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How the Affluent Manage Home Equity to Safely and Conservatively Build Wealth

If you had enough money to pay off your mortgage right now, would you?

Many people would. In fact, the ‘American Dream’ is to own your own home, and to own it outright, with no mortgage. If the American Dream is so wonderful, how can we explain the fact that thousands of financially successful people, who have more than enough money to pay off their mortgage, refuse to do so.

The answer? Most of what we believe about mortgages which we The answer?and Mosthome of whatequity, we believe about mortgages and home equity, learned from our parents and grandparents, weThey learned fromusour iswhich wrong. taught to parents make a and big down grandparents, is wrong.

They taught us and payment, get a fixed rate mortgage, to make a big down payment, get a fixed make extra principle payments in order to pay rate mortgage, and make extra principle off your loan as early as you can. Mortgages, payments in order to pay off your loan as they arecan. a necessary evilthey at best. earlysaid, as you Mortgages, said, are a necessary evil at best.

The problem with this rationale is it has become outdated.

Therationale rules ofismoney The problem with this it has have become outdated.

Thegrandparents, rules of moneywe will changed.

Unlike our have changed. our job grandparents, no longer have Unlike the same for 30 years. In we will no longer have the same job for many cases people will switch careers five 30 years. In many cases people will switch orcareers six times.

Also, unlike our grandparents, five or six times. Also, unlike our we can no longer on ourdepend company’s grandparents, we depend can no longer pension plan for a secure retirement. on our company’s pension plan for a A recent secure survey retirement.

A recent Gallup showed that Gallup 75% ofsurvey workers showed that 75% of workers want to retire want to retire before the age of 60, yet only before thethey age can. of 60, yet only 25% think 25% think they can.

Unlike our grandparents, we will no longer Unlike our grandparents, we will no live in the same home for 30 years. Statistics longer live in the same home for 30 show that the average homeowner lives in years. Statistics show that the average their home for only sevenhome years. homeowner lives in their forAnd onlyunlike our grandparents, we will no longer keep the seven years. And unlike our grandparents, we will no longerforkeep the same mortgage same mortgage 30 years.

According to the for 30 years.

According to theAssociation, Federal Federal National Mortgage or National Mortgage Association, or Fannie Fannie Mae, the average American mortgage Mae, the average American mortgage lasts 4.2 years. People are refinancing their lasts 4.2 years. People are refinancing homes everyevery 4.2 4.2 years their homes yearstotoimprove improve their interest rate, restructure their debt, remodel their interest rate, restructure their debt, remodel their home, or tomoney pull out their home, or to pull out formoney investing, for investing, or other Given expenses. education or education other expenses. these Given these statistics, it’s difficult to statistics, it’s difficult to understand why understand why so many Americans so many Americans continue to pay a high continue to pay a high interest rate interest premiumrate premium for a 30-year fixed rate mortgage, when they are likely to only use

the first 4.2 years of the mortgage. We can financial planning goal, and in fact how you only conclude theyrate aremortgage, operatingwhen on outdated ultimate handle issuesplanning of homegoal, ownership financial and in may well for a 30-year fixed how you handle issues of home they are likelyfrom to only use thegenerations first 4.2 knowledge previous when factdetermine whether you achieve financial years the mortgage. can than only the 30 year ownership thereofwere few optionsWe other success.”may well determine whether you achieve financial success.” conclude they are operating on outdated fixed mortgage. Wealthy Americans, those knowledge from previous generations with the ability to pay off their mortgage but when there were few options other than Why people fear mortgages, refuse to do understand how to make Why people fear mortgages, the 30 year fixedso,mortgage.

Wealthy and whyyou youshouldn’t shouldn’t and why their mortgage for them.

Americans, thosework with the ability to pay off their mortgage but refuse to do so, In order to discover how our order to discover howparents our parents and They go against manytheir of mortgage the beliefs of andIngrandparents understand how to make got the idea that a grandparents got the idea that a mortgage traditional work for them.thinking. They put very little mortgage was a necessary evil at best, a necessary evil at best, we must go back money down, they keep their mortgage we was must go back in time to the Great in time toInthe Depression.

They go against many the beliefs of choose Depression. theGreat 1920’s a commonIn the 1920’s balance as high as ofpossible, they traditional thinking. They put very little a common clause in loan gave banks adjustable rate interest-only mortgages, clause in loan agreements gaveagreements money down, they keep their mortgage right tothe demand repaymentfull of repayment right full to demand and most importantly they integrate their thebanks balance as high as possible, they choose theof loan atloan any time.

Since thisSince was like the at any time. was like mortgagerate intointerest-only their overallmortgages, financial plan to asking for the moon and the stars, nothis adjustable one asking for the moon and the stars, no one continually increasethey theirintegrate wealth. This and most importantly their is how worried about it. When the stock market worried about it. When the stock market mortgage intoricher. their overall financial plan the rich get crashed on October 29, 1929 millions of crashedlostonhuge October 29,money, 1929much millions of to continually increase their wealth. This is investors sums of Thethe game is the same, but while most of itinvestors how richboard get richer. lost huge of money, on margin.

Back then,sums you could buy much Americans are playing checkers, the affluent $10ofof itstock for a $1. Since value on margin.

Back the then, youofcould buy The board is theThe same, but while stocks dropped, wanted aregame playing chess. good news is the the$10 of stock for afew $1.investors Since the value of the most Americans are playing checkers, the to sell, so they had to go to the bank strategies used by the wealthy work for the stocks dropped, few investors wanted to sell, affluent are playing chess. The good news out cash to cover their margin rest of America as well. Any home-owner can andsotake they had to go to the bank and take out is the strategies used by the wealthy work call. It didn’t take long for the banks to implement strategies ofAny thehomewealthy to runcash tocash coverand their margin It didn’t take for the rest of the America as well. out of start callingcall. loans increase their net worth. owner can implement the strategies of the theAmericans banks to who run were out of cash and duelong fromfor good wealthy to increase their net worth. faithfully makingloans their mortgage start calling due from payments good Americans RicEdelman, Edelman,one oneofofthe thetop topfinancial financial planners every month. However, there wasn’t any Ric who were faithfully making their mortgage in the country and aand Newa New York York Times Best demand to buy these homes, so prices planners in the country payments every month. However, there Times Best Sellingsummarizes author, summarizes in The continued to drop. To cover the margin Selling author, in this book wasn’t any demand to buy these homes, so this book The Truth About Truth About Money, “TooMoney, often,“Too people buy calls, brokers were forced to sell stocks prices continued to drop. To cover the margin often, people buy homes in a vacuum, homes in a vacuum, without considering how and once again there wasn’t a market calls, brokers were forced to sell stocks and without considering how that purchase is that purchase is going to affect other aspects for stocks so the prices kept dropping. going to affect other aspects of their lives. once again thereDepression wasn’t a market for stocks Ultimately, the Great saw the of their lives.

This can beand a big mistake, and stock market fall more than 75% from its This can be a big mistake, therefore so the prices kept dropping. Ultimately, the therefore you mustthat recognize owning a 1929 highs. you must recognize owning athat home Great Depression saw the stock market fall holds important implications for the homevery holds very important implications for more than 75% from its 1929 highs. rest your plan. Although a theofrest of financial your financial plan. Although a fine goal, owning a home is not the

fine goal, owning a home is not the ultimate

More than half the nation’s banks failed and millions of homeowners, unable to raise the

Money, Ric tells the story of two brothers,

More than half the nation’s banks failed

cashand they needed to payoff their loans,tolost millions of homeowners, unable theirraise homes.

Out ofthey thisneeded the American Mantra the cash to payoff loans, lost own their homes.

Out of this wastheir born: Always your home outright. the American Mantra was born: Always Never carry a mortgage.

own your home outright. Never carry a Themortgage. reasoning behind America’s new mantra reasoning behind ifAmerica’s new fell wasThe really quite simple: the economy mantra was really quite simple: if the to pieces, at least you still had your home economy fell to pieces, at least you still andhad the your bankhome couldn’t take it away from you. and the bank couldn’t take Maybe youfrom couldn’t put foodyouoncouldn’t the table it away you. Maybe putor payfood youronbills, but your home was secure. the table or pay your bills, but your secure. Since Great Since thehome Greatwas Depression lawsthe have been Depression laws have been introduced introduced that make it illegal for banks to illegal for banks to call your call that yourmake loanitdue.

The bank can no longer loan due. The bank can no longer call you call up youand upsay, and“We’re say, “We’re running a little running a little short on shortcash on and cashneed and you need you to pay your to pay off youroff loan in loanthe in next the next thirtythirty days.”days.”

Additionally, the Fed is now quick to Additionally, the into Fed the is now quick to infuse infuse money system if there is money thebanks, systemasifwethere run on a runinto on the saw is in a1987 Y2K. the in FDIC wasand created the and banks, asAlso, we saw 1987 Y2K. to Also, insure banks.

Still, it’s no wonder the fear the FDIC was created to insure banks.

Still, of losing their home became instilled in it’s no wonder the fear of losing their home the hearts and minds of the American became instilled in the hearts and minds people, and they quickly grew to fear of the and and they60’s quickly theirAmerican mortgage.people, In the 1950’s grewfamilies to fearwould theirthrow mortgage.

In the 1950’s mortgage burning to celebrate paying off their andparties 60’s families would throw mortgage home.parties And so,tobecause this fearoff of their burning celebrateofpaying their mortgage, for nearly 75 years most home. And so, because of this fear of their people have overlooked the opportunities mortgage, for nearly 75 years most people their mortgage provides to build financial havesecurity overlooked the opportunities their

mortgage provides to build financial security.

Why people hate their mortgage andtheir whymortgage you Why people hate andshouldn’t why you shouldn’t Many people hate their mortgage because

Many hate the their because theypeople know over lifemortgage of a 30 year loan, theythey know lifeinofinterest a 30 than year the loan, will over spendthe more house cost them in the first place.

To save they will spend more in interest than the money becomes veryfirst tempting house costit them in the place.toTomake save a bigger down payment, or make extra money it becomes very tempting to make principal payments. Unfortunately, saving a bigger down payment, or make extra money is not the same as making money. principal Or, put payments. another way,Unfortunately, paying off debtsaving is money is not the same as makingassets. money.ByOr, not the same as accumulating mortgage put tackling anotherthe way, paying pay-off off debtfirst, is and not the the same as accumulating assets. By tackling the mortgage pay-off first, and the savings goal second, many fail to consider the important role a mortgage plays in our savings effort.

Common Home Equity Misconceptions Many Americans believe the following statements to be true, but in reality they are myths, or misconceptions:

Your home equity is a prudent investment.

FALSE Extra principal payments on your mortgage saves you money.

FALSE Mortgage interest should be eliminated as soon as possible.

FALSE Substantial equity in your home enhances your net worth.

FALSE Home Equity has a rate of return.

FALSE savings goal many failistoaconsider Every dollar wesecond, give the bank dollar we the important role a mortgage plays in our did not invest. While paying off the mortgage savings effort.

Every dollar we give the saves us interest, it denies us the opportunity bank is a dollar we did not invest. While to earn interest with that money. paying off the mortgage saves us interest, it denies us the opportunity to earn interest with that money.

A tale of two brothers

Ric Edelman has educated his clients for A tale of two brothers years on the benefits of integrating their mortgage intohas their overallhisfinancial Ric Edelman educated clients plan.

Inforhisyears book, New Rules of Money, Ric on The the benefits of integrating their overall financial tells themortgage story of into two their brothers, each of whom plan.

In his book, The New Rules secures a mortgage to buy a of$200,000 home. Each brother earns $70,000 a year and has $40,000 in savings. The first brother, Brother A, believes in the old way of paying

off a mortgage, which aismortgage as soon astopossible. each of whom secures Brother A bites thehome. bulletEach and brother secures a fifteenbuy a $200,000 earnsmortgage $70,000 aatyear and APR has $40,000 year 6.38% and shells out in savings.

The first brother, Brother A, down all $40,000 of his savings as a 20% believes in the old way of paying off payment, leaving him zero dollars ato invest. mortgage, which is as soon as possible.

This leaves him with a monthly payment of Brother A bites the bullet and secures a $1,383.

Since he hasat 6.38% a combined fifteen-year mortgage APR andfederal and state income tax rate of 32%, he is left shells out all $40,000 of his savings as a 20%an down payment, leaving zero cost with average monthly nethim after-tax dollars to invest. with a of $1,227.

Also, This in anleaves efforthim to eliminate his monthly payment of $1,383.

Since he has mortgage sooner, Brother A sends an extra a combined federal and state income tax $100 to his lender every month. Brother rate of 32%, he is left with an average B, in contrast, subscribes the new way of monthly net after-tax cost ofto$1,227.

Also, mortgage planning, choosing instead to in an effort to eliminate his mortgage carry a big, long-term He secures sooner, Brother A sendsmortgage. an extra $100 to lender every month. loan at 7.42% APR. ahis30-year, interest-only He outlays a small 5% down payment of Brother B, in contrast, subscribes $10,000 and invests the remaining $30,000 to the new way of mortgage planning, in a safe, moneymaking account. His choosing instead to carry a side big, long-term monthly is $1,175, 100% of which mortgage.payment He secures a 30-year, interestis taxloan deductible 15 ayears, and only at 7.42% over APR.the He first outlays small over 5% down payment $10,000 and him 64% the life of theof loan, leaving invests the remaining $30,000 in a safe, a monthly net after-tax cost of $799. Every moneymaking side account. His monthly month he adds $100 to his investments (the payment is $1,175, 100% of which is tax same $100 Brother A sent to his lender), plus deductible over the first 15 years, and 64% the he’sofsaved from his lower over$428 the life the loan, leaving him mortgage a payment.

His investment account earns an monthly net after-tax cost of $799. Every month $100 to his investments 8% rateheofadds return. (the same $100 Brother A sent to his

Which brother madehe’s thesaved rightfrom decision? lender), plus the $428 his loweranswer mortgage Hisby investment The canpayment. be found looking into account earns anjust 8% rate return. the future.

After five of years Brother A has received $14,216 in tax savings, however he Which brother made the right decision? made zero dollars in savings and investments.

The answer can be found by looking into Brother B,After on the hand, has received the future. justother five years $22,557 savings$14,216 and hisin savings and Brother A in hastax received tax savings, however he made zero dollars in investment account has grown to $83,513. savingswhat and investments.

Brother B, on thelose Now, if both brothers suddenly other hand, has received $22,557 in tax their jobs? The story here turns rather bleak savings and his savings and investment Brother A. Without any money in savings, for account has grown to $83,513. Now, what he hasbrothers no way tosuddenly get through the crisis. if both lose their jobs? Even though he has $74,320 of equity The story here turns rather bleak for in his Brotherhe A. can’t Without money in savings, home, getany a loan because he doesn’t he hasa no to get have job.way With no through job andthe no crisis. savings, he Even though can’t make his monthly payments and has no choice but to sell his home in order to avoid foreclosure. Unfortunately, at this point it’s a fire sale so he must sell at a discount, and

3

A Tale of Two Brothers Adapted from the book, The New Rules of Money

Our story begins with two brothers, each earning $70,000 a year. They each have $40,000 in savings and both are buying $200,0000 homes.

Brother “A” believes in “The Old Way” – paying off the mortgage as soon as possible

Brother “B” believes in “The New Way” –carrying a big, long mortgage

then pay real estate commissions.

Brother B, while not particularly happy at the prospects of searching for a new job, is not worried becauseofheequity has $83,513 in savings to he has $74,320 in his home, tide him get over.a loan He doesn’t need a loan and can he can’t because he doesn’t easily his monthly payments, even if he have amake job. With no job and no savings, can’t make his payments and isheunemployed formonthly years. He has no reason to has no choice but to sell his home in panic, as he is still in control. Remember… order to avoid foreclosure. Unfortunately,

at this is point it’s a fire sale so he must sell Cash King! at a discount, and then pay real estate

15-year mortgage at 6.38% APR

30-year mortgage at 7.42% APR

$40,000 Big Down Payment

$10,000 Big Down Payment

$0 left to invest

$30,000 left to invest

$1,383 Monthly Payment

$1,175 Monthly Payment

(56% is tax deductible first year/33% average)

(100% is tax deductible first 15 yeas/64% average)

$1,227 Monthly Net After-Tax Cost

$799 Monthly Net After-Tax Cost

Sends $100 monthly to lender in effort to eliminate mortgage sooner

Adds $100 monthly to investments, plus $428 saved from lower mortgage payment where account earns 8% rate of return

Results after 5 Years Received $14,216 in tax savings

Received $22,557 in tax savings

has $0 in savings and investments

has $83,513 in savings and investments

What if both brothers suddenly lost their jobs?

Has no savings to get him through crisis

Has $83,513, in savings to tide him over

Can’t get a loan – even though he has $74,320 more in equity than his brother – because he has no job

Doesn’t need a loan

Must sell his home or face foreclosure because he can’t make payments

Can easily make his mortgage payments even if he’s unemployed for years

At this point – it’s a fire sale – he must sell at a discount and pay real estate commissions (6-7 %)

has no reason to panic since he’s still in control – remember... cash is KING!

commissions.

Now, let’s say neither brother lost his job.

We’ll check in on them after fifteen years have Brother B, whilethey not particularly passed since purchasedhappy their athomes the prospects of searching for a new job, and evaluate the results of their financing is not worried because he has $83,513 in strategies.

Brother A He hasdoesn’t now need received savings to tide him over. $25,080 taxeasily savings, $30,421 in a loan andincan makehehishas monthly payments, even if he savings and investments (once his home is unemployed years.saving He hasthe noequivalent was paid off hefor started reason to panic, as he is still in control. of his mortgage payment each month), and Remember… owns his home outright. Not too bad, right?

Cash is King!

Now let’s check on his Brother. Brother B Now, let’s say neither brother lost his job. has received $67,670 in tax savings and has We’ll check in on them after fifteen years $282,019 in since savings investments. have passed theyand purchased their If he chooses to, he can pay off the remaining homes and evaluate the results of their financing strategies.

A has now mortgage balance ofBrother $190,000 and still have received left $25,080 in savings, tax savings, hasclear. $92,019 over in freehe and $30,421 in savings and investments (once

Results After 15 Years Received $25,080 in tax savings

Received $67,670 in tax savings

Has $30,421 in savings and investments

Has $282,019 in savings and investments

Owns home outright

Remaining mortgage balance is $190,000 – and he has enough savings to pay it off and still have $92,019 left over, free and clear

Results After 30 Years Received $25,080 in tax savings

Received $107,826 in tax savings

Has $613,858 in savings and investments

Has $1,115,425 in savings and investments

Owns home outright

Owns home outright – so starts fresh and enjoys the same benefits once again

his homelet’s was assume paid off he started saving Finally, that rather than pay the equivalent of his mortgage payment off his mortgage at fifteen years, Brother B each month), and owns his home outright. decides to ride out the whole thirty years of the Not too bad, right? loan’s life. While Brother A has still received only inon taxhissavings, savings Now $25,080 let’s check Brother.his Brother B and investments grown $613,858, has received have $67,670 in taxto savings and and hasstill $282,019 investments. he owns inhissavings homeand outright.

Brother B, If he to, he has can received pay off thea whopping on thechooses other hand, remaining mortgage balance of $190,000 $107,826 in tax savings, has accumulated and still have $92,019 left over in savings, an incredible $1,115,425 in savings and free and clear. investments, and also owns his home outright.

Heassume can start Finally, let’s thatover ratherfresh than and pay enjoy off his mortgage fifteenagain. years,Unfortunately, Brother the same benefitsat once B decides to ride out the whole thirtythe same the majority of Americans follow yearsas of Brother the loan’s A they path A,life. as While it’s theBrother only path has still received only $25,080 in tax know. Once the path of Brother B is revealed savings, his savings and investments to them, a paradigm shifting epiphany often have grown to $613,858, and he still occurs as they realize Brother B’s path enables owns his home outright. Brother B, on the homeowners to received pay their ahomes off sooner (if other hand, has whopping they choose to), while significantly increasing

Are you still doing this?

“Here is is an an extra extra $100 $100 “Here principal payment payment Mr. Mr. Banker.

Banker. Don’t Don’t pay pay me me any any interest interest principal on it.

If I need it back, I’ll pay you fees, borrow it back on on it. If I need it back, I’ll pay you fees, borrow it back on your terms, terms, and and prove prove to to you you that that II qualify.” qualify.” your

Money you give the bank is money you’ll never see again unless you refinance or sell.

Many Americans believe the best way to

Certified Financial Planners) contained

$107,826 in in tax savings, savings, has has accumulated accumulated Certified Financial contained believe bestasway $107,826 yearMany loanAmericans and aa 30-year 30-year loan,the as well well thetotax tax 4-5%, their net worth worthtaxand and maintaining maintaining the added added year 4-5%, the chances chances arePlanners) pretty good good that you you loan and loan, as as the their net the the are pretty that the first academic study undertaken on pay off a home early is to pay extra principal an incredible $1,115,425 in savings and the first academic study undertaken on pay off a home early is to pay extra principal an incredible $1,115,425 in savings and savings intomortgage. safe side side investment account can benefits of liquidity liquidity and safety the entire way. way. savings can the earnquestion 5% on onofyour your money.

Interest rates into aa safe investment account benefits of entire earn 5% money.

Interest rates 15-year versus 30-year on your your Similarly, many finance finance investments, and and alsosafety owns the his home home the question of 15-year versus 30-year on mortgage. Similarly, many investments, and also owns his earning a conservative rate of return, you will are relative.

In the 1980’s, money was costing a conservative rate ofloan return, youyou will are relative.

In the 1980’s, moneythe was30-year costingloan mortgages.

They concluded the 30-year loan professors think aa 15-year 15-year loan saves you outright. He He can can start start over over fresh fresh and and enjoy enjoy earning mortgages.

They concluded professors think saves outright. have enough to pay your home off in 13½ 15%, but individuals could still earn 15% on is better.

Based on the same logic, wouldn’t money by reducing reducing the interest interest youinpay. pay. the same same benefits benefits once once again. again. Unfortunately, Unfortunately, have enough to pay your home off 13½ 15%,is but individuals still earn on better.

Based oncould the same logic,15% wouldn’t money by the you the Successfully managing home years (or in in 15 15 yearsAndrew with $25,000 $25,000 to spare!). spare!). their money. money. Due Due to to the the tax tax deductibility deductibility of of However, Doug Andrew points out out in his his the majority majority of of Americans Americans follow follow the the same same years (or years with to their However, Doug points in the equity to increase liquidity, an interest-only interest-only loan be better better than than an book, one Missed Fortune,Fortune that this thistalks thinking is mortgage Chapter one in Missed Missed Fortune talks about path as as Brother Brother A, A, as as it’s it’s the the only only path path they they Chapter mortgage interest and and compounding returns, an loan be an book, Missed Fortune, that thinking is in about path interest compounding returns, amortizing loan?

If mortgage money cost you flawed.

If you do the math, you find if you know.

Once the path of Brother B is revealed safety, rate of return, and the $25,000 mistake made by millions of you can borrow at a higher rate and invest atyou If mortgage money If you do the made math, you find if youof youamortizing know. Once the path of Brother B is revealed theflawed. $25,000 mistake by millions can borrowloan? at a higher rate and investcost itit at 4-5%, the chances are pretty good that you set aside the monthly payment difference to them, a paradigm shifting epiphany often Americans who choose the fifteen-year loan. aa lower 4-5%, theand chances are pretty good that you lower rate and still make make significant profit. set asidewho thechoose monthlythe payment difference them, a paradigm shifting epiphany often Americans fifteen-year loan. rate still aa significant profit. taxto deductions occurs as as they they realize realize Brother Brother B’s B’s path path occurs enables homeowners to pay their homes off enables homeowners to pay their In 2003, 2003, Doug Doug Andrew, Andrew, aa top top financial financialhomes planneroff In planner sooner (if they choose to), while significantly sooner theythe choose while significantly from Utah,(if was was the first to), to clearly clearly articulate from Utah, first to articulate increasing their their net net worth worth and and maintaining maintaining increasing the strategy strategy the the wealthy wealthy have have been been using using the the added added benefits benefits of liquidity liquidity and and safety safety the the the of for decades in his book, Missed Fortune.

The forentire decades in his book, Missed Fortune.

The entire way. way.

book isis based based on on the the concepts concepts of of successfully successfully book managing home equity to increase liquidity, managing home equity to increase liquidity, Successfully managing home Successfully managing home safety, rate rate of of return, return, and and tax tax deductions. deductions. safety, equity toreaders increase liquidity, equity to increase Doug educates to view viewliquidity, their mortgage mortgage Doug educates readers to their safety, rate of return, and and home equity equity through different lens, the the safety, ratethrough of return, and and home aa different lens, same lens used by the affluent.

He shows taxlens deductions same used by the affluent. He shows tax deductions how relatively minor changes changes in in home home equity equity how relatively minor In 2003, 2003, Doug Doug Andrew, Andrew, aa top top financial financial In perception and positioning can produce perception andUtah, positioning canto clearly produce planner from from was the the first first planner Utah, was to clearly monumental long-term effects in financial monumental effects in financial articulate the thelong-term strategy the the wealthy have articulate strategy wealthy have security. security. been using for decades in his book, Missed

been using for decades in his book, Missed Fortune. The The book book is is based based on the concepts concepts Fortune. the Many Americans believe theonbest best way to to Many Americans believe the way of successfully managing home equity to of successfully managing home equity to payincrease off aa home home earlysafety, to pay pay extra principal pay off early isis to principal liquidity, rateextra of return, return, and increase liquidity, safety, rate of and on your mortgage.

Similarly, many finance ontax your mortgage.

Similarly, many finance tax deductions.

Doug educates readers deductions. Doug educates readers professors thinkmortgage 15-year loan saves you to view view their their mortgage andloan homesaves equityyou professors think aa 15-year to and home equity money by reducing the interest you pay. through different lens, lens, the sameyou lens pay. used money by aareducing the the interest through different same lens used However, Doug Andrew points out in his book, by the affluent.

He shows how relatively However, Doug Andrew pointshow outrelatively in his book, by the affluent.

He shows minorFortune, changesthat in home home equity perception perception Missed Fortune, that this thinking thinking flawed. IfIf minor changes in equity Missed this isis flawed. and positioning canfind produce monumental you do the math, you if you set aside the and positioning can produce monumental you do the math, you find if you set aside the long-term effects in financial security. long-term effects in financial security. monthly payment difference between a 15-

monthly payment difference between a 15-

between aa 15-year 15-year loan loan and and aa 30-year 30-year loan, loan, between as well well as the the tax tax savings savings intoteaches safe side side Cram Investment Groupinto teaches an as as aa safe Cram Investment Group an investment account earning a conservative educational seminar for the public based investmentseminar account for earning conservative educational the apublic based rate of of return, you will willFortune have enough enough to pay rate return, you have to largely on the Missed concepts.

In largely on the Missed Fortune concepts.pay In your home off in 13½ years (or in 15 years your home off in 13½ years (or in 15 years the seminar, we break down the four key thewith seminar, wetobreak down the one four inkey $25,000 to spare!). Chapter Chapter one with $25,000 spare!). ininto benefits of integrating your mortgage benefits integrating your mortgage into MissedofFortune Fortune talks about about the $25,000 $25,000 Missed talks the your financial plan (increased liquidity, safety, your financial plan (increased liquidity, safety, mistake made made by by millions millions of of Americans Americans who who ratemistake of return, return, and tax deductions) deductions) in order order to to rate of and tax in choose the fifteen-year loan. choose the fifteen-year loan.

can earn earn 5% 5% on on your your money. money. Interest Interest rates rates can are relative. relative. In In the the 1980’s, 1980’s, money money was was costing costing are 15%, but individuals could still earn 15% on 15%, but individuals could still earn 15% on their money.

Due to the tax deductibility of their money. Due to the tax deductibility of mortgage interest and compounding returns, mortgage interest and compounding returns, you can cash borrow at aa higher higher rate and invest invest By having available ftorrate emergencies can borrow at and By you having cash available ftor emergencies at aa lower lower rate rate and still still make make significant at and aa significant andititinvestment investment opportunities, most homeand opportunities, most homeprofit. profit.

Large equity in your home can be a big disadvantage

owners are are better better off off than than ifif their their equity equity isis tied tied owners up in in their their residence. residence. Large, Large, idle idle equity, equity, also also up look at at each each one one in in more more detail detail look Large equity in your home Large equity in your home called ‘having all your eggs in one basket,’ called ‘having all your eggs in one basket,’ Cram Investment Investment Group Group teaches teaches an an OurCram goal is to help clients conserve their home can be aaifif big big disadvantage can can be risky risky the homeowner homeowner suddenly Our goal is to help clients conserve their home be disadvantage can be the suddenly educational seminar seminar for for the the public public based based educational equity, not consume it.

We are one of the needs cash.

While employed and in excellent equity, noton it. Fortune We are concepts. one of theIn largely onconsume the Missed Missed Fortune concepts.

In needs While andemergencies in excellent largely the By cash. having cashemployed available ftor ftor By having cash available emergencies few financial planning firms who encourage health, borrowing onopportunities, home isis easy, easy, buthomemost the seminar, we break break down theencourage four key key fewthe financial planning firms who health, aa home but most seminar, we down the four andborrowing investmentonopportunities, most and investment most homeclients to secure debt in order to become debt benefits of integrating your mortgage into people, especially retirees, unexpectedly clients to secure debt in order become debt benefits of integrating yourtomortgage into people, especially owners are better betterretirees, off than than ifif unexpectedly their equity equity owners are off their your financial plan plan (increased (increased liquidity, liquidity, safety, safety, need freeyour sooner. need cash when they are sick, unemployed or financial free sooner. is cash tied up up in their their residence.

Large, idle idle or when theyresidence. are sick, unemployed is tied in Large, rate of of return, return, and and tax tax deductions) deductions) in in order order to to haveequity, rate insufficient income.

Obtaining a home also called called ‘having all your youraeggs eggs in insufficient income.

Obtaining home also ‘having all in In look Aprilat 1998, Thein Journal of Financial Financial haveequity, look at 1998, each one one in more more detail In April The Journal of each detail one basket,’ can be risky if the homeowner loan under these circumstances can be either basket,’ be risky if the under thesecan circumstances canhomeowner be either Planning (published (published by by the the Institute Institute of of loanone Planning suddenly needs cash. While While employed employed impossible orneeds very expensive. expensive. suddenly cash. impossible or very Our goal goalFinancial is to to help help clients clients conserve their Certified Financial Planners) contained Our is conserve their Certified Planners) contained and in in excellent excellent health, health, borrowing borrowing on on aa and home equity, not consume it.

We are one the first academic study undertaken on home equity, not consume it.

We are one How many of us feel when we go to the bank home easy, butwhen most we people, especially the first academic study undertaken on Howhome manyisisofeasy, us feel go toespecially the bank but most people, of question the few few financial financial planning firms who who of the planning firms the of 15-year versus 30-year retirees,need unexpectedly need cash when they we almost almost need to prove prove we we don’t need thethey the question of 15-year versus 30-year we retirees, unexpectedly need cash when to don’t need the encourage clients to secure secure debt in order order to encourage clients to debt in to are sick, unemployed or have insufficient mortgages.

They concluded the 30-year loan money before they’ll loan it to us?

The bank are sick, unemployed mortgages.

They free concluded the 30-year loan money before they’ll loanorit have to us?insufficient The bank become debt debt free sooner. become sooner. income.

Obtaining a home home loan under under these better.

Based on the the same logic, logic, wouldn’t wouldn’t wants income.

Obtaining a loan these wants to know we have the ability to repay repay isis better.

Based on same to know we have the ability to circumstances can be either impossible or an Ininterest-only interest-only loan be better better than an an the can be how either impossible the circumstances loan. You You can can imagine imagine how aa conversation conversationor an loan be than loan.

April 1998, 1998, The The Journal of Financial Financial In April Journal of very expensive. very amortizing loan? mortgage money cost you might might goexpensive. with your your banker: banker: “I“I brought brought up up amortizing IfIf mortgage Planningloan? (published by the themoney Institutecost of you go with Planning (published by Institute of

your loan application up to the board this There are actually three primary reasons:

How many of us feel when we go to the morning and I explained to them you’re going bank we almost need to prove we don’t through some hard financial times, you’re need the money before they’ll loan it to us? unemployed, your credit is not so good and The bank wants to know we have the ability maybe lendcan youimagine some cash to repaythey the could loan. You how to a get through these rough times.

Their response conversation might go with your banker: “I was... ‘Fatupchance!’ brought your loan application up to the board this morning and I explained to them What many is that even you’re goingpeople throughdon’t somerealize hard financial iftimes, they’ve consistently been making double you’re unemployed, your credit is not so good and maybe they could mortgage payments for five yearslend in ayou row, the some cashhas to get rough times. bank still no through leniency.these If suddenly they Their response was...

‘Fat chance!’ experience a financial setback, the bank will

not care. They can go to the bank and plead,

What many people don’t realize is that even “I never thought in a million years this would if they’ve consistently been making double happen to me, but it did. I’ve been paying my mortgage payments for five years in a row, mortgage in has advance for years, how about if the bank still no leniency.

If suddenly I justexperience coast on my mortgage payments for a they a financial setback, the bank fewnot months?”

Theycan get go thetosame answer every will care. They the bank and plead, never thought in ajust million time... “I‘Fat chance!’

Banks don’tyears workthis that would happen toofme, it did.

I’ve been way. Regardless howbut much you’ve paid your paying my down mortgage in advance for payments years, mortgage or how many extra how about if I just coast on my mortgage you’ve made, next month’s payment is still payments for a few months?” They get the due in its entirety no matter what. same answer every time... ‘Fat chance!’

Banks just don’t work that way. Regardless of how much you’ve paid your mortgage down or how many extra payments you’ve made, next month’s payment is still due in its entirety no matter what.

mortgage payment, or have an additional financial times, would your rather have $25,000 of equity trapped in your home? $25,000 of cash to help you make your Almost every person who has ever lost their mortgage payment, or have an additional home to foreclosure would have been better $25,000 of equity trapped in your home? off if they hadperson their who equity from Almost every hasseparated ever lost their 1. Liquidity their home in a liquid, safe, conservative side These three elements are also commonly home to foreclosure would have been better 2. Safety be equity used toseparated make mortgage off if that they could had their from used asofthe test of a prudent investment. fund 3. Rate return their home in a liquid, safe, conservative side When evaluating a potential investment, payments during their time of need. fund that could be used to make mortgage These three elements experienced investors are will also ask commonly the following The importance of liquidity became all too payments during their time of need. used as the test of a prudent investment. three questions: clear when the stock market crashed in cash position. Why in the world would you want to have the1.equity removed from your Liquidity home? There are 2. actually Safetythree primary reasons: 3. Rate of return

When evaluating a potential investment, experienced1.investors will ask the following How liquid is it? three questions: (Can I get my money back when I want it?)

2. How 1. How liquid issafe it? is it?

(Can I get my back when I want it?)

(Is itmoney guaranteed or insured?)

3. Whatsafe rate ofisreturn 2. How it? can I expect?

(Is it guaranteed or insured?)

Home equity fails all three tests of a prudent investment.

Let’s examine each can of these core 3. What rate of return elements in more detail to better understand I expect? why home equity fails the tests of a prudent Home equity and, fails allmore three tests of a prudent investment, importantly, why investment.

Let’s examine each of these core home-owners benefit by separating the elements morehome. detail to better understand equity fromin their why home equity fails the tests of a prudent investment, and, more importantly, why home-owners benefit by separating the equity from their home.

The importance became too October of 1987.of Ifliquidity someone had alladvised clear when the stock market crashed in you to sell your stocks and convert to cash, October of 1987. If someone had advised they would have been a hero. Or, if you had you to sell your stocks and convert to cash, enough liquidity you could have weathered they would have been a hero. Or, if you had the storm. Those with other liquid assets were enough liquidity you could have weathered able to remain invested.

Theyliquid wereassets rewarded the storm.

Those with other aswere theable market rebounded to remain invested.and Theyrecovered were fully withinas90the days.

However, those and without rewarded market rebounded recovered fully within 90 days.

However, liquidity were forced to sell while the market those without liquidity were forcedsignificant to sell was down, causing them to accept while the market was down, causing them losses. In Missed Fortune, Doug Andrew tells to accept significant losses. In Missed the story of a young couple who learned what Fortune, Doug Andrew tells the story of a he calls “The $150,000 Lesson on Liquidity”. young couple who learned what he calls In“The 1978 this couple built a beautifulIn home $150,000 Lesson on Liquidity”. that be featured Better home Homesthat and 1978would this couple built a in beautiful Gardens. couple’s home appreciated would be The featured in Better Homes and The by couple’s inGardens. value, and, 1982,home it wasappreciated appraised for in value, by 1982,They it was appraised for just underand, $300,000. had accumulated just under $300,000.

They had accumulated a significant amount of equity, not because a significant amount of equity, not because they had been making extra payments on they had been making extra payments on the property, but because market conditions the property, but because market conditions improved improvedover overthat thatfour-year four-yearperiod. period.

Why separate equity from your home?

Separating equity to increase liquidity

In the book, Missed Fortune, Doug Andrew suggests people strongly Why separate equity from consider separating as much equity your as theyhome? possibly can from their house, and place it overMissed in a cash position. in the In the book, Fortune, DougWhy Andrew world would youstrongly want to have the equity suggests people consider separating as much equity as they possibly removed from your home?

What is the biggest secret Separating equity toin real estate?

Your mortgageliquidity is a loan against your income, increase not a loan against the value of your house.

What is the biggest secret in real estate? Your Without an income, in many cases you cannot mortgage is a loan against your income, not a get a loan.

If you suddenly experienced loan against the value of your house. Without This couple thought they had the world by difficult financial your get rather an income, in manytimes, caseswould you cannot a This couple thought they had the world the tail. They had a home valued at $300,000 have $25,000 of cash to help you make your loan. If you suddenly experienced difficult by the tail. They had a home valued at

can from their house, and place it over in a

“It’sbetter bettertotohave haveaccess access “It’s tothe theequity equityororvalue valueofofyour yourhome home to andnot notneed needit,it,than thantotoneed needit itand and and notbe beable abletotoget getatatit.”it.” not

during which forced with first and second mortgages owingowing only during highs.

And, most importantly, he learned better tomost have access to theheequity or value $300,000 with first and second mortgages owing who which got stucktime withthe the lender deficiency balance ofhighs. waswas forced toof to with first and second mortgages owing only importantly, learned betterAnd, to have access to the equity or value of $300,000 with first and second mortgages who got stucktime withthe the lender deficiency balance your home and not need it, than to need it a only $150,000.

They had “made” $150,000 in four $30,000 on their credit report?

The original pay the first mortgage and also accrued an $150,000.

They had “made” $150,000 in four never to allow a significant amount of equity yourtohome not need amount it, than toofneed it and only$150,000. $150,000.They Theyhad had“made” “made”$150,000 $150,000ininfour four pay $30,000 on mortgage their creditand report? original the first alsoThe accrued an never allowand a significant equity not be able to get at it.

Keeping home equity short years. owners, of course! additional $30,000ofofinterest interest and penalties.to accumulate short years. to accumulate in his property. not be able in to his get at it.

Keeping home equity short years. owners, of$30,000 course! additional and penalties. short years. property. safe is really a matter of positioning yourself By the time the home finally sold, less the safe is really a matter of positioning yourself to By the time the home finally sold, less the act instead of react to market conditions They had the misconception that the This couple not only had a foreclosure They had the misconception that the equity in Home equity is not the same as cash in the act instead reactthe to same marketasconditions overove They hadhad thethe misconception that thethe equity in This coupleinnotaccrued only hadindebtedness, a foreclosure guess Home They misconception that equity isof not cash in the $30,000 $30,000 in accrued indebtedness, guess which you have no control. equity in their home had a rate of return when, in appear on their credit report for seven years, their home had a rate of return when, in fact, it bank; only cash in the bank is the same which youcash haveinno equity their home had of a rate of return appear onstuck theirwith creditthe report for seven years,of bank; theirinhome had a rate return when, when, in fact,init who only thecontrol. bank is the same as as who got deficiency balance got stuck with the deficiency balance of fact, it was just a number on a sheet of paper. the report also showed a deficiency balance justjust number onaon asheet sheet paper. cash in the bank.

Being house fact,was it was a number a sheet of paper. the reporton alsotheir showed a deficiency balance was just aa number on ofofpaper. in the bank.

Being house richrich andand cashcash $30,000 credit report?

The original cash $30,000 on theironcredit report?

The original owing$30,000 $30,000 on a home they had owing a home they had lostlost Separating equity to poor a dangerous position to in. be Itin.isIt is Separating equity toto be poor is ais dangerous position owners, ofcourse! course! nearlyone year Then, series of unexpected unexpected events reduced Then, series of unexpected unexpected events reduced owners, ofone nearly year Then, aa series of events reduced Then, aa series of events reduced better to have access to the equity or value increase safety of principal to have access to theofequity or value of of increase safety principal earlier.InIna atime time of financial setback they lostbetter their income to almost almost nothingfor fornine ninemonths. months. their income to almost almost nothing for nine nine This earlier. of financial setback they lost their income to nothing their income to nothing for couple not onlyhad had a foreclosure appear your home not need it, than to need it and couple not only a foreclosure appear your home andand notTimes, need it,inthan to need it and one their most valuable assets due They couldn’t borrow money tokeep keep theirto keep This The Seattle an article published one ofoftheir most valuable assets due to to a a They couldn’t borrow money to their months.

They couldn’t borrow money The Seattle Times, in an article published months.

They couldn’t borrow money to keep on their credit report for seven years, the not be able to get at it.

Keeping home equity their credit report forhad seven years, the notinbeMarch to get at it.reported, Keeping home equity lack liquidity.

If they separated their mortgage payments current currentbecause becausewithout inable March 2004, “Remember lack ofofliquidity.

If they had separated their mortgage payments 2004, reported, “Remember that that their mortgage payments currentwithout because onreport their mortgage payments current because also showed a deficiency balance owing safe is really a matter of positioning yourself $150,000 inhome home equity and repositioned an they did did not nothave havethe theability abilitytoto report also showed aequity deficiency balance owing safehousing is really a matter of positioning yourself housing prices can and do level off. $150,000 in and repositioned an income income they prices can and do level off. without an income they did not have the ability without an income they did not have the ability $30,000 ona side ahome home theyhad had nearly one to They to act instead ofdecline react to market conditions intoa asafe side account, they would have repay.

Within six six months monthsthey theyhad hadsold soldtwo two Southern sometimes decline – witness $30,000 onsafe they lostlost nearly one actThey instead of react to market conditions it itinto account, they would have repay. Within sometimes – witness Southern to repay.

Within sixmonths months theyhad hadsold sold two year to repay.

Within six they two easily been able to make their mortgage other properties to bring their mortgage out of earlier.

In a time of financial setback they over which you have no control.

California just ano little more a decade easily beenInable to make their mortgage other properties to bring their mortgage out of year earlier. a time of financial setback they over which you control.

California justhave a little more thanthan a decade other properties to bring bring their mortgage out lost other properties to their mortgage payments and prevented this series ofdue to ago, delinquency.

They soon soon realized that orderout ago, when prices took a 20 percent to 30 one of their most valuable assets payments and prevented this series of delinquency.

They realized that ininorder toto lost when prices took a 20 percent to 30 one of their most valuable assets due to of delinquency.

They soon they realized that events. protect their $150,000 $150,000 ofequity equity they would have of delinquency.

They soon realized that inin a aevents. percent corrective jolt downward.”

Real esta protect their of would have lackofofliquidity. liquidity.If Ifthey theyhad had separated their percent corrective jolt downward.” Real estate lack separated their thispoint pointinin the story, Doug admits the to their home. As As Murphy’s Law would have order to protect protect their $150,000 equity they $150,000 equity is no safer than any other investment AtAtthis the story, Doug admits the to sell sell their home.

Murphy’s Law would have order to their $150,000 ofof equity they homeequity equityand andrepositioned repositioned equity is no safer than any other investment $150,000 ininhome youngcouple couple was really and wife, it, would have have to to sell sell their their home. home.AsAsMurphy’s Murphy’s ityoung was really hehe and hishis wife, it, the the whose value is determined byexternal an external value is determined by an intoa asafe safe sideaccount, account,they they would have whose it into side would have Sharee.

Despite objections from his editor, previously strong real estate market turned soft.

Sharee.

Despite objections from his editor, previously strong real estate market turned soft. market over which we personally have Law would would have it, the previously strong real market over which we personally have no no have it, the previously strong real easily easily been able to make their mortgage been able to make their mortgage Doug insisted the story remain in the book The Seattle Times, in an article published Doug insisted the story remain in the book control.

In fact, due to the hidden “risks of life The Seattle Times, in an article published control. In fact, due to the hidden “risks of life,” estate market market turned turnedsoft. soft. payments and prevented this series of events. and prevented this series events. because hewanted wanted readers to know Although they they reduced reducedtheir theirasking askingprice priceseveral several payments because he hishis readers to of know hehe in real real estate equity is not nearly as safe as in March 2004, reported, “Remember that estate equity is not nearly as safe as March 2004, reported, “Remember thatmanyma understands first hand the importance of times from $295,000 down to $195,000 – they understands first hand the importance of – from $295,000 down to $195,000 – they other conservative assets.

Although they they reduced reduced their their asking asking price price At this point in the story, Doug admits the housing other conservative assets. housing prices and do level off.and prices cancan andinvestments doinvestments level off.and this pointassets inassets theinstory, Doug admits the positioning in financial instruments could not find find a buyer. buyer.

Sadly,$295,000 theygave gaveup upthe the to Atpositioning financial instruments a Sadly, they A home that is either mortgaged to the hilt A home that is either mortgaged to the hilt several times – from down times – from $295,000 down to young young coupleliquidity wasreally really heand and hisan wife, They couple was he his wife, thatmaintain maintain liquidity in the event of home in foreclosure foreclosure to tothe themortgage mortgagelender. lender. that in the event of an sometimes decline – witness Southern or owned totally free and clear provides the They sometimes decline – witness Southern or owned totally free and clear provides the $195,000 –– they theycould couldnot notfind findaabuyer. buyer.Sadly, Sadly, Sharee. Despite objections from his editor, Despite objections from had his editor, emergency.

If Doug and Sharee had access California Sometimes sad sad stories storiesonly onlyget getsadder. sadder.The Thetwo two Sharee. emergency.

If Doug and Sharee access greatest safety for the homeowner. greatest safety themore homeowner.

California just afor little a decade just a little more thanthan a decade ago,ago, they gaveonup up the homein inforeclosure foreclosure the Doug the home totothe insisted the story remain in the book their home’s equity, they could have used when prices took a 20 percent to 30 percent mortgages on the property propertywere wereininthe theamounts amounts Doug insisted the story remain inhave the book tototheir home’s equity, they could used the when prices took a 20 percent to 30 percent mortgageand lender.

Sometimes sad stories because lender.

Sometimes sad stories weather the hishisreaders of $125,000 $25,000, respectively.

The it ittotoweather the $125,000 and $25,000, respectively.

The because wanted readersto toknow know hehewanted he he corrective corrective downward.” estate equity joltjolt downward.”

RealReal estate equity only sadder.

The two mortgages on the get sadder.

The two mortgages on the financialstorm storm until they could get backof of second mortgage mortgage holder holderoutbid outbidthe thefirst firstone one financial until they could get back understands first hand the importance understands first hand the importance is no safer than any other investment whose is no safer than any other investment whose property were in the the amounts of $125,000 were in amounts $125,000 theirfeet. feet.

Doug from his own at the ensuing auction, feeling that,of much like onontheir Doug from his own ensuing auction, feeling that, much like positioning assets inlearned financial instruments positioning assets inlearned financial instruments value is determined external market is determined by by an an external market experiencethe importance maintaining value theand owners, ititrespectively. wasininaagood good position. experience importance of of maintaining original owners, was position. $25,000, respectively.

The second that $25,000, The second that maintainthe liquidity the eventof ofan an over maintain liquidity in inthe event which we we personally havehave no control. over which personally no control. flexibility toto ride outout market lows that house had appraised flexibilityininorder order ride market lows Knowing that the the house hadbeen been appraised for holder outbid the one the mortgage holder outbid thefirst first oneatatfor the emergency.

If IfDoug and Sharee hadhad access emergency.

Doug and Sharee access In fact, due to the hidden “risks of life,” real real In fact, due to the hidden “risks of life,” and take advantage of market highs.

And, $300,000, and the obligation owing was only and take advantage of market highs. And, the obligation owing waslike onlythe auction, feeling much ensuingand auction, feeling that, that, much like the tototheir home’s equity, they could have used their home’s equity, they could have used most hehe learned never to to allow a aestate thought turn and mostimportantly, importantly, learned never allow $150,000, thought itit ititcould could turn around and equity is not nearly as safe as many estate equity is not nearly as safe as many was aaaround good originalit owners, owners, was in in goodposition. position. tosignificant thethefinancial storm until they toweather weather financial until they significant amount of equity tostorm accumulate in inother amount of equity to accumulate sell the property property to to cover coverthe theinvestment. investment.ItIttook took itit conservative investments and assets. other conservative investments and assets.

Knowing that house that the thesell, househad hadbeen beenappraised appraised could get could getback backonontheir theirfeet. feet.Doug Douglearned learned A home his hisproperty. property. nine long months months to to sell,during duringwhich whichtime timethe the thatthat is either mortgaged to the hilt hilt A home is either mortgaged to the $300,000, and the obligation owing for was $300,000, and the obligation owing Home equity is experience not the same as cash in the lender forced hishis own the importance Home equity is not the same as cash in of theof or owned totally free and clear provides the forced to to pay paythe thefirst firstmortgage mortgageand and from from ownexperience the importance or owned totally free and clear provides the only $150,000, itit thought turn $150,000, thought itofcould could turn maintaining bank; in in the bank is the same as alsowas accrued an $30,000 interest bank;only onlycash cash the is to the same accrued an additional additional $30,000itof interest flexibility inbank outas maintaining flexibility inorder order toride ride out greatest safety for for thethe homeowner. greatest safety homeowner. and toto cover the andBy sell the property cover the market cash Being house rich cash penalties. the time the finally sold, cashinlows inthe thebank. bank.

Being house rich and cash andaround penalties.

Bysell thethe timeproperty thehome home finally sold, and advantage ofand market lows andtake take advantage ofmarket market investment.

ItIt in took nine months sell, position to to bebe in. in.

It isIt is the $30,000 accrued indebtedness, guess took ninelong long monthstoto sell, poor poorisisa adangerous dangerous position lessinvestment. $30,000 in accrued indebtedness, guess

Separating equity to increase Separating equity to increase safety principal safety of of principal

“Home equity is not “Home equity is not the same asas cash in in thethe the same cash bank.

Only cash in in thethe bank.

Only cash bank is is the same asas bank the same cash in in thethe bank.” cash bank.”

“Home equity is not the same as cash in the bank. Only cash in the bank is the same as cash in the bank.”

the Enron Corporation collapsed a few years ago, and thousands lost their jobs and homes, again in Houston, Texas. What would happen in the Seattle area if Microsoft or Boeing had major lay-offs? Money you give the bank is money you’ll never see again unless you refinance or sell. When the people in Houston pleaded, “Mr. Banker, I’ve been making extra mortgage payments for years. I’m well ahead of schedule. Will let you let me coast for a while?” The bank replied, “Fat Chance!”

Americans typically believe home equity is a very safe investment. In fact, according to a recent study, 67% of Americans have more of their net worth in home equity than in all other investments combined. However, if 100 financial planners looked at a client portfolio that was 67% weighted in a single investment, 99 out of 100 of them would immediately To reduce the risk of foreclosure recommend the client diversify to reduce during unforeseen set-backs, their risk and increase safety of principal. keep your mortgage balance as Holding large amounts of home equity puts the homeowner at unnecessary risk. This risk high as possible could be greatly reduced by diversifying their Is your home really safe? Unfortunately, home equity into other investments. many home buyers have the misconception An example of the necessity of keeping your that paying down their mortgage quickly home’s equity safely separated from your is the best method of reducing the risk property can be can be found in Houston, of foreclosure on their homes. However, Texas. When oil prices fell to all time lows in reality, the exact opposite is true. As in the early 1980’s the city of Houston was homeowners pay down their mortgage, hit hard. Thousands of workers were laid off they are unknowingly transferring the risk and ultimately forced to sell their homes. from the bank to themselves. When the With a glut of homes on the market, housing mortgage balance is high, the bank carries prices plummeted. Unfortunately, there the most risk. When the mortgage balance were far too many sellers and far too few is low, the homeowner bears the risk. With a buyers. Homeowners were unable to sell and low mortgage balance the bank is in a great unable to make their mortgage payments. position, as they stand to make a nice profit As a result, 16,000 homes were foreclosed. if the homeowner defaults. In addition to Did these 16,000 families suddenly become assuming unnecessary risk, many people who bad people? No, they just couldn’t make their scrape up every bit of extra money they can to mortgage payments. Just prior to this series apply against principal often find themselves of events many of these people were making with no liquidity. When tough times come, extra principal payments. Unfortunately, they they find themselves scrambling to make could not coast on those extra payments, and their mortgage payments. with so many houses on the market for sale, Assume you’re a mortgage banker looking some people literally had to walk away from at your portfolio, and you have 100 loans their home. that are delinquent. All of the loans are The equity these people had worked so hard for homes valued at $300,000. Some of to build up was lost completely. They learned the loan balances are $150,000 and some the hard way that home equity is fragile, and are $250,000. Suddenly, there is a glut in certainly not as safe as they once thought. the market and the homes are now worth Could this happen today? Just look at when $200,000. Which homes do you as the banker foreclose on FIRST? The ones owing the least

amount of money, of course. After all, as a banker you’d make money taking back those homes, however you’d lose money trying to sell a home for $200,000 that still owed $250,000 on it. Banks have been known to call delinquent homeowners with high mortgage balances and offer assistance, “We understand you are going through some tough times, is there anything we can do to help you? We really want you to be able to keep your home.” The last thing they want to do is take back a home that they will lose money reselling.

It’s interesting to note, during the Great Depression, the Hilton chain of hotels was deeply affected by the stock market crash and couldn’t make their loan payments.

What saved them from financial ruin? They were so leveraged, in other words they owed so much more on their property than it was worth, that the banks couldn’t afford to bother wasting their time foreclosing on it.

The Hiltons understood the value of keeping high mortgage balances thereby keeping the risk on the banks. The Houston homeowners would have been better off if they had removed a large portion of their equity and put it in a safe and liquid side fund, accessible in a time of need.

Ask yourself, if you owned a $400,000 home during an earthquake in California (and you didn’t have earthquake insurance), would you rather have your equity trapped in the house or in a liquid, safe side fund? If it were trapped in the home, your equity would be lost along with the house.

Separating equity to increase rate of return What do you think the rate of return on home equity was in Seattle for the last 3 years? What about Portland? Careful, this is a trick question.

The truth is, it doesn’t matter where you live or how fast the homes are appreciating, the return on home equity is always the same, ZERO. We have a misconception that because

our our home home appreciates, appreciates, oror our our mortgage mortgage balance is going down, that the equity has the home’s appreciation.

Therefore, balance is going down, thatTherefore, the equityhome has aa the home’s appreciation. home rate of return.

That’s not true.

Home equity equity simply ininthe does rate of return.

That’s not true.

HomeItItequity equity simplysits sitsidle idle thehome. home. does not earn any rate of return.

Assume you has NO rate of return.

Home values fluctuate rate of Home return.values Assume you hasnot NOearn rateany of return. fluctuate have home $100,000 you due totoamarket conditions, not due the have amarket homeworth worth $100,000 which you due conditions, notwhich due to to the own free and clear.

If the home appreciates mortgage balance.

Since the equity in the own free and clear.

If the home appreciates mortgage balance. Since the equity in the 5%, own an $105,000 at 5%,you you own anasset asset worth $105,000 at home has no relation totoworth the home’s value, home has no relation the home’s value, the end of the year. the of theresponsible year. ititisis ininend nonoway for way responsible for the the home’s home’s appreciation.

Therefore, home equity simply appreciation.

Therefore, home equity simply Now, assume you separated the Now,in assume youhad had separated the sits idle the home.

It does not earn any sits idle in the home.

Itequity doesand not earn anyrate rate $100,000 $100,000ofofhome homeequity andplaced placed itit in in ofofareturn.

Assume you have aa home worth return.

Assume you have home worth safe, conservative side account earning a safe, conservative side account earning $100,000 which you free clear.

If the 8%. side be worth $100,000 youown ownwould freeand and 8%.Your Yourwhich sideaccount account would beclear. worthIf the home appreciates 5%, you own an $108,000 atatthe end ofofthe You still home appreciates 5%, you ownyear. anasset asset worth $108,000 the end the year.

Youworth still own the home, which appreciated 5% $105,000 at the end of the year. own theathome, which appreciated 5% and and $105,000 the end of the year. isisworth worth$105,000. $105,000.By Byseparating separatingthe the equity equity

Now, assume you had separated the you was Now, assumeaanew youasset hadwhich separated the youcreated created new asset which was also also $100,000 of home equity and placed it in a able to earn a rate of return.

Therefore, $100,000 of home equity and placed it in able to earn a rate of return. Therefore, a safe, conservative side account 8%. you earned than you safe, conservative sidemore account earning 8%. you earned$8,000 $8,000 more thanearning youwould would have if the money were left to sit idle Your side account would be worth $108,000 have money werebeleft to sit$108,000 idle Your sideif the account would worth the home. beyear. fair, do have a atatinthe end ofofTo the You still own inthe the home.

To fair,you you end thebe year.

You do stillhave owna the the mortgage payment you have mortgage payment youdidn’t didn’t have before. home, which appreciated 5% and isisbefore. worth home, which appreciated 5% and worth However, since interest are relative, However,By since interestrates rates are relative, $105,000. separating the equity you $105,000.

By separating the equity you if ifwe are assuming a rate of return of 8%, we are assuming a rate of return of 8%, created aanew asset which was also able to created new asset which was also able to we can also assume aastrategic interestwe can also assumeTherefore, strategic interestearn a rate of return. you earned earn a mortgage rate of return.

Therefore, you atearned only would 5%. onlymortgage wouldbe beavailable availableat 5%. $8,000 more than you would have the $8,000 moremortgage than youinterest wouldishave the Also, since 100%ififtax Also, since mortgage interest is 100% tax

money to sit sit idle idle in in the the home. home.To Tobe be money were were left left to fair, you mortgage payment you deductible, the net cost of of the thepayment moneyisisyou fair, you do do have have aa mortgage deductible, the net cost money didn’t have before.

However, since interest only produces 4.4% positive didn’t have This before.

However, since interest only 3.6%.

3.6%.

This produces aa 4.4% positive spread between the cost of money and rates are relative, if we are assuming a rateofof spread betweenif the costassuming of moneyaand rates are relative, we are rate the earnings on that money. return of 8%, we can also assume a strategic the earnings oncan thatalso money. return of 8%, we assume a strategic interest-only mortgage would be available availableatat interest-only mortgage would be The story gets much more more compelling The story gets much compelling 5%.

Also, since mortgage interest is 100%tax tax 5%.

Also, since mortgage interest is 100% over time, although the mortgage mortgage debt debt over time, although the deductible, the net cost cost of of the the money money isis only only deductible, the net remains constant, through compound remains constant, through compound 3.6%.

This produces a 4.4% positive spread 3.6%.

Thisthe produces a 4.4%continues positive spread interest, side account account to interest,the thecost side continues to between of money and theThe earnings between the cost of money and the earnings grow at a faster pace each year. grow at a faster pace each year. The on that onearnings that money. money. on $100,000 in year 1 are

earnings on $100,000 in year 1 are $8,000.

Then in year year 2, 2, the the 8% 8% earnings earnings $8,000.

Thenmuch in The story gets more compelling over The story gets are much more compelling on $108,000 $8,640.

In year 3, the theover on $108,000 are $8,640.

In year 3, time, although the mortgage mortgage debt remains time, although the debt remains earnings $116,640 at 8% 8% are are $9,331. earnings on on $116,640 at $9,331. constant, through compound interest, the constant, compound interest, Since mortgage debt remains remains the the Since the thethrough mortgage debt the side account continues to grow grow faster same, the between the cost cost the side account continues to atat aaofoffaster same, the spread spread between the the pace each year.

The earnings on $100,000 mortgage money and the pace each year.

The earnings on $100,000 mortgage money and the in year Then in inequity year 2, 2, the the 8% 8% on the separated separated equity inearnings year 11 are are $8,000.

Then year earnings on$8,000. the continues to widen further in the earnings on $108,000 are $8,640.

In year 3, continues widen further in the In year 3, earnings on to $108,000 are $8,640. homeowner’s favor every year.

If we allow the earnings $116,640 atyear.

8% are $9,331. everyat Ifare we$9,331. allow thehomeowner’s earnings on on favor $116,640 8% home equity to remain idle in the home, home equity to remain idle in the home, Since the debt remains remains the the same, same, Since the mortgage mortgage debt we give the opportunity to to put put itit to to we give up up the opportunity the spread between the cost of the mortgage the spread between thegrow costand of the mortgage work to compound. work and and allow allow itit to grow and compound.

money earnings on on the the separated separated money and and the the earnings equity continues to widen further the equity continueswould to widen inin off the Homeowners actuallyfurther be better better off Homeowners would actually be homeowner’s favor everybackyards year. IfIf we we allow homeowner’s favor every year. allow burying money in their than burying money in their backyards than

homeequity equitytotoremain remainidle idleininthe thehome, home,wewe home giveup updown theopportunity opportunity putsince ittotowork work and paying down theirmortgages, mortgages, money give the totoput itsince and paying their money allow it to grow and compound. buried inthe thebackyard backyard liquid(assuming (assuming allow itinto grow and compound. buried isisliquid

youcan canfind findit),it),and anditsitssafe safe(assuming (assuming you Homeowners would actually bebetter better off Homeowners would actually be no one else finds it).

However, neither no one else finds it). However, neither isis off buryingmoney money theirbackyards backyards than paying earning rateofin ofin return.

It’sactually actually losing burying their than paying earning aarate return.

It’s losing down their mortgages, since money buried value due to inflation.

Few people today down due theirtomortgages, sincepeople moneytoday buried inin value inflation. Few thebackyard backyard liquid (assuming youcan can find bury moneyinis inisthe the back yardororunder under their the liquid (assuming you find bury money back yard their mattresses, because they have confidence it), and its safe (assuming no one else finds mattresses, because theyno have it), and its safe (assuming oneconfidence else finds it).it). in the banking system.

They also understand However, neither earning rate return. in the banking system.

They also understand However, neither isisearning a arate ofofreturn. idle money loses value while invested idle money loses value while invested It’s actually losing value due to inflation.

Few It’s actually losing value due to inflation.

Few moneygrows growsand andcompounds. compounds.AsAsAlbert Albert money people todaybury bury moneyininthe theback backyard yard or people Einsteintoday said,“The “Themoney mostpowerful powerful forceininor Einstein said, most force under their mattresses, because they have under their mattresses, because they have theuniverse universe iscompound compound interest.”

After all, the is interest.”

After all, confidence inbuilt thebanking banking system.They They also confidence in the system. also homes were to house families, not store homes were built to house families, not store understand idle money money losestovalue value while understand idle loses while cash.

Investments weremade made storecash. cash. cash.

Investments were to store

invested money moneygrows growsand andcompounds. compounds.AsAs invested Albert Einstein said, “The most powerful force Takenfrom fromaadifferent different angle, suppose you Albert Einstein said, “The mostsuppose powerful force Taken angle, you in the the universe is compound interest.”

After offered anis investment that couldnever never inwere universe compound interest.”

After were offered an investment that could go up in value, but might go down.

How all, homes were built to house families, not go in value, might down.

How not all, up homes werebutbuilt to go house families, much of it would you want?

Hopefully none. storecash. cash.

Investments were madetonone. tostore store much of it would you want?

Hopefully store Investments were made Yet, this is home equity.

It has no rate of Yet, this is home equity.

It has no rate of cash. cash.

return,so soititcannot cannotgo goup upininvalue, value,but butit itcould could return, go down in value if the real estate market Taken from a different angle, suppose you go down in value if the real estate marketyou Taken from a different angle, suppose declines or the homeowner experiences wereoffered offered investmentexperiences thatcould couldnever never declines or the homeowner anan were anan investment that uninsured loss (e.g. an earthquake), disability, goup upininvalue, value, butmight might down.How How much uninsured loss but (e.g. an earthquake), disability, go gogodown. much or a foreclosure or a foreclosure

5%.we It’sgive whatupmakes millionaires, millionaires! $100,000 of equity in of it would you want?

Hopefully none. Yet, this TheLet’s home, the “opportunity” to earn a The power of leverage costsayofyou nothadborrowing Learn to be your own banker. By using the your home that could be separated. Current

is home equity.

It hasano ratecan of return, so it 5 percent return on the money.

Let’s be clear, buying home be a great (employment cost vs.isopportunity cost) principles that banks and credit unions use, mortgage interest 5%, so the cost of that cannot go up in value,thebutwealthy it could gothe down investment.

However, buy you can amass a fortune.

A bank’s greatest money would be $5,000 per year (100% tax By separating the equity we give it new life. in value if as thelittle realofestate market declines home with their own money as or When homeowners separate equity to assets are its liabilities.

You can substantially deductible). Rather than bury the $100,000 We give ourselves the opportunity to put it to possible, leaving the majority ofan their cash in the homeowner experiences uninsured reposition it in a liquid, safe,going side to account, net worthon byit.optimizing in the backyard, we are put it toa workenhance and earnyour something Assumingthe a other investments where it’s liquid, safe, and loss (e.g. an earthquake), disability, or a mortgage payment is created.

Theanmortgage assets that you already have. By being your work, or “employ” it. If I were employer, 28 percent tax bracket, the net employment earning a rate of return. One of the biggest foreclosure own banker you can make an extra $1 Million why would I be willing hire an assistant payment is considered the to Employment Cost. cost is not 5%, but 3.6%, or $3,600 per year misconceptions homeowners have is that their for retirement. $35,000 perdon’t year?understand The expectation is I Whatformany people is when home is the best investment they ever made. am going to be able to grow my business after taxes (mortgage interest is 100% tax If you purchased a home in 1990 for $250,000 we leave equity trapped in our home, we incur deductible). It’s not too difficult to find tax and earn a profit on it. As a business owner, to create an extra and sold it in June of 2003 for $600,000, that the same cost, but we call it a lost Opportunity free How or tax deferred investments earning I believe that by investing in an assistant I Let’s be clear, home the cansame be a Cost. represents a gainbuying of 140%.a During dollars fortaxretirement will earn a return that’s greater than the costmoremillion than 3.6%.

Using the benefits of a period, the Dow Jones grew fromthe 2590 to 9188, great investment.

However, wealthy of employing that assistant.

If we choose to you can create your own arbitrage that’s parked in your home doing mortgage, By repositioning $200,000 into an equity abuy gainthe of 255%. realityashere is that homeThewith little of financing their The money leave the $100,000 of equity in our home, by management borrowing ataccount one rate earning with aand financial advisor nothing could be put to work earning you your home was the best investment decision own money as possible, leaving the we incur almost the same cost. The only you can achieve a net gain of $1 million investment returns at a slightly higher rate. that you ever made.

When you purchased the something. majority of their cash in other investments difference is, instead of referring to that cost over thirty years.and Assume separate the It’s what the banks credityou unions do all $250,000 house in 1990, you only put $50,000 employment cost, it is referred to as an where it’s liquid, safe, and earning a rate of Let’sassay $200,000 of home equity using a mortgage you had $100,000 of equity in down. The $50,000 cash investment produced a borrow our money at 2% and opportunity cost. By leaving the equity in thethe time.aThey return. One of the biggest misconceptions 5% interest rate. If the $200,000 profit of $350,000. That is a total return of 600%,your home that could be separated. Current thenwith loan it back to us at 5%. It’s what makes home, we give up the “opportunity” to earn a grows homeowners have is that home is mortgage at a conservative rate of 6.75% per far outpacing the measly 255%their earned by the interest is 5%, so the cost of that millionaires, millionaires! Learn to be your 5 percent return on the money. year, it will be worth $1,419,275 in 30 years. the best investment they ever made. If you money stock market. would be $5,000 per year (100% tax own banker.

By using the principles that After deducting the $216,000 in interest purchased a home in 1990 for $250,000 deductible).

Ratherthe thanequity bury the $100,000 By separating we give it newinlife. banks and credit unions use, you can amass payments and the $200,000 mortgage, you and sold it inofJune 2003 for $600,000, the backyard, The cost notofborrowing we are going put it to work, or it toa fortune.

We give ourselves the to opportunity to put A $1,003,275 bank’s greatest assetsaccount. are itsA still have left in your that represents acost gainvs. of 140%.

During cost) the “employ” work it. and on why it. Assuming If Iearn weresomething an employer, would I a liabilities. (employment opportunity net gain over one million enhance dollars. your Youofcan substantially same period, the Dow Jones grew from be willing 28 percent employment to hiretax anbracket, assistantthe fornet $35,000 per net worth by optimizing the assets that you When homeowners separate equity to reposition is not 5%, but 3.6%, or $3,600 per year 2590 to 9188, a gain of 255%. The reality year?cost The expectation is I am going to be able Thishave. example simplyyour shows timeyou already By being owna one banker it in a liquid, safe, side account, a mortgage after taxes (mortgage interest is 100% tax here is that financing your home was the to grow repositioning of equity.

Imagine how the my business and earn a profit on it.

As an extra $1 Million for retirement. payment is created. The mortgage payment is deductible). It’s not too difficult to find tax can make best investment decision that you ever a business numbers grow for individuals that harvest owner, I believe that by investing in considered the Employment Cost. What many free or tax deferred investments earning and reposition their home equity every 5 made.

When you purchased the $250,000 an assistant I will earn a return that’s greater people don’t understand is when we leave more than 3.6%.

Using the tax benefits years as their home continues to appreciate! house trapped in 1990,inyou putwe$50,000 down. equity ouronly home, incur the same thanofthe cost of employing that assistant. a mortgage, you can create your ownIf This is how the wealthy manage their home The $50,000 investment produced cost, but we callcash it a lost Opportunity Cost. a we choose to leave the $100,000 equity arbitrage by borrowing at oneofrate and in equity to continually increase their net worth. profit of $350,000. That is a total return of our home, earningweinvestment returns at a slightly incur almost the same cost. The Conversely, if the same $200,000 $200,000 into an were equityleft The money that’s parked in your255% homeearned 600%, far outpacing the measly rate.is, It’sinstead what the andtocredit only higher difference of banks referring that By repositioning to sit idle in the home for 30 years, it would doing could be put to work earning you account with a financial advisor by the nothing stock market. unions do all thecost, time.it They borrow ouran management cost as employment is referred to as not have earned a dime. something. money at 2% and then loan it back to us at you can achieve a net gain of $1 million

The power of leverage

How to create an extra million dollars for retirement

opportunity cost. By leaving the equity in the

“Homes “Homes are are designed designedtotohouse house families,not families,notstore storecash.” cash.”

“Investments “Investmentsare aredesigned designed to to store storecash.” cash.” from the NASD: “Brokers are not prohibited Betting theAssume ranch;yourisking 401 vacation condo make the mortgage payments. over thirty years. separatehome the investment client recommendations.

This would include from thetoNASD: are not prohibited from making such“Brokers a recommendation per Betting the ranch; risking home 401 vacation condo investment to make the mortgage payments. over thirty years.

Assume you separate the client recommendations.

This would $200,000 home equity using a mortgage explaining the in risks suchinclude an equityofto buy securities Many successful people the of Northwest from a recommendation per adequately se, equity somaking longisassuch the investment isWe reasonably Home Serious Money. don’t $200,000 of home equity using a mortgage adequately explaining the risks of such an equity to buy securities Many successful people in the Northwest with a 5% interest rate.

If the $200,000 grows investment, which are significant, to the dream of retiring and buying a second se, so long as Serious the investment isWe reasonably suitable for investment in general, and it is Home equity is Money. don’t Recently the NASD issued an alert, “… home equity. Liquidity and safety investor.” with 5% interest rate.issued Ifofthe6.75% $200,000 growsit gamble whichorsimply are buying significant, to the dream of retiring and second atRecently aa conservative per year, The NASD wants ensure home in Arizona Hawaii.

Withato one suitable for the investment in general, it isto investment, the anthat alert, “… for specific customer.

Inand order because weNASD arerate concerned investors gamble home equity.

Liquidity and safety are the key philosophies when separating atwill a who conservative rate of 6.75% per year, it investor.”

The NASD to homedollars in Arizona orsimply Hawaii.

With oneensure million or more savedwants in their be must worth $1,419,275 in that 30returns years. consumers are receiving prudent advice. the specific customer.

In order to determine suitability, a broker should because werely are concerned investors on investment toAfter are suitable theequity. key for philosophies when separating home Rate of return is a distant million dollars or more saved in their IRA/401Ks, they decide to retire and buy will be worth $1,419,275 in 30 years.

After consumers are receiving prudent advice. determine suitability, a broker should consider the client’s investment objectives, deducting the $216,000 in interest payments who must rely on investment returns toend make their mortgage payments could home equity.

Rate of return is a distant third benefit.

Also, it is not necessary or IRA/401Ks, they decide to retire and buy the vacation home where they will spend consider the client’s investment objectives, deducting themortgage $216,000 inhome interest payments financial status, tax status, and any other make their payments end upthe defaulting on their loans if their and $200,000 mortgage, youcould still have Tax deductions to third benefit.

Also, it is not necessary or the winters. vacationWhat home where they willthey spend their a surprise when invest into make highly volatile financial status, tax status, and any other information atofirm uses suitable upinvestments defaulting on home loans if their and they unable and the $200,000 mortgage, you still have $1,003,275 leftdecline in their your account.

Aarenet gain ofto recommended Tax deductions to discover that to pay cash for a $350,000 their winters.

What a surprise when they recommended to invest in highly volatile or aggressive investments.

You can make client recommendations. would include offset 401k withdrawals information a firm uses toThis make suitable meet payments.”

The investments decline and they A are $1,003,275 leftmonthly indollars. yourmortgage account. netunable gain ofto over onetheir million condo they need to withdraw nearly discover that to pay cash for a $350,000 aggressive investments.

You can make adequately explaining theThis risks of such an offset 401k withdrawals client recommendations. would include thousands of dollars by simply borrowing at NASD is absolutely correct inpayments.” advising against meet monthly mortgage The or over onetheir million dollars. $500,000 from theirto401K/IRA. What if condo they need withdraw nearly successful retirees have the majority investment, which are significant, to the adequately explaining the risks of such an Most separating equity if the client must rely on thousands of dollars by simply borrowing This example simplycorrect showsin advising a one time NASD is absolutely against5% and investing at 5% in safe conservativeat instead they had purchased the condo $500,000 their 401K/IRA. What if successful have equity the majority their assets from in retirees their home and investor.”

Thewhich NASD simply to ensure the returnsequity from their investment to make investment, are togoing the ofMost separating if the client must rely on investing at 5% insignificant, safewants conservative This example simply shows a one time fixedand investments without ever repositioning of equity.

Imagine how thethe 5% 15 years earlier, when it cost $175,000, by instead they had purchased the condo consumers are receiving prudent advice. mortgage payments.

As theyinstart fundsand of their assets theirwithdrawing home equity The NASD simply wants togoing ensureIRA/401Ks. the returns from their investment make into investor.” securities.

In without general, individuals numbers grow individuals harvest investments ever repositioning of for equity.

Imaginethatto how thethe fixed using the equity inwhen their home?

15their years earlier, itwithdrawing cost $175,000, Home equity is Serious Money. We don’t consumers are receiving prudent advice. from IRA/401Ks, they are hit with aby mortgage payments.

IRA/401Ks. As they start funds shouldsecurities. not invest home equity forindividuals “current and reposition their home equity In general, numbers grow for individuals that every harvest5 into using the equity their home? the kids gamble home Liquidity and safety Home equity is equity.

Serious Money. don’t are income” annual taxinbill.

Moreover, Taxnotdeductions to offset from their they are$175,000 hit with a unless investment fixed significant years askey their home continues to We appreciate! investthe home equity foris“current and reposition their home equity every 5 should Today theirIRA/401Ks, net worth would be the philosophies when gamble home equity. Liquidity and safety are have moved out, the mortgage is paid, and annual bill.would Moreover, the kids deductions to interested offset 401k withdrawals and Tax guaranteed.

Individuals in significant Thisseparating is how wealthy manage their home income” higher, thetax condo’s appreciation, unless the investment is fixed years as theirthe home continues toofappreciate!

Todaydue theirtonet worth be $175,000 home equity.

Rate return the key philosophies when tax deductible contributions to 401Ks have have moved out, the mortgage is paid, and and they would have the mortgage variable investments should have askinterested themselves, equity to continually increase their net 401k withdrawals guaranteed.

Individuals in This the wealthy manage home and higher, due to the condo’s appreciation, isisahow distant third benefit.

Also, ittheir is notworth.

Most successful retirees the majority separating home equity.

Rate of return stopped.

When they could use the mortgage deduction to help their have deductible contributions to 401Ks “Howof will I assets make inmytheir mortgage payment if taxinterest Conversely, ifthird therecommended same $200,000 were left and they would have theoff-set mortgage or to in to variable their home investments should askequity themselves, equity to continually increase their net isnecessary a distant benefit.

Also, it isinvest notworth.

Most successful retirees have the and majority interest IRA/401K withdrawals.

In addition the deduction the most, they don’t have When they could useoff-set thetomortgage highly or aggressive investments. interest deduction to help their my investments Do I have reserve sitnecessary idle involatile the home for$200,000 30 years, itinvest would IRA/401Ks. Asdecline? they start withdrawing funds will make mytheir mortgage payment if stopped.

Conversely, if or the same were left to “How recommended to innot of theirI assets in home equity and financial advantages, they would have it. AsIRA/401K partdeduction of long term planning, You of dollars by simply funds withdrawals.

In addition to the from IRA/401Ks, they are hit with a the most, theysomeone don’t have or their a secure income?”

InI have April 2004, earned a dime. highly volatile orthousands aggressive investments.

Dowithdrawing reserve sithave idle incan themake home for 30 years, it would not my investments IRA/401Ks. Asdecline? they start funds interest enjoyed the lifestyle benefits of may owning who is preparing for retirement want borrowing at 5% and investing at 5% in safe the significant financial advantages, they would have annual tax bill.

Moreover, kids it. As part of long term planning, someone following question was posed tothe the You can make thousands of dollars by simply funds from IRA/401Ks, they are hit with a or their a secure income?”

In April 2004, have earned a dime. their vacation condo 15 years sooner conservative fixed investments without ever NASD, towho have apreparing mortgage going into retirement have moved out, the mortgage is paid, and enjoyed the lifestyle benefits of owning “Where can I find the exact language borrowing at 5% and investing at 5% in safe the significant annual tax bill.

Moreover, the kids thanisthey planned.for retirement may want following question was posed tohave the Betting the ranch; going into securities.

Inrisking general, individuals tax deductible contributions to 401Ks their vacation condo 15 years to help offset the annual IRA/401k tax bill conservative fixed investments without ever NASD, thatand to have a mortgage going intosooner prohibiting a broker from retirement have moved out, the recommending mortgage is paid, “Where can I find the exact language should not invest home equity for “current stopped.

When they could use the mortgage than they planned. enhance their financial goals. home equity to buy securities Betting thesecurities. ranch; going into Inrisking general, individuals I taketax deductibleout 401Ks have and a mortgage onthemy housetoand invest toMaking help offsetuncle the overall annual IRA/401k tax bill income” unless the investment is fixed sam your prohibiting brokercontributions from recommending interest adeduction most, they don’tthat haveFor many, the mortgage interest deduction should not invest home equity for “current stopped.

When they could use the mortgage the money in securities?”

The written answer and enhance their overall financial goals. home equity buyansecurities and guaranteed.

Individuals interested in it.aAs part of long planning, someone Recently the NASDtoissued alert, “…because I takeinterest mortgage outterm onthemy house and invest offsets best partner taxes dueuncle on retirement withdrawals, income” unless the investment is fixed sam your deduction most, they don’t have from the NASD: “Brokers are not prohibited variable investments should ask themselves, For Making many, the mortgage interest deduction who is preparing for retirement mayanswer want we are concerned that investors who must rely the money in securities?”

The written and guaranteed.

Individuals interested in giving the net effect of tax free withdrawals it.

As part of long term planning, someone Recently the NASD issued an alert, “…because Under tax law you can deduct up to one best partner from making such a recommendation per will I make mytomortgage payment if to have a mortgage going into retirement offsets taxes due on retirement withdrawals, on “How investment returns make their mortgage fromwho the isNASD: “Brokers are not prohibited investments should ask themselves, preparing for retirement may want from their retirement account. million dollars of mortgage interest subject wevariable are concerned that investors who must rely my investments decline? Do I have reserve se, so to help annual IRA/401k tax bill long offset as thethe investment is reasonably thetax netlaweffect tax free withdrawals payments could end up defaulting on their you of can deduct up deduct to one fromto making such a overall recommendation per giving myincome?” payment if have a mortgage goingfinancial into retirement toUnder income restrictions.

You can also fundswill or Iamake secure In April 2004, on “How investment returns tomortgage make their mortgage and enhance their goals. suitable for investment in general, and it is from their retirement account. dollars of mortgage interest subject home loans if question their investments decline se, so my decline?

Doposed I haveto reserve to offset the annualinterest IRA/401k tax bill long asthe themortgage investment is reasonably anmillion additional $100,000 from home equity theinvestments following was Forhelp many, deduction payments could end up defaulting on the their suitable for the specific customer.

In order 401tovacation income restrictions.

You can also deduct condo funds or a secure income?”

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4.

What obsessions do your explore on the evenings or weekends?

Golf, Golf and more Golf.

5.

What purchase of $100 or less has most positively impacted your life in the last 6 months?

The book Grain Brain it has taught me a lot about food and the way my body processes it.

6.

What are you passionate about? IF THE SHOE FITS In 2017 with the help of my friends in the Phoenix Arcadia Rotary Club, I started a charity effort called If the Shoe Fits. We take donations of gently used, school appropriate shoes for kids. The Shoes are then redistributed through the Phoenix School district 1 counseling division. We have been able to help hundreds of kids so far through the program.

7.

What is the best or most worthwhile investment you’ve made? Could be an investment of money, time, energy, or other resource. How did you decide to make this investment?

Starting and committing to the Realtor Vs Mortgage golf event. The event is in its fourth year now. In year

1.

Tell us what got you in to this crazy business?

1-2 I had to beg people to play and sponsor now the

I was in the mortgage business for 4 years before the

event has a waiting list with lots of returning sponsors.

Its been a great outlet to meet and network with some

great recession hit. It was scary seeing my office go

amazing people and friends.

from 100 LO’s down to 6-7 when I finally decided to go another direction. I was just hitting my stride in the industry, then boom just like that is was gone.

8.

old self?

I owned a business as a contractor maintaining homes

Keep learning you don’t know it all, you need to keep

for Fannie Mae from 2008-2011. When the economy recovered, I was once again left with a business that was not sustainable. In 2012 I started a scratch agency with

2.

learning new skills or you’ll be obsolete someday.

9.

Do you have a quote you live your life by or think

American Family because I wanted to build a residual

of often?

income and a long-term business that had value.

“Everyone’s got a plan until they punched in the mouth.”

What area’s do you specialize in?

I am one of American Family’s top agents in Commercial insurance for Contractors and for Commercial property.

I specialize in helping investors with multiple rental

3.

What advice would you give your 20-, 25- or 30-year

Mike Tyson The world and business adapts and changes, you have to be ready for a punch a in the month.

10. What do you believe is true, even though you can’t

properties, multi-family dwellings (fourplexes to 500

prove it?

door appt complexes) and commercial office buildings.

Aliens! Definitely Aliens!

What is the book {or books} you’ve given most as a gift?

The Easy way to Quit Smoking by Alan Carr. This book changed my life 9 years ago. I smoked a carton a week, it gave me the insight and strength to quit smoking cold turkey. I give it to all my life insurance clients that smoke. We have been able to re-rate a few of them years later as non-smokers. It’s a nice feeling that a $12 book can have that much impact in someone’s life.

Brian Moore

Agent 5150 N 61th St Ste C162, Phoenix Bus: (602) 955-5660

THE RIGHT COVERAGE TO HELP YOU PURSUE YOUR DREAMS Maybe it’s a trip around the world. Starting a family. Or finally paying off that last student loan. Whatever your dream is, it’s important to you — and to me.

Let’s talk about your dreams, and how I can help protect them.

Brian Moore, Agent 5150 N 16th St Ste C162, Phoenix Bus: (602) 955-5660 briansmoore.com bmoore1@amfam.com

Nancy Watson, Marketing Specialist for Brian Moore, Agent 5150 N 16th St Ste C162 Phoenix, AZ 85016 nwatson1@amfam.com

American Family Mutual Insurance Company, S.I. & Its Operating Companies, American Family Insurance Company, 6000 American Parkway, Madison, WI 53783 011780 – Rev. 6/18 ©2016 – 11851771

CHANGING THE

iBuyer game Beat the Odds with The iReal Estate Pro Certification.

Q&A with owner Dan Noma, Jr. Confused about how to interact with ibuyers such as OpenDoor, Zillow, or Offerpad?

I recently sat down with Dan Noma, Jr to discuss his new online training certification program designed to give real estate agents across the country new cutting-edge strategies and information about how to capitalize on this growing opportunity.

Dan is the designated broker of Venture REI, a full-service real estate brokerage firm that specializes in commercial and residential investment properties. He is recognized as one of the state’s leading real estate brokers and is ranked among the top five residential agents in Arizona by the Phoenix Business Journal. In 2013 and 2014, he also was named “40 Under 40” by the Southeast Valley Regional Association of Realtors.

Russell Hathcock: What is the name of this certification?

Dan Noma, Jr: iReal Estate Pro™ Certification. You can learn more at www.irealestatepro.com.

Russell: Is iReal Estate Pro™ Certification qualified by any state regulatory agency or the National Association of Realtors?

Dan: No regulator. iReal Estate Pro is a ten module online training course. The mission of the of the iReal Estate Pro™ Certification program is to empower real estate agents with the tools they need to create a better consumer experience. You can learn more at www.irealestatepro.com The iBuyers, also call Internet Buyers, they pay

cash to homeowners who visit their website and fill in information about their house. A cash offer is made with no fix up, listing, showings or hassle.

Few Agents are equipped to help consumers navigate that process. As agents, we can complain or we can fill a genuine consumer need. iReal Estate Pro™ education teaches real estate agents to leverage the iBuyer and leverage their institutions so that they can bring those opportunities to consumers and come from a place of transparency. Southwest Airlines tagline is “Transparency;” we are the voice of transparency. The iREP training allows them to do is to get any and all available cash offers available to the consumer, bring them to the consumer’s attention to create credibility with that consumer.

If an agent refuses to bring an OpenDoor offer to the consumer at lower commission, the consumer

house with the Agent who brought them multiple offers.

just drove past five OpenDoor billboards. In Phoenix, 74% of the time the consumer already has their offer direct. We teach “bring Zillow and all the cash offers;” show the consumer all available option to them. Also show them what you make in writing; if it’s the best option for the consumer, recommend that option. Take the best option because it’s not self-serving. By agents not talking about OpenDoor, Zillow, Offerpad, Purple Bricks, we as agents segment ourselves against them. Whereas it doesn’t have to be that way. If Agents just answer the call and show up with all available options to our consumers, we actually can earn credibility which may be like the first time in our industry’s history that would be.

Russell: So I often, in some of the blogs and Facebook groups, I see it’s common to see an Agent say something to the effect of, ‘hey consumer you just lost twenty to thirty thousand dollars because they (iBuyers) lowballed you, you didn’t know any better, you sold your home for way undervalue, had you hired me I would have more than made up for that’.

Does your program speak to agents in a way that helps them to bridge that gap?

Dan: iReal Estate Pro™ certainly does. We teach agents to not be the judge and jury to our consumer.

If the consumer “cost of convenience” is $20,000, we are not to say that it wasn’t worth it for the consumer. We are not in their shoes; we don’t know what they lost in the cash offer discount to the retail price. They probably gained it on whatever they were trying to achieve. So, if the goal is to sell their house in a period of time and they were less concerned about the actual dollars then, they did what they wanted to do. Non-economic factors matter such as flexible closing dates, free local moves, no finance contingency; all those concerns the iBuyer answers.

All of that stuff answers to whatever that consumer demand is. Consumer want fair and close to top dollar price. However, if they know what their other options are, and they know there is a cost to doing those, they may make that decision. We find 50% of the time they decline the cash offers to list the

Russell: So, with your program, what you’re saying is, “at least agents can bring all of that - all of the above to the table and help them make a wise decision or get informed to make an educated decision.

Dan: Right. So, if a consumer gets on Amazon, the analogy is all time is that, consumer gets on Amazon, Amazon doesn’t tell us that these are the best electronics in the world. Amazon gives us all available options and then we as a consumer get to read consumer reviews, see how they’ve done in different areas, maybe the pricing is something we can filter by or whatever is important to us. Real estate is the last industry where the industry in the world that is not designed for transparency. We are ushering in the future.

Russell: Is the iReal Estate Pro™ Certification course national?

Dan: We have agents that are in Georgia, Idaho to California, completing the nearly four hour online video course divided into ten video modules to become certified.

Russell: Is this program something you are currently doing in your own business?

Dan: The course content, marketing material, resources, document templates are my exact toolbox

and that of Kenny Klaus. It contains what we did to sell 3500 homes last year. So, the only person that bought more assets than us was OpenDoor themselves. And it’s because we just came with a different message.

all of our marketing tools, all of our scripts, they’re getting all of our videos. After they’ve gotten through all the training, they access the Resource Center and Lab Center, join our iREP Community for best practices with other iREPs and monthly updates.

Russell: What differentiates Venture REI from iReal Estate Pro™?

Russell: Who are the instructors in the video training?

Dan: Venture REI, where I am Broker/Owner, is unrelated to the iReal Estate Pro Certification program.

Dan: Kenny Klaus and me. We teach ten modules of three sections each from beginning to end. We shift their mindset to how to actually transact with the iBuyers. iREPs get all the tools they need to transact this way. That’s when they get downloadable material and scripts, tons of it. And then they also get to be a member of the Community and that’s where we find the biggest value for them. When they join the Community, iREPs keep up to date with that information to not be left behind. Kenny and I digest new developments to find opportunities for Agents.

Russell: So, Venture REI is a traditional real estate brokerage?

Dan: Yes. An agent doesn’t need to do anything with Venture REI to get certified. The certification stands alone.

Russell: How does an agent interact with the iReal Estate Pro™ Certification program? Is it a web-based platform?

Dan: Yes. Think about how Agent first thought about short sales. A lot of Agents got in the short sale game late in the belief, ‘oh I don’t want to do short sales they’re too much work and it doesn’t affect me’. Suddenly, it became a large segment. The iBuyer is the new short sale - the new version of how to do real estate and agents that don’t embrace it are going to be left behind. The certification is all encompassing. It’s everything they’re going to need to transact with iBuyers effectively. So, they’re getting

Russell: What would you say differentiates your program to, say, going to the local Realtor Board and get their GRI or other education?

Dan: We are the only Certification in the country focused to the iBuyer and institutional funds.

Dan: Kenny and I are the teaching faculty.

Russell: With the web-based video tutorials, access to downloads, access to networks, etc; does this include access to mastermind groups that can help troubleshoot and problem solve if the agents have some issues in some scenario or another?

Dan: Correct.

Russell: Is the iReal Estate Pro™ software as well?

Dan: Yes. So, iREPs get Net Sheet Aggregator tool for download. They get their own cash offer website so now they can they can play with iBuyers.

Russell: How does the pricing work, is there a monthly subscription?

Dan: It’s $499 for the course, certification. The continuing education and resources are $49 per month of $499 per year.

Russell: How often is the iReal Estate Pro™ information updated, what advantage is there for them to stay plugged into the system, and can they offer updates they may be seeing in their market?

Dan: We update the content almost daily like iBuyer Buy Box changes that are hard for Agents to get on their own. In the iREP Community, an Agent in San Diego shares a piece of marketing so an Agent an agent in Atlanta could use that same piece of marketing material and change it for their market.

Russell: How did this program get started?

Dan: In a recent event in Phoenix, 320 Agents attended; 250 Agents signed up for the course and Certification. Agents get it - the biggest impact on their business today. iREP Certification allows them to understand how to be relevant, not from a place of fear but from a place of opportunity, empowerment, and education.

Russell: How does Kenny Klaus fit into the program?

Russell: As I understand it, he’s at another brokerage Keller Williams. Is there direct competition between the two of you?

Dan: No competition. We are resolved that consumer choice be driven by Agents including options that are advantageous to them with a lower commission to us.

Russell: If agents aren’t showing iBuyer properties could there be a violation of fiduciary responsibility?

Dan: We’re just starting to see the rumblings of some of those first things. There’s a case where an agent didn’t get an offer from OpenDoor property to the seller and the property sat on the market for six months. The seller finally sold the house on the retail market. They found out later they could have sold their property to OpenDoor for the same price or better. And they said, ‘well had I known that I would have done that my agent didn’t tell me about it’. So, the agent didn’t tell him about it because the agent wasn’t going to get paid the same amount. Well guess what? They just violated their fiduciary responsibility.

Russell: In terms of commission splits are you able to enhance the agents experience or does that become a non-issue to them?

Dan: Our belief is that we don’t get to decide any-

more. Our consumers are going to pick the best option for them, and those options have varying degrees of what their fees are that are available to us and if we can put ourselves aside and let the consumer make the best choice available to them, now we’ve created raving fans for life. Those people will come back to us. People will send us referrals and word of mouth that will lead to success down the road. I can tell you that 60% of the time, with iREP, consumers still list their property traditionally. They just want to be able to make that decision on their own. They do it in every other aspect of their life.

No one tells them what to do except in real estate.

Agents say your property is worth this X and it’s listed for X. It’s the only industry in the world that does that. And, it shouldn’t. It doesn’t have to be that way.

We as agents have a really bad reputation with consumers that they think of us as just above used car salesmen. So, by leading with transparency there really isn’t anything they can argue with. We show everybody all of our fees, all available options, let the consumer drive, and now we’re just in an advisory type role and we can really win and create kind of lasting business. We not going to win if we’re trying to take advantage of people, our consumers have gotten way smarter. Consumer access to cash offers - and it is right – to be transparent. 40% of the properties that hit OpenDoors at API last month that went to the MLS, of them, 40 percent of the properties that actually got to the MLS, OpenDoor saw before they ever contacted an Agent. If we don’t do it our consumers are doing it without us anyways.

By agents not bringing all cash offers and show all my fees, that consumer can make an educated decision. If I’m the agent and I’m deciding for my consumer what’s in the best interests of the consumer then I’ve done the consumer an injustice and I’m not saying the consumer is not going to pick them.

Consumers are, 60 percent of time, still pick that agent traditionally because that will probably always yield the highest dollar volume. But it doesn’t work in every case. If we as agents aren’t bringing these iBuyers to the table then they’re going there without us.

Russell: In terms of your market reach with this certification. Where are you at or where are you going?

Dan: We have agents all across the country that have already taken the Certification typically in iBuyer markets, or are coming soon markets, or we know that I iBuyers are going there. The iREP course and Certification is available to Agents in all 50 states.

use code PRO2020

Eat, Drink & Make Merry!

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Plan your next personal, professional or social gathering with us! Take advantage of a variety of indoor and outdoor venues that can be customized for your special breakfast, lunch or Sunday Brunch.

Contact Katherine Pipes to start planning your get together for parties of 10 or more. katherine.pipes@hyatt.com or 480-483-5591

CONSUMER REPORT– HOME LOANS

SHOPPING AROUND? HERE'S THE INSIDE SCOOP ON HOW TO DO IT RIGHT

First: make sure you are working with an experienced, professional loan officer. The largest financial transaction of your life is far too important to place into the hands of someone who is not capable of advising you properly and troubleshooting the issues that may arise along the way. But how can you tell?

Here are FOUR SIMPLE QUESTIONS YOUR LENDER ABSOLUTELY MUST BE ABLE TO ANSWER CORRECTLY. IF THEY DO NOT KNOW THE ANSWERS… RUN…DON’T WALK… RUN…TO A LENDER THAT DOES!

1 3 4 2

What are mortgage interest rates based on?(The only correct answer is Mortgage Backed Securities or Mortgage Bonds, NOT the 10-year Treasury Note. While the 10-year Treasury Note sometimes trends in the same direction as Mortgage Bonds, it is not unusual to see them move in completely opposite directions. DO NOT work with a lender who has their eyes on the wrong indicators.)

What is the next Economic Report or event that could cause interest rate movement? (A professional lender will have this at their fingertips. For an up-to-date calendar of weekly economic reports and events that may cause rates to fluctuate, visit our Facebook page Finance of America Mortgage – Bryan

Johnson Lending Team – for daily updates. Want more? Let me know if you want to be added to my weekly distribution list.

When Janet Yellen {Chairmen of Federal Reserve} and the Fed “change rates”, what does this mean… and what impact does this have on mortgage interest rates?(The answer may surprise you. When the Fed makes a move, they can change a rate called the “Fed Funds Rate” or “Discount Rate”. These are both very shortterm rates that impact credit cards, Home Equity credit lines, auto loans and the like. On the day of the Fed move, Mortgage rates most often will actually move in the opposite direction as the Fed change. This is due to the dynamics within the financial

markets in response to inflation.

For more information and explanation, just give us a call).

Do you have access to live, real time, mortgage bond quotes?(If a lender cannot explain how Mortgage Bonds and interest rates are moving in real time and warn you in advance of a costly intra-day price change, you are talking with someone who is still reading yesterday’s newspaper, and probably not a professional with whom to entrust your home mortgage financing. Would you work with a stockbroker who is only able to grab yesterday’s paper to tell you how a stock traded yesterday, but had no idea what the movement looks like at the present time and what market conditions could cause changes in the near future? No way!)

Be smart...

Ask questions…

Get answers!

More than likely, this is one of the largest and most important financial transactions you will ever make. You might do this only four or five times in your entire life… but we do this every single day. It’s your home and your future. It’s our profession and our passion. We’re ready to work for your best interest.

SHOPPING... PART 2 Once you are satisfied that you are working with a top-quality professional mortgage advisor, here are the rules and secrets you must know to “shop” effectively.

FIRST, IF IT SEEMS TO GOOD TO BE TRUE, IT PROBABLY IS. But you didn’t really need us to tell you that, did you?

Mortgage money and interest rates all come from the same places, and if something sounds really unbelievable, better ask a few more questions and find

the hook. Is there a prepayment penalty? If the rate seems incredible, are there extra fees?

What is the length of the lock-in?

If fees are discounted, is it built into a higher interest rate?

SECOND, YOU GET WHAT YOU PAY FOR. If you are looking for the cheapest deal out there, understand that you are placing a hugely important process into the hands of the lowest bidder. Best case, expect very little advice,

experience and personal service.

Worst case, expect that you may not close at all. All too often, you don’t know until it’s too late that cheapest isn’t BEST. But if you want the cheapest quote – head on out to the Internet, and we wish you good luck. Just remember that if you’ve heard any horror stories from family members, friends or coworkers about missed closing dates, or big surprise changes at the last minute on interest rate or costs… these are often due to working with discount or internet lenders who may have a serious lack of experience. Most importantly, remember that the cheapest rate on the wrong strategy can cost you thousands more in the long run. This is the largest financial transaction most people will make in their lifetime. That being said – we are not the cheapest.

Of course our rates and costs are very competitive, but we have also invested in the systems and team we need to ensure the top quality experience that you deserve.

THIRD, MAKE CORRECT COMPARISONS. When looking at estimates, don’t simply look at the bottom line. You absolutely must compare lender fees to lender fees, as these are the only ones that the lender controls.

And make sure lender fees are not “hidden” down amongst the title or state fees. A lender is responsible for quoting other fees involved with a mortgage loan, but since they are third party fees – they are often underquoted up front by a lender to make their bottom line appear lower, since they know that many consumers are not educated to NOT simply look at the bottom line! APR? Easily manipulated as well, and worthless as a tool of comparison.

FOURTH, UNDERSTAND THAT INTEREST RATES AND CLOSING COSTS GO HAND IN HAND. This means that you can

have any interest rate that you want – but you may pay more in costs if the rate is lower than the norm. On the other hand, you can pay discounted fees, reduced fees, or even no fees at all – but understand that this comes at the expense of a higher interest rate. Either of these balances might be right for you, or perhaps somewhere in between. It all depends on what your financial goals are. A professional lender will be able to offer the best advice and options in terms of the balance between interest rate and closing costs that correctly fits your personal goals.

FIFTH, UNDERSTAND THAT INTEREST RATES CAN CHANGE DAILY, EVEN HOURLY. This means that if you are comparing lender rates and fees – this is a moving target on an hourly basis. For example, if you have two lenders that you

just can’t decide between and want a quote from each – you must get this quote at the exact same time on the exact same day with the exact same terms or it will not be an accurate comparison. You also must know the length of the lock you are looking for, since longer rate locks typically have slightly higher rates.

Again, our advice to you is to be smart. Ask questions. Get answers.

As you can imagine, we wouldn’t be encouraging you to shop around if we weren’t pretty confident that we feel that we can give you a great value and serve you the very best.

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Top Ten Reasons to Buy Life Insurance Life insurance is one of those things that just about everyone needs but far too few people actually have. It’s easy to put off purchasing a policy when you’re young and relatively healthy.

But the longer you wait, the greater the chances of something happening before you get yourself coverage. Maybe buying life insurance been on your to-do list for a while but you haven’t gotten around to it yet. Check out these 10 reasons why you can’t afford to wait any longer.

1. Replace Lost Income Life insurance works to provide financial security to your loved ones after you pass away. You have to consider what would happen if you were to die suddenly. This is especially true if your loved ones rely solely on your income. Get yourself adequate coverage. That way, you won’t leave your loved ones helpless when the monthly bills come around.

2. Cover Burial Expenses Sadly, even a basic funeral service can run upwards of several thousand dollars. While it’s possible to pre-pay for your funeral, people don’t often think that far ahead. Prepayment can ensure everything is in place for your loved ones after you die. However, there are risks to pre-payment.

Life insurance can give you and your beneficiaries more of a guarantee, lifting a burden off of them as well as yourself.

3. Pay Off Debt Just because you die doesn’t necessarily mean your debts will disappear. In the instance that you and your spouse have co-signed for a mortgage or other loans, your spouse may become entirely responsible for repayment. The

other outcome could result in creditors trying to collect from your estate. While that gets rid of your debts, your heirs will receive the depleted remainder. Life insurance allows those you leave behind to take care of any lingering financial responsibilities.

4. College Planning There are a number of ways to save money for your child’s education. You may not have thought that a life insurance policy would be a viable option. But insurance payouts can actually provide a good supplement your savings.

If your child ends up borrowing money to get through school, the insurance proceeds could also help wipe out pesky student loans.

5. Build Cash Value Term life insurance, a type of life insurance, stays in place for a set period of time. But another option, whole life insurance, provides permanent coverage that only ends if you cancel the policy. Whole life insurance allows you to build up cash value over time, an attractive prospect to any people. That cash value acts as an extra cushion that you can tap at any time. This may come in handy if you have a financial emergency down the road.

6. Diversify Investments Some people also use life insurance as an investment tool with universal life policies. These policies are tied to a specific investment product. Then policyholders receive dividend payments based on the product’s performance.

Before you dive into this type of insurance, you’ll want to read the fine print. That way you’ll know the potential risks and returns before you commit.

7. Business Planning If you own a business, it’s vital that you have life insurance.

This covers your obligations so your hard work doesn’t go to waste. Are you involved in a partnership with someone else? You should both have coverage. That way, if one of you dies, the other isn’t left holding the heavy financial bag.

8. Estate Taxes When someone passes away, their heirs often face estate and inheritance taxes on any assets they receive. If you’re worried about your loved ones getting hit with a big tax bill, a life insurance policy can help cover these added costs.

9. Coverage is Affordable One of the excuses people tend to make for not buying life insurance is the cost. But truthfully, coverage often ends up pretty affordable for most people. Term life tends to be less expensive than whole or universal life. Plus, the younger and healthier you are, the lower your premiums will be. Unless you smoke or have a preexisting health condition, you could find coverage for as little as $1 a day.

Compare policies now to see your affordable options.

10. Peace of Mind No one can truly predict the future. But having life insurance means you and your loved ones can prepare for any eventuality. Even with a small policy, you may find yourself sleeping a little easier at night knowing that your family has protection in place should something happen to you.

Next Steps Convinced that you need a life insurance policy? Call an independent Life Insurance broker find a policy that fits your needs.

Written by Bryan Johnson, Independent Life Insurance Broker 480-295-9050

1 Mission:

Building Homes for those in Need Are you a humanitarian or otherwise like to see living conditions improve for people in poverty? Did you know that there are simple and easy options for busy real estate professionals to help? Check out 1Mission a community development organization giving people in poverty the opportunity to earn a house by serving their community.

I had the pleasure of visiting with David Strathman, Partnerships Director to learn more.

Russell Hathcock

David

Tell me about 1Mission?

Our founder Jason Law came on a mission trip when he was 14 years old; he came down here (Rocky Point) to build a house for somebody in poverty and noticed that there was a need for more than just one house a year. And so later, having ran other for-profit businesses, he decided to start 1Mission because he found he has a passion for helping people. And that’s how it began; 1Mission started about 11 years ago now.

David Strathman We’re a community development organization that helps people in poverty earn houses by serving in their own community. By providing the community service they’re also gaining skills to better their life so they can break the cycle of poverty and improve poor living conditions. We’re currently building in Rocky Point (or Puerto Penasco) and Hermosillo Mexico as well. We’re also in El Salvador and Nicaragua.

Russell Is 1Mission a for-profit business or a non-profit business?

Russell

David

Wow! Give me some back story. How did 1Mission get started?

We’re a non-profit 501c3 organization. Anybody that donates to us will get a tax deduction.

Russell Are you a real estate agent?

David Yes, my license is active. My mom’s my broker and I was doing wholesaling before so I could gain skills to flip properties. In flipping those properties, I eventually took some of the profit and donated to 1Mission.

Russell How did you get started with 1Mission?

David Some friends of ours from church mentioned that they were going on a mission build trip. They were the ones putting on the build trip and so they asked if we wanted to go with them. So, we decided to go on the build trip and that’s when we fell in love with what was happening down here.

Russell How long you have you been involved?

David I’ve been involved over a year as a trip participant but have also been donating to 1Mission as well. I started in September after they created the house-to-house program and needed somebody to take over full time. And so that’s why they brought me in because I was familiar with the program, familiar with what their mission was, and how they are helping people in poverty.

Russell Where do you get your passion for this charity?

David Being in the real estate and noticing how difficult it is for people to gain access to homes with financial hardship

situations in the US alone. But when I came down to Rocky Point Mexico and realized some of those things are just out of their control for poverty-stricken people. It’s just the way the economy is down here. And after seeing it for the first time as a build participant I fell in love with what 1Mission is doing and how they are actually helping people and whole communities in need. We pride ourselves on doing the community development portion of it, as well.

Getting a house is only a byproduct of what they’re actually accomplishing because they don’t have access to resources like we do in the US. So, we help them find what resources work for them, which eventually that turns into dollar bills, and can help them better their life and break that cycle poverty. We also want to help get them shelter from all the violence that’s happening. There are good people down here and it’s not what the media says it is. There are really good people that try really hard and just don’t have the means to break that cycle of poverty without direct assistance.

Russell The homeowner magazine has a lot of real estate agent clients but also title, lenders, home warranty, etc. Are you connecting with everyone in the real estate industry or just Realtors?

David We want to connect with anybody and everybody that deals with real estate so that goes all the way from the homeowner to lenders, title, home insurance companies; we want them to know we want to help people. So that’s what

the house-to-house program is, that we’re helping povertystricken people get into homes. By donating they’re helping somebody in poverty get into a home.

Russell How many people have you helped get a home?

David We’ve built almost 900 houses somewhere around eight hundred and sixty something at this point. While most of our work is here in Rocky Point because it’s the easiest to get to. We do one trip a year to El Salvador and one trip a year to Nicaragua. Now Hermosillo, Mexico is going to be our newest one. And we’ll be doing more trips there as well because it’s only several hours to drive there from Phoenix. We do have a lot of lot of people from Tucson that get involved as well.

Russell From start to finish how long does it take to build a home and what does it take for an individual in poverty to get into that home?

David So, in terms of getting a house and gaining the hours for community service they’re doing 400 plus hours. And when I say that plus, it’s because once they finish their 400 hours, they continue to serve their community because it’s not just them they’re helping; they’re helping their neighbors, they’re helping those other neighbors, and they’re continuing to grow the community. That’s what we want to see; we want to see people lifting each other up. We say it’s not a handout

it’s a hand up. We help them get started and then they have to push themselves to get through it, we’re not just handing things down to them, they do have to earn it. That gives a sense of ownership that they feel. So, it takes about five weeks, five separate weekends, that’ll complete a house depending on what stage of the house they get to and who’s coming down. Our president and his wife, Greg and Merle Yochim, organize everything from before volunteers get here, when they get here, they find out what’s going to be happening and where they’re going to be staying. We have a full base camp down here for people to stay at. When someone comes down on the build trip it will change their life and perspective on a lot of things.

Russell You mentioned build time and trips to the job sites. Are you asking for help to build or donations?

David So that’s a whole other separate thing that we do. The trips are completely separate from the donations that we receive for the funding of the houses. A lot of trip participants hear from friends and say, “oh I want to go do a mission trip”, then they can get involved, and then fall in love with the mission.

It’s an easy trip to go on because it’s just a weekend trip. And so, we get a lot of participants that had never been here but then they stay and keep coming back. Our build season is from the end of September until the end of April and we get down here to Rocky Point and almost every weekend and each time it’s packed. It’s pretty crazy!

Russell In terms of dollar amounts how much does it cost to build a home?

David About $8,000 is all it takes to build a home. Another aspect as well is the way that they’re gaining access to the houses is they have to acquire the land themselves. One of the main things that we pride ourselves on is making sure that they have property ownership of the land before we can actually go build on it. We want to make sure that nobody can come in and say, “oh well this isn’t right, or you’re not allowed to have this here”. This is a point of difference to other community builders that do this in other parts of the globe. There are places where a lot of people want to go build houses, but they don’t do it, if they go build the house and then the government says ‘nope’ we’re going to take this away from you. With us, we pride ourselves on making sure that they have the ownership of the land and that it won’t be removed out from underneath them. Also, these houses do have foundations versus them sleeping on sand and are better insulated houses. So, they’re in safer conditions and

it gets just as hot down here in Rocky Point as it does up in Arizona. We live in the valley (Phoenix), so we know how hot those summers are and for them to be out of the sun and have something that’s insulated. And another thing with them breaking the cycle poverty is that they’re gaining skills to be able to pay bills to have electricity in their home.

So that’s something we’ll wire the houses so that they are ready to be hooked up to the electric here in the city and then the city will hook it up for them and then they just have to pay a bill just as we do in the US. These are two-bedroom one-bathroom houses that we’re currently building and it’s just amazing to see. The reaction that we get from new recipients once the house is finished… In the US we think of it as a tiny shed because of the small square footage, but to them it’s a mansion. I can’t even explain how meaningful it is. You know, I don’t think there’s words to explain what the gratitude is that they have for people helping them get these houses.

Russell Where do you get the building materials? Do you have to ship from the US? David Another cool thing is we’re buying all the supplies down here. So, we’re keeping that money in the local economy as well. We have a monthly option so if homeowners want to get involved that way there’s a thing that we have called the supply yard which helps too. And that’s a monthly reoccurring donation. They can sign up for once a month donation and if you wanted to donate $50 towards the supplier that would go all towards the supplies that we’re using to build the houses.

Russell How can real estate professionals help 1Mission?

David So, what they do is there’s a there’s a buy in. It’s $99 to buy in and it’s a one-time fee. There’s no reoccurring, if you continue donating to 1Mission for five years you’re only going to pay the $99 one-time. What they get in return is co-branded marketing materials to show that they’re a part of a charity. And then we also give them client gifts to give to their clients when they close and what they’ll do in return is they’ll donate a certain portion of their commissions to 1Mission and a certain family. Included in that client box is a family bio where that donation went, how they’re serving their community, and what skills they’re gaining.

Russell Are you getting realtors and real estate professionals across the country to participate? If so, what kind of market reach do you have?

David We’re local in Phoenix but our goal is to grow the houseto-house program and get people from all over the country to know about 1Mission. That is one of my main points of focus is helping grow this nationally. We’re doing a trial period with Tucson to see how that goes. It’s a distance but it’s not across the country so it’s a trial period. When we ship the client boxes to the Realtors that way that we can have better numbers and see what it would take to reach those people. And then I would say probably the March or April we’re going down to Southern California and start hitting that market as well.

Russell Specifically, what do Realtors get from their donation?

David Agents get a web page so they’re clients can know how much they’ve donated and stuff like that. Currently, this is a branded webpage that they’ll get so they can showcase their company in this situation as well.

Russell Where is this webpage located?

David It’ll be through our 1Mission website. But they’ll be able to put whatever logos they want on there. So, if they wanted to put a headshot of themselves, they could put a headshot.

Or they can put their company and team logo. Its whatever picture they want to put. Their clients will also see the 1Mission website so that when if they donate it will go directly to our donations.

Russell Can Realtors advertise on this page?

David They can’t showcase if they have properties available or things like that, they could put a button on their personal website that would direct them directly to that page. So that would help with their search engine optimization. If clients are searching for a home then you, the agent, pops up then that will help their brand exposure.

Russell Will agents receive any increased business through participation with 1Mission?

David Absolutely. The more participants you get the more that’s elevating your business and elevates their business. If they’re winning, then we’re winning and if they buy then

they can see the vision of what we’re doing. Those are the people that we want to work with. I understand there’s so many thousands of real estate agents in Phoenix. There are a handful of people that are only doing one-two-three deals a year. We still want to be partners with them as well because if they see what we’re doing, realistically we like the small guys too, we want to help people grow their businesses. We want to help them get more clients and if they can attach their name to a charity like 1Mission that’s only going to help their business and their client visibility.

Russell In terms of donations; is this tax deductible for them?

David Yes, it’s a 501c3 tax deduction, it’s not a credit, it’s a deduction.

So, it’s a win-win-win all the way round. They get a tax deduction and help people the break that cycle of poverty.

They get brand exposure and so this is a win-win and they get it and then they are able to get a gift to give to their client which is amazing because it tells a story exactly of where and then they can go back and say oh he really did donate this money and then that’s going to create referrals.

Right. And look at this guy. He doesn’t care just about the paycheck. You know he wants to help people. Is this about something bigger than himself or even for her. It’s just a winwin for everybody.

Russell What more do you want Realtors to know and who do they contact if they want to participate or get more information?

David They would contact me directly. Another thing that comes with being a part of the house-to-house program is, not only do they get their own webpage so they can show their clients how much they’ve donated over the course of their life, with the with the program they can also dedicate that donation to their client, for example the Smith Family. They can stipulate a donation of $150 to 1Mission on behalf of the Smith family. And then they can go on the website and see that donation went directly to a family. We do the 100% models so each donation that they make goes directly to a specific family or individual.

For more information about 1Mission David Strathman can be contacted at (480) 689-3813 or David.strathman@1mission.org

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