a home is like that - Uncle Sam gives you such incredible
incentives, they're just lying there on the ground, and yet some people step
right over them, and never scoop them up.
This article
will show you in real dollars how you can benefit by owning a home.
Maybe it has never been explained it to you in detail, or you just didn't
"get it". One of the facts of life is that if you want to have a
roof over your head, you have to pay somebody for that roof. In real
estate we have a saying, "Whether you rent or whether you buy, you pay
for the space you occupy." You might be thinking, "I can barely
make the rent, how in the world can I afford to buy?" There's an answer to
that, but first let's start with why it's to your advantage to own your own
home. Then we'll figure out how to make it happen.
Gaining
Control
Renting is
being out of control - the rent can go up, or the owner can tell you that you
have to move. Owning your own home is a rock of stability that can't be taken
from you. It gives you a stake in the community, a sense of belonging. And for
most people, it is the majority of their net worth. Look at it this way - in 30
years, if you rented at $1000 a month, you would have paid out $360,000 and
have nothing to show for it. But if you bought a home today for $250,000, at
the end of 30 years you would have paid it off and you would own it free and
clear. Obviously this example is way too simple, because we all know that rents
go up, so you would have paid much more than $360,000. And we all know that
home prices go up too, so the house would be worth much more than $250,000. How
much more? How does a million dollars sound?
The Rule Of
72
Now might be
a good time to bring up the "rule of 72". This rule tells you how
long it takes your money to double at a given interest rate. For example, if
the interest rate were 5%, it would take 72/5, or 14.4 years for your money to
double. Did you know that home prices have gone up 7% a year on average for
the last 30 years? That’s the average for the entire country, in good
times and bad, the average was 7% a year, according to the National Association
of Realtors. This means that if we see only average appreciation, home prices
will double in 72/7 or 10.3 years!
Become A
Millionaire
So
how do you become a millionaire? Buy a house for $250,000 and pay it off in
20.6 years and you'll be one. How? In 10.3 years the house will be worth
$500,000 and in another 10.3 years it'll be a million. Oh, you haven't paid off
the loan yet? That's right, you still owe around $100,000 on it, so really you
have $900,000 in equity, which is what we call the difference between what the
house is worth and what you owe on it. OK, so you have 9 more years to go, but
in any event, at the end of the 30 years you'll own the house free and clear,
and it'll be actually worth closer to $2 million by then.
I
know this sounds ridiculously hard to believe, but consider
that 30 years ago people were buying houses here for $40,000. Then consider the
fact that only a few years ago median Las Vegas homes were going for around
$200,000. Now they are going for $600,000 or more today. Imagine what this area
will become like that in the next 30 years, especially with the advent of the
new “vertical construction” of high-rise condos. Most large parcels in Las
Vegas have no building room left, or are very close to it. After that, watch
prices take off.
In Las Vegas,
prices are expected to continue to rise because our population is increasing
faster than we are building houses. That's the bottom line. People are coming
from other states, from other countries, and we're having babies. Unless some
disaster causes the number of people to decrease, home prices are expected to
continue to climb. So the question is, what do you do about it? Continue to
watch? Or participate and take control of your financial future?
But
I Can't Afford A Home!
Let's say
you'd like to buy a home of your own, but think you can't afford to do it. I
would say just the opposite - that you can't afford not to do it. Let's
see if I can make it easier for you to swallow. The government doesn't want you
to pay rent your whole life and end up being dependent on the state, and The
Government is willing to subsidize your home purchase! Your mortgage
interest and real estate taxes are tax-deductible. Let me explain.
Before you
get your paycheck, your employer takes out the taxes, and then you get what's
left to pay your rent, put gas in your car, whatever. But when you buy a house,
you take your house payment out of your salary first, and then pay tax on
what's left. This is such a huge, critical, and important difference
that I need to repeat it. As a renter, you're used to the idea of the government
getting their share first and you living on what's left. As a
homeowner, you use your salary to pay for your home first, and then let the
government have a share of what's left. This is how the wealthy think.
They think "how much tax do I want to pay?" not "gee, I wonder
how much I'll have left after taxes are taken out." And owning your own
home is a key step in starting to think like the wealthy.
Look At These
Numbers!
In practice,
it works like this. Let's say your family income is $70,000 and you pay $1200
in rent. If you buy a home for $240,000 with 20% down, your payment might be
$1558 a month. Don't get upset about the 20% for now; just follow me here for
the sake of discussion. The $1558 comes from a home loan at 7%, real estate
taxes, and insurance.
I know $1558
per month is more than $1200, but wait! $1479 of that is a tax deduction,
meaning in the first full year of homeownership, you would pay taxes on an
income of $52,255 instead of $70,000. Since you are in the 28% tax bracket, you
would save $4969 a year in taxes, or $414.05 a month!
(Disclaimer! I'm not qualified to give tax advice. The numbers I used
assume you are already itemizing deductions on Schedule A. Consult your
tax professional to see how the numbers work out on your specific tax return.)
So let's
recap. Your rent was $1200, and now your mortgage payment is $1558, but The
Government is giving you $414.05 of it! So your new cost to have that roof
over your head is really $1143.95, less than you were paying in rent! But it's actually better than that, because I
haven't figured any state income tax savings. Remember that $50-100 a month I
talked about back at the beginning of this article? That's the part of the loan
that goes towards paying it back, called "principle reduction". I
didn't figure that into the calculation either, but that's like putting that
money every month right into the bank, the bank of your own home. But you say,
"getting money back from Uncle Sam is great, but how can I possibly make
the $1558 payment with my current take home pay?" Well, you don't have to,
you can take the extra money out of your check now, and let Uncle Sam tax
what's left, remember? You do this by telling your employer to take fewer taxes
out of your check using a W-4 form. This way, you get the extra $414 a month
now to make the mortgage payment with, rather than getting a huge tax refund at
the end of the year!
"But I
still have a big problem", you're thinking, "Where do I get the 20%
down, that's $48,000!" Yes, it is. Now we get to where the rubber meets
the road. You have to really want your own home, really believe that
this is what you have to do for yourself or for your family. You can of course,
buy with 10% down, 5% down, or even zero down, but in those cases, your monthly
housing expense will be higher than rent, even after figuring the tax savings.
If you can handle the payment, it still works out in your favor, because
remember the 7% a year? That $240,000 house will be worth $256,800 next year,
an increase of $16,800! So you might have to spend $200 a month more than you
did in rent, but look - you paid $2400 a year more, but you gained $16,800.
That's an amazing return, way better than a 401K, even a company matched
401K!
The Amazing
Power Of Leverage
That reminds
me of one of the best advantages to buying real estate, the benefit of
leverage. As I said, if you buy a house for $300,000 in ten years it'll be
worth $600,000 so you doubled your money in 10 years. But here's the point -
you didn't have to come up with the whole $300,000 for the house, you only put
10% down. You only invested $30,000! So when your $30,000 becomes $300,000,
that isn't a double, it's a ten-fold increase in your money!
More Benefits
Down The Road
Once the
value of your home increases, you can borrow against it and use the money for
whatever you want. The money is tax-free, and the interest on this money is tax
deductible. So while your renting buddies are paying 11% on their car loans
with after tax money, you're deducting the interest on your car payment because
you're a homeowner. I know people who have used this method to pay for college
for their kids, get the down payment to buy a second home or an investment
property, or just borrowing against the house for tax-free retirement income.
And here's
the best one - when you sell that $600,000 house that you paid $300,000 for,
you can pocket the gain tax-free, up to $500,000 for a married
couple. The money in your 401K may grow tax-deferred, but when you take
out the money to spend in your retirement, you must pay taxes on it. With
your personal residence that you've lived in for 2 years, you just put the
gains in your pocket and pay no tax. This is incredible advantage that
no other investment can offer! In fact, there are some interesting
ways to retire using these tax-free gains, but that's another subject.
I
challenge you to find me an investment other than real estate that gives you
appreciation, leverage, tax deductions and tax-free capital gain.
I don’t
believe you can, so I think I'll keep my money in real estate.
How To Get
That First House
So if you're
convinced that you should own a home, how do you actually go about it? What if
it's just too darn expensive? Well, there are a number of special first time
buyer programs to make it easier, and we can definitely explore those together.
But what if it's still too expensive?
In that case,
"you got to do what you got to do". You could get a 4 bedroom
place and rent out a couple of the bedrooms to roommates to help pay for it.
You could go where real estate is cheaper to get your first house. I know it's
hard, and it wasn't easy for me to get my first place either. You just have to
grit your teeth and do it. The hardships are temporary, but the benefits
last a lifetime. You have to just go for it. Even if the first house isn't
your dream house, you have to start somewhere. Face your fears and get it done.
In the book, "The Millionaire Next Door", the author says that more
millionaires were made through real estate that any other method. Robert Kiyosaki in his "Rich Dad-Poor Dad" series talks
about the "3 mountains" of financial security - your own business,
stocks, and real estate.
Why Now Is
The Perfect Time
Are you
afraid it's the top of the market? With interest rates the lowest in 30
years, I think the risk is greater that the interest rates will go up, not
that home prices will go down. But even if prices do go down a little, if
interest rates tick up, the monthly payment on that house will be higher, even
if the price is less. So your risk in trying to "pick the bottom" is
that you'll miss out on today's very low interest rates. The next step is up to
you. I'd suggest sending me an email or giving me a call and we'll see what can
be done. Even if your lease isn't up yet, we should still get the ball rolling,
because we may have some credit work to do, and that could take 3 months or
more. If you're not ready to talk yet, but would like to be kept up to date
with the real estate market, then sign up for my email newsletter.
Either way,
do something. Get something to show for your efforts. Don't be like the
old saying, "Work your fingers to the bone, and what do you get? Bony
fingers." You know, next year at this time you could still be renting, or
you could be in your own home building equity. You might even discover
you're handy at doing home improvements, as some of my clients have done, and
they've really increased the value of their properties quickly. Who knows what
you'll accomplish once you have this big unfinished business of not owning your
home out of the way? You know you need to do it - it's like a big weight
holding you back until you get it done. Today's a good a day as any.
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Marc Gohres Phone
(702) 768-8598 Fax
(800) 948-0601 |
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Revised April 12, 2020 9:57 AM