I’ve always heard people say that buying a home is an investment. I know people flip investment properties and some rent properties out as landlords and make more money than their mortgage obligation.
What about their primary property? Take an example of an individual buying a house for $200,000 at a 4.5 percent interest rate. Say this individual has a 30-year mortgage. These following numbers are based on national averages: bank interest, $164,814; income taxes, $50,000; property taxes, $97,200; insurance, $30,000. Add those four segments to the original home purchase price, and the total cost is $542,014.
I’m not sure what the thought process is that banks are charging you 4.5 percent, because when you add up the interest and what you have to earn in your paycheck to pay for the house, the total interest is almost the same amount as the cost of the house!
When you make your mortgage payments for the next 30 years it’s with after-tax money that you earn in your paycheck. So technically, depending on your tax rate, you can be making your mortgage rate with a 75 percent dollar, and that is just including federal income taxes, not state and local.
Our goal is to keep giving the bank those payments until there are no more mortgage payments. In other words, you trap your money in your house.
The national average increase in value (appreciation) is about 3 percent. So while you are paying your mortgage down, your house’s value is going up. This is due mostly to recent home sales and those properties being bought for more than what the previous owner paid.
To add insult to injury, if the above example was used, you bought the house back in 1998 and you put down $50,000; the buying power of that $50,000 in ‘98 was roughly about $76,930. So by trapping the money into the house, for you to have a lower payment, it cost you about $26,000 in buying power on that money, due to inflation.
You lose if you pay off your house over the course of 15 or 30 years, because you will pay as much as two to three times the cost of the house.
If you pay toward your house with a large down payment or pay cash for your house you lose buying power of your money, again due to inflation and not taking advantage of the increase in value due to appreciation.
Based on my observations, I don’t believe most people are using their primary home as an investment. That was my goal when I wrote my book How to Hire Your House. There has to be a way to use your primary home as an investment property. I believe I found that way.
If you can flip an investment property or become a landlord, real estate can show anyone the power of leverage. The 30-year time period of a mortgage can be a partnership, with the bank being a beneficiary of your hard-earned money!
Mario Henry, a former National Football League player, is a financial services professional with 18 years of experience in the industry and author of "How to Hire Your House," an innovative guide on how to create a tax-free pension and sustain sufficient income through retirement. Mario also is a licensed insurance broker and a national motivational speaker. He was a wide receiver with the NFL’s New England Patriots and a scholarship football player at Rutgers University.
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