Homeowners insurance estimate
I’m going to take a break from my normal course of business (which is advising real estate investors how to manage, preserve and accumulate wealth using mortgages and real estate investing) to advise another group of the home buying segment---these strategies and insights are equally beneficial to investor and homeowner alike.
With the glut of real estate available on the market, property values falling or flattening in some areas of the country, recent interest rate hikes. the cost of living (namely oil and gasoline) increases and the “doom and gloom” being broadcasted by the various media outlets, it’s no wonder why a great majority of first time home buyers, vacation home buyers and convenience (homeowners that want to either upsize/downsize) home buyers have “gone fishing and are waiting for better days”.
Before you decide to pack up and call it quits on doing anything in this market, you might want to calculate the cost of lost opportunity, the benefits of leveraged capital and equity & rental correlation to determine just exactly how much your opinion could cost you. Here is some math homework that will put some dollar values behind the decisions you are making:
1). Leveraged Capital Concept:
Financing allows you to control a larger asset (an investment property or primary residence for example) with a smaller one (a down payment). The larger the asset’s value, the greater the returns (regardless if you can get bigger returns in another investment type).
A simple example that would illustrate this point would be:
- Investor X puts 10,000 into a bank for an annualized return of 10%. At the end of year 1, Investor X would have made 1,000 on his initial capital investment.
- Investor Y puts 10,000 into a 100,000 investment property for an annualized return of only 2.5%. At the end of year 1, Investor Y would have made nearly 250% more then Investor X---earning 2,500 after the first year.
2). Leveraged Equity Concept:
Like the leveraged capital concept, financing allows for greater long term returns and wealth by equity accumulation. A simple example that would illustrate this point would be:
- Investor X puts 10,000 into a bank for an annualized return of 6%. At the end of 10 years, Investor X would have a total of 17,908---at the end of 20 years, Investor X would have more then tripled his/her money and would have 32,071 to show for it.
- Investor Y puts 10,000 into a 100,000 investment property for an annualized return of only 6%. At the end of 10 years, Investor Y would have a total of 179,080---at the end of 20 years, Investor Y would have enough money to purchase 3 homes or an equity + property net worth of 320,714.
For another example of the use of leveraged capital and equity, visit "Real Estate vs. Stocks---The Other Side of the Story Every Real Estate Investor Needs To Know".
3). Rental Correlation Concept:
If you ever wondered “If I pay X amount in rent, how much of a mortgage payment would that be equivalent to after I adjust for mortgage interest and real estate tax deductions?”, then you will be interested to know that there is answer to that question. This is how someone paying about 1278.00 in rent can justify purchasing a home worth over $200,000.
PI (Principal and Interest Payment): 1467.52
Monthly Real Estate Tax Estimate: 200
Monthly Homeowners Insurance Estimate: 40
Total PITI (Principal + Interest + Taxes + Insurance) Payment: 1707.52
Tax Deductions Monthly Mortgage Interest Deduction: 1,333.33
Monthly Real Estate Tax Deduction: 200.00
Total Tax Deductions: 1,533.33
Total Tax Savings (using 28% as the taxable rate): 429.24
Rental Equivalency for a 1707.52 mortgage payment: 1278.28
With a 30 year fixed mortgage with an interest rate at 7%, a PI payment of 1,467.52 would equate to payments on a mortgage in excess of 218,000.
If you ever wondered why you took Algebra in high school or college level math as an undergrad, this is why---this brings new meaning to “if you don’t use it, you will lose it (a lot of money that is). Math is the ultimate leveler (it never lies) and the COST of “lost opportunity” when renting is always greater then the RISK of homeownership, regardless of what the market, property values or interest rates are doing.
Don’t just view your home as a “shelter” or something to put “sweet” after and before---think of your home as an investment in lifestyle, quality of life and future wealth accumulation.
Before you decide to pack up and call it quits on doing anything in this market, you might want to calculate the cost of lost opportunity, the benefits of leveraged capital and equity & rental correlation to determine just exactly how much your opinion could cost you. Here is some math homework that will put some dollar values behind the decisions you are making:
1). Leveraged Capital Concept:
Financing allows you to control a larger asset (an investment property or primary residence for example) with a smaller one (a down payment). The larger the asset’s value, the greater the returns (regardless if you can get bigger returns in another investment type).
A simple example that would illustrate this point would be:
- Investor X puts 10,000 into a bank for an annualized return of 10%. At the end of year 1, Investor X would have made 1,000 on his initial capital investment.
- Investor Y puts 10,000 into a 100,000 investment property for an annualized return of only 2.5%. At the end of year 1, Investor Y would have made nearly 250% more then Investor X---earning 2,500 after the first year.
2). Leveraged Equity Concept:
Like the leveraged capital concept, financing allows for greater long term returns and wealth by equity accumulation. A simple example that would illustrate this point would be:
- Investor X puts 10,000 into a bank for an annualized return of 6%. At the end of 10 years, Investor X would have a total of 17,908---at the end of 20 years, Investor X would have more then tripled his/her money and would have 32,071 to show for it.
- Investor Y puts 10,000 into a 100,000 investment property for an annualized return of only 6%. At the end of 10 years, Investor Y would have a total of 179,080---at the end of 20 years, Investor Y would have enough money to purchase 3 homes or an equity + property net worth of 320,714.
For another example of the use of leveraged capital and equity, visit "Real Estate vs. Stocks---The Other Side of the Story Every Real Estate Investor Needs To Know".
3). Rental Correlation Concept:
If you ever wondered “If I pay X amount in rent, how much of a mortgage payment would that be equivalent to after I adjust for mortgage interest and real estate tax deductions?”, then you will be interested to know that there is answer to that question. This is how someone paying about 1278.00 in rent can justify purchasing a home worth over $200,000.
PI (Principal and Interest Payment): 1467.52
Monthly Real Estate Tax Estimate: 200
Monthly Homeowners Insurance Estimate: 40
Total PITI (Principal + Interest + Taxes + Insurance) Payment: 1707.52
Tax Deductions Monthly Mortgage Interest Deduction: 1,333.33
Monthly Real Estate Tax Deduction: 200.00
Total Tax Deductions: 1,533.33
Total Tax Savings (using 28% as the taxable rate): 429.24
Rental Equivalency for a 1707.52 mortgage payment: 1278.28
With a 30 year fixed mortgage with an interest rate at 7%, a PI payment of 1,467.52 would equate to payments on a mortgage in excess of 218,000.
If you ever wondered why you took Algebra in high school or college level math as an undergrad, this is why---this brings new meaning to “if you don’t use it, you will lose it (a lot of money that is). Math is the ultimate leveler (it never lies) and the COST of “lost opportunity” when renting is always greater then the RISK of homeownership, regardless of what the market, property values or interest rates are doing.
Don’t just view your home as a “shelter” or something to put “sweet” after and before---think of your home as an investment in lifestyle, quality of life and future wealth accumulation.
-------------------------------------------------------------------------------------------
H. Scott Miller is a nationwide commercial and residential lending professional specializing in the creation, management and growth of real estate wealth from a mortgage prospective. He is also the author of "The Not So Funny Games That Lenders Play With Your Money That Can Cost You A Fortune Every Time You Get A Mortgage" which is freely distributed at The Mortgage Inner Circle.
H. Scott Miller is a nationwide commercial and residential lending professional specializing in the creation, management and growth of real estate wealth from a mortgage prospective. He is also the author of "The Not So Funny Games That Lenders Play With Your Money That Can Cost You A Fortune Every Time You Get A Mortgage" which is freely distributed at The Mortgage Inner Circle.
Article Source: http://EzineArticles.com/?expert=H._Scott_Miller
Subskrybuj:
Posty (Atom)