appreciation pink house real estate

What You Didn’t Know About Appreciation in Real Estate

There are four ways to make money in real estate.  Cash flow, taxes, mortgage principle paydown, and appreciation.

Three of these four are often misunderstood in how effective they are.  Appreciation is one of those, and I’m focusing on that today.

Before I bash appreciation too much, here’s what the leverage lovers want me to explain first.

If you buy a house for $100,000 cash, and that house goes up by 4% in a year, the house is now worth $104,000 and you’ve made 4% on your money.  Not amazing.

However, if you buy a house with $20,000 down on a $100,000 house and it goes up 4% in a year, it is now worth $104,000.  You’ve made $4,000 on a $20,000 investment.  You’ve made 20% on your $20,000 investment. The mortgage magnifies the benefits of the appreciation.

That’s a benefit of appreciation with a mortgage.

Of course, if you mortgage a property and it goes down in value, remember, you still owe that monthly amount to the bank no matter how low the price of the house goes.  If the market crashes, you still got to pay that mortgage back at whatever price you originally borrowed for.

This was the big problem with the last real estate crash.  It’s called being upside down on a mortgage.

Borrower beware!

Here is something I hear people say a lot about appreciation that makes me cringe.

It goes something like this:

“Well, I know I’m not making any cash flow on this house, maybe even losing some money, but that’s ok, because I’m in this for the appreciation.”

WHOA!!!!

This attitude is especially common in high cost of living (HCOL) cities.  Why?

It’s really hard to get good cash flow in a HCOL city.  The price to rent ratios are way off.  There is also this belief that these cities are great for appreciation, and you can’t go wrong buying because they will go up enough in value to make it worth it, even without the cash flow.

I’m here to tell you, this is not always the case.

Read More

The 10 Cheapest Index Funds to Supercharge your Portfolio

index fund fees

Index Funds

Let’s have some index fund fun today.

Many in the Financial Independence Retire Early (FIRE) Community  recommend VTSAX (Vanguard’s Total Stock Market Index) as the investment of choice.

Why is that?

It probably has something to do with the blog www.jlcollinsnh.com or book The Simple Path to Wealth.

If you are in the Choose FI world, then you’ve heard of the godfather of FI, Jim Collins.

You may know he is a huge fan of Vanguard as the mutual fund company of choice.

Why? 

Does it have the cheapest index fund fees?

Does it have the lowest investment minimums?

It turns out…

It does not.

Then why does he recommend it?

I’ll get to that…

One thing I did the first time I read The Simple Path to Wealth (I ended up reading it about 15 times as an editor on the book) was check all my current investments to find out if I was paying too much in fees.

I’ve always followed the simple advice of Warren Buffett.

Invest in index funds.

I don’t believe investors can or should try to beat the market.

Read More

Why Timing the Market is a Bad Idea

Here are the headlines that I saw when I googled “stock market” today:

 

“Is a global recession led by a US Stock Market crash in the offing?”

“Dow slides as US stock market suffers worst week in two years”

“Chart analysts see bigger market pullback if interest rates continue to shoot higher”

 

These headlines are going to affect everyone differently.  Let me share with you how it affects me.  Normally, I would never read it.  But today,

I laugh at it.

It’s useless information.

Let me give you a little background on me.

I worked for Fidelity Investments as a stock broker while I was in college before I joined the military.  I’m an avid finance nerd and real estate investor.

I’ve studied the markets long enough to know that index funds are the smartest way to invest your money.  Trying to beat the market is pointless.

I also know that a lot of what you see in the financial media space is useless information.  They try to predict where the market is going.  When they get it wrong, they try to explain logically why they got it wrong, which ends up being the perfect definition of hindsight bias.

Hindsight bias, also known as the knew-it-all-along effect or creeping determinism, is the inclination, after an event has occurred, to see the event as having been predictable, despite there having been little or no objective basis for predicting it.

Financial magazines, newsletters, cable programs, videos, it’s all meant to capitalize on either fear or greed.  A few weeks ago, it was greed.  The markets were kicking ass.

Read More

9 Debt Payoff Hacks that Work and 3 that Don’t

 

payoff debt pen

These are 9 debt payoff hacks that actually work.

I did some research before writing this post.  I’m always horrified whenever I realize the amount of advice at the top positions in google search results that is bad.  The subject of paying off debt is no exception to this rule.

More on that later.

Every blogger writes an obligatory post on how they cut corners to payoff debt.  This is my attempt at that.  This is an updated post.  Originally, this was my third blog post.  It’s now reformatted.

Another thing about this research I did.  The stuff that tends to hold a lot of the top positions is easy Band-Aid solutions to paying off debt that doesn’t involve actually solving your problem.

It’s usually a matter of taking out a new loan or opening up a new credit card to transfer debt from one location to another.  You might save money on interest, but you aren’t fixing your problem.

These are ways to payoff debt without earning any money.  All your doing is replacing old debt with new.

The debt is still there!

The debt payoff hacks I talk about actually work.  They involve lifestyle changes and changes in thinking that enable you to payoff the debt you owe.

Nothing else will work.

It’s just clickbait.

Any success I’ve had with paying off debt is 99% attributable to my wife. She is Chinese and grew up in Taiwan. She has no formal training in investments or finance. She has never read a personal finance book in her life. But she came from a family and, to a certain extent, a society that frowns on debt.

Read More

payoff mortgage fast

5 Surefire Ways to Payoff Your Mortgage Fast

“So you want to payoff your mortgage faster?”

I wish I had read this before paying off my mortgage!

 

Some banks or other financial institutions offer a mortgage accelerator program.  It’s usually some type of program that helps you payoff your mortgage faster.  The deal is, they charge you for this.  It could be anywhere from a few hundred bucks to several thousands dollars.

Do not use these programs.  They are a total rip-off.  You can use any of the methods below to payoff your mortgage faster without spending a penny.

Paying off your mortgage faster is something most homeowners consider at some point.  There are practical and psychological reasons for doing so.  We’ll hit the pros and cons after discussing the 5 top strategies to payoff your mortgage fast.

Make sure that your loan doesn’t have a prepayment penalty built in.  They are uncommon, but out there.  Be sure you understand how much it will cost and if it makes sense to pay this fee.

By the way, when you get a loan, make sure there isn’t a prepayment penalty!

In my case, I bought a townhouse in 2003 in Alexandria, Virginia for $280,000.  I put 10% down, financed 10% of the loan at a 7% interest rate, and then rest was a mortgage at 5.5% on a 30-year fixed rate loan.

While reading Dave Ramsey’s Total Money Makeover book one day, I saw the section in there where he suggests paying off your mortgage after paying off debt and funding retirement accounts.

I thought, wow! That’s a crazy idea!

But the idea of paying if off intrigued me.  I liked the idea of having no debt!

I threw everything I could at that loan over the next six years and paid it off.

And I LOVE the feeling of it being gone.

Read More

5 Secrets to Finding the Best Property Manager

 

I will give you my 5 secrets to finding the perfect rental property management company.

Maybe you think you can manage the property yourself?

Perhaps.

But if you use my tips to find an outstanding management company, they’ll save you more money than the fee you’re paying them.

Think about that.  You’ll do less work, but save more money.

The perfect rental property management company earns their management fee and more. They do things better than you could if you did it yourself.

They have more experience:

  • Finding tenants
  • Dealing with dead-beat tenants
  • Collecting late rent
  • Doing evictions
  • Finding fair prices and getting discounts from contractors
  • Knowing what repairs are necessary (and unnecessary) for rentals
  • Knowing which locations are best for rentals
  • Pricing rentals
  • And much, much more…

To reiterate, these companies end up being worth far more than their fees just through their contacts, expertise, and understanding of the rental market.

Again, this is only true if you find the right management company.  There are also plenty of bad ones that will cost more money and be as much work as doing it yourself.

That’s where following these tips come in!

Read More

Investor Profile of Rich on Money

Chad Carson of www.coachcarson.com did a profile piece of me on his website.

Chad has become a friend, and he is one of the best real estate bloggers out there.  He’s got something like 90 properties in a small college town.  He has reached financial independence, and is currently living in Ecuador with his wife and kids.

Read his piece on me at his website.

My Secret Weapon for Real Estate

I’m in D.C. for some leadership training.  I’m glad my organization gives us two weeks to focus on leadership before we take on a supervisory job.  It’s a great time for personal reflection.

In this training, we do stuff like take personality tests, find out what our leadership style is, and discuss how to deal with common personnel challenges.

We also examine what our values are.

I was surprised how different my core values were from many of my military peers.  The typical military member has values that center around the following things:

  • Honor
  • Loyalty
  • Duty
  • Integrity
  • Trust
  • Teamwork

All the things above are clearly important, but they weren’t values that drove me.  They don’t define who I am.

Our deepest values often manifest themselves during significant events in our lives.  I mapped out the significant events in my life and was surprised at what trait stood out.

I believe the trait that is most important to me has been key to my successes in life.

It’s clearly been the key to my success in real estate.

Let me share two significant events with you.

YOU’LL NEVER RUN AGAIN

Read More

military millionaire

Seven Steps to Being a Military Millionaire

 

It is possible to retire a military millionaire?  I know a few people who have done it.

I hit the mark before retirement.  No rich parents, no help, wife didn’t work.

Can the average military member go from being in debt to military millionaire?

We all see websites and books from people who were deep in debt and somehow quickly made millions.

Maybe we should read their books or infomercials and try their methods…

I believe it is hard to duplicate their success.

These gurus get rich off people looking for shortcuts.  Most that try the guru route fail miserably.

It often involves going into lots of debt or paying a lot upfront for a product or a course.

military millionaire

It also requires no common sense

Read More

Debt Pitfalls for Military Members

The military has some unique debt traps that are easy to fall into.

Buying New Cars

One is this whole military car sales thing.

“Let me go talk to my manager!”

You’ve seen them lurking around the BX preying on new enlistees just getting started out in life.

They try to sell you a new car when you are overseas.  They’ll tell you it’s an amazing deal because you are in the military.  They sometimes try to sell it as a military benefit.

It is simply not true. A military benefit is when the US government subsidizes the cost.

Here are examples of actual military benefits:

  • Commissary
  • BX
  • Medical and dental care
  • Space-A Travel
  • Tax-free housing
  • Montgomery GI bill

Here’s an example of what is not a military benefit:

Read More

Page 1 of 4

Powered by WordPress & Theme by Anders Norén