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  • Rick Martin

Owning the American Dream or Having Financial Freedom?

Buying a home in many of the coastal metros can require $200,000 to $300,000 as a down payment, and then it also rewards you with a $5000 to $6000 mortgage payment.  You better keep that job, and be prepared to work hard for the next 30 years.  It does not seem very sustainable or healthy.   Working hard is admirable, but working smart is well… smarter.  What if you took that $200,000 - $300,000, invested it wisely (and carefully) into apartments, and got paid $5000 to $6000 a month?  You could trade that debt in for income, and begin to live life on your terms.


Oh honey... We are so f'd.

There is a colleague that I run into from time to time. She happens to hold down a 9 to 5 job. The conversation somehow always shifts to how much her residence has gained in value; it never fails. I half-heartedly say, "that's great," but then think to myself, now what are you going to do with it? I have even suggested that she take out a home equity line of credit and use it to invest wisely. Not on a boat, car, or vacation, but maybe take $100,000 and start earning 15 – 20% annually, and start getting cash flow checks in the mail. Her eyes glaze over.


The light bulb went off for my family and me as we were about to sink a sizable portion of our nest egg into a personal residence. It was not only going to eliminate a severe piece of our investing ability, but it would eat up a healthy chunk of our monthly income. Imagine the pressure and stress it was going to put on us to keep up with that mortgage for the next 30 years. Did we want to work 10 hours a day for the next 30 years as our children grew?  Did we want “The American Dream” of owning a home, or did we want to become financially free first?  What if we, instead, put that money into an apartment building that was going pay us? If you have to go into debt to own something, then you really can't afford it, writes Robert Kiyosaki. Author of the mindset-altering book, Rich Dad Poor Dad That goes for cars, boats and yes, even homes. The essence of this brilliant book is to put your money into assets, not liabilities.


Buying a home in many of the coastal metros can require $200,000 to $300,000 as a down payment, and then it also rewards you with a $5000 to $6000 mortgage payment. You better keep that job and be prepared to work hard for the next 30 years. It does not seem very sustainable or healthy. Working hard is admirable, but working smart is well, smarter. What if you took that $200,000 - $300,000, invested it wisely (and carefully) into apartments, and got paid $5000 to $6000 a month?  You could trade that debt in for income, and begin to live life on your terms.


The keys to our very own jail cell!

I get it; it is fun to be able to decorate that kitchen and bath just the way you want, and have that pride in ownership. But one needs to consider the opportunity costs. Here is something radical for those of you sitting on massive amounts for equity. Do you know what the term accredited means (get a quick definition here)? In short, to qualify as an accredited investor, you either need to make $200,000 annually as an individual, or $300,000 as a couple, or have a net worth greater than $1,000,000, exclusive of your primary residence. Being an accredited investor opens you up to a whole new "club" of more lucrative investments and STREAMS OF INCOME. If you are not making an annual salary of $200,000 or higher, the alternative is to go for that $1,000,000 net worth baseline. It is a shame to have all that untapped wealth in your house. You could start setting you and your family up for life by actively or passively investing in real estate and getting cashflow checks every month. If you have $1,000,000 in the bank and investments, you qualify as an accredited investor, regardless if you own a home.


Conversely, if you have $500,000 in equity in your home, and have $500,000 in the bank and investments, you do not qualify – cue the dud music "wha, wha…”. Here comes a radical plan. What if you sold that personal residence, cashed in, and rented instead? Now you could tap into that wealth, and deploy it to become financially independent. If you bought many years ago, it makes sense to own a home. For those that did not, it is merely not affordable (in many markets), not to mention the massive opportunity cost. I know - radical.


You hear it from your realtor: “Owning a home will be the best investment you’ll ever make!" It will probably be the most significant amount of debt you will ever incur in your lifetime. Make no mistake, unless you paid all cash, and your home appreciates wildly, it is a liability, not an asset. The wealth is lost in the abyss of trapped equity.


I am so happy for you two! Now give me my commission.

The colleague I mentioned earlier is possibly sitting on an equity gold mind. Unfortunately, that equity will probably never see the light of day. Most would say that when the house is finally paid off in 30 years, it will be an incredible asset to pass along to their children, and they would be right. However, maybe they could have stopped and smelled the roses a lot more with their children had they invested differently, and still had the wealth to pass along.


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