Habitual Real Estate
By David Larson
We welcome Ken Greene again as a contributor to our quarterly newsletter. Ken and I have know each other for a few years now. Ken’s previous professional background as an engineer has taught him an organized structured approach in viewing challenges. Bringing this approach to financial planning, Ken goes in-depth exploring his clients current position and future goals. Just as in investing in real estate there is no one plan fits all strategy for financial planning. Ken’s insight into investing and creative tax saving strategies will be of value to us all. We look forward to reading Ken’s articles. He also has a Blog at https://www.greenefi.com/blog/ that I have found to be very informative.
A successful life is about habits. There are 4 financial reasons to invest in real estate. Probably number 4 on most people’s list, and the least sexy is mortgage paydown. That is every month, assuming you have a mortgage on your real estate holding, a portion of your payment goes to interest and part to principal paydown. The amount of paydown at first is low but increases over time. Now, you have heard financial advisers say you need to put a minimum of 10% of your income into savings. A small percentage of you follow that advice, the others stick to the habit of savings as well as the weight loss goal they had on January 1. The beauty of the mortgage paydown is that it forces savings and is mostly hidden from view. The power of this can be realized when we see that the statistics from the Federal Reserve that a homeowner will have 44 times the net worth of a renter. Obviously, there are other factors contributing to this discrepancy, but it is my opinion that the forced savings through mortgage paydown is a prime factor.
Talking to my younger friends their mindset is on a shorter horizon. The idea of flipping a property in a short period of time seems sexy. In my younger years I questioned investor clients after showing them how to net more cash by leveraging their properties and they would say no, we like what we have. Over time they had paid off their mortgage and owned their home and investments free and clear. As I have aged I now admire their strategy as I can see they had more cash coming in than their habits would let them spend and the peace of mind that comes with knowing that a downturn in the market would not affect their lifestyle.
Best to all, wishing all a prosperous 2020.
— David Larson