For Uncles and Aunties
If you are older (fellow Aunties and Uncles), you probably did it the way we all assumed was the right way. You scrimped and saved and bought your own home and have been paying very high mortgage payments for the past many years. However, you are almost all paid off, and you have a lot of equity in your home, or it is already paid off and you feel really good about that, especially since your home has greatly increased in value. Congratulations!
Pat yourself on the back, and then think about what all that equity is doing for you. Is it giving you monthly cash flow, is it giving you depreciation, is it working for you? (answer is probably “no” to all questions). Even though it is worth a million dollars, you don’t get a million dollars until you sell it.
Although our home isn’t worth a million dollars, we had a lot of equity in it. We needed to build our retirement funds or retirement would not be an option.
What we did was refinance to the maximum mortgage payment we were comfortable with, and get a HELOC on the remaining equity. You will get cash from the refinance – commonly called a cash out refi. You will have the ability to get money from the HELOC by simply writing out a check. You will have less equity in your home, but that can actually be a good thing in case someone sues you for whatever reason. It is also important to apply for a loan when you are still working for someone and can show a w-2. Banks will loan you money when you can prove to them you don’t really need it.
Now you will have quite a lot of money to invest. Whatever you do, do not use that money for doodads. Don’t go buying a new car, boat, diamond ring, or go on a round the world tour. Instead, invest it in income producing assets that will generate more than what you owe. This is your positive cash flow. This is income, taxed at a passive income tax rate – currently at 20%. From this cash flowing income, you can now pay your expenses, and even buy your doodads.
Instead of depending on Social Security, your company’s retirement plan, or figuring you have to work forever, let your money work for you by investing it in assets that pay you income consistently and regularly.
Here’s a fantastic blog site for those of us in our mature years: Bawld Guy Talking. I like what he has to say, very smart and in tune with what is happening currently. On one of his posts he writes, “Licensed since 1969, in the investment world since 1976 — I’ve never seen the three lines — interest rates, price/rent ratios, and demand, cross. Never, as in never, ever. No exceptions. We’ll look back at this market a decade from now and realize we experienced real estate investment Heaven — in real life, in real time.” One of Jeff’s podcasts was right on target about those of us who are facing our retirement years and realizing we are not financially ready. Listen to it <here>.
To summarize: Interest rates are low, very low. Price/rent ratios are great if you are a holder of real estate bought recently. Demand for well located, high quality rental property is high. The perfect storm. Be still my heart. Pardon the clichés but the time for investing is now.