Wisdom of Rich Dad

HOMEOWNERSHIP has always been considered the pinnacle of success. It is the dream of every Filipino.  After all, a home is considered one’s pride and joy, and nothing less than owning his own castle is acceptable. No argument here. But the question is, “When is the best time to own one?”

This million-dollar question is best answered by learning from the example of my mother.

For the longest time, we have only been renting. In fact, mom never experienced what it is like to own her home. Not for the lack of searching though. For the past 20 years, we have been scouting all potential and feasible properties but without success. I personally stopped counting after we hit 50 houses; and that was years ago. Several times we came close to buying one, but there was always a variable that won’t make the sale push through.

Proponents of homeownership would have argued that we are just throwing away good money month after month because of renting. We’re making others rich while we are not building any equity for ourselves.

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Many people, perhaps inspired by the books and seminars of financial guru Robert Kiyosaki, are attracted to real properties as an investment. But dealing with tenants and city hall can be a source of aggravation, as highlighted by the current furor over unpaid water bills in Ontario.

Some landlords include the water bill in the rent. Others charge it directly to their tenants to provide an incentive to use water economically. Whenever a delinquency in payments arises, many landlords in Ontario are finding that their municipality has recently transferred responsibility for collection from the water utility to them. They have to retrieve the money themselves or have it added to their tax bill.

Kayla Andrade of Cambridge, Ont. knows the aggravation only too well. She is a young mother of two children, and a landlord with tenants whose delinquent accounts have driven up her taxes.  “Just because I am called a landlord does not mean I am rich—I am just getting by,” she says.

Numerous other landlords in Ontario are finding themselves in similar straits, and a groundswell of protest seems to be building. Andrade, in fact, is circulating a petition that calls on the Ontario Government to end the transfer of water bills to landlords.

Compared to water utilities, small-scale landlords like Andrade have less recourse for collecting unpaid water services, says Rachelle Berube, owner of a property management firm and blogger at Landlord Rescue. A utility can ask for deposits in advance, engage collection agencies, cut off service and sue the tenant.  “The landlord has to wait until the tenant moves out and then take them to small claims court at their own expense,” adds Berube. “And small claims can take a year to get your money back.”

“You’re at risk from the tenants, and the laws are heavily pro-tenant,” she continues. “This is why there is little decent affordable rental housing—it’s just too damn risky.”

It might be supposed that landlords can recoup their losses by raising rents on tenants in other units, or on future occupants of the unit in arrears. But this makes their accommodations less competitive on the market, which can result in longer vacancies and a failure to break even.

Many local taxpayers may prefer that landlords be held responsible in order to avoid having the water bills put on their tax rolls. However, by making the ownership of rental properties even more uneconomical, the stock of affordable rental housing will be at risk of shrinking further. And this could lead to greater spending by local governments in the areas of social housing and related services.

Conservation issues may come into play, as well. Passing the tab to someone less able to collect on overdue payments could mean that the problem of unpaid water usage and over-consumption will grow steadily larger over the years to come—not a socially desirable outcome, it would seem.

After looking at all the costs involved in buying house, you may have begun to have second thoughts: Perhaps, it is better to rent a home.

Real estate in most areas today is not a top investment compared with investment securities. “You’re not going to get a 30 percent return on your house,” said Steve O’Connor, senior director of residential finance at the Mortgage Bankers Association of America. In the past decade, people have been advised to think of a home “as shelter not investment” O’Connor said. “Wealth accumulation is secondary.”

Still, as shelter, most experts say if you can afford the down payment, it makes sense to buy your home rather than rent it. That’s because you can deduct mortgage interest on income tax and build equity in your property. This is especially true when mortgage interest rates are low. Mortgage interest rates are deductible up to a $100,000 annual limit.

Example
A homeowner has a gross annual income of $40,000. The monthly mortgage payment is $1,000 on a 30-year mortgage. In the first few years, 80 percent of that payment goes to interest and is therefore tax deductible. In the 15 percent tax bracket, the homeowner saved about $375 more in taxes with the home provision versus with only a standard deduction.

Lease-Purchase Agreements
Some people take a middle road. They ease into homeownership by renting a house or condominium with an option to buy.

• Lease-purchase gives a buyer time to save for a down payment or to clean up a credit history.
• It can work in a buyer’s favor in areas where real estate values are rising quickly at a rate of 10 percent a year. A buyer benefits from this appreciation because the purchase price of the home is locked in on the day the buyer signed the rent-to-own contract with the seller.
• In most agreements, the seller allows a portion of the rent to be applied towards the purchase price, which some lenders consider to be part of the down payment. The amount of rent credited could be 10 percent to 100 percent, based on your contract.
• Most rent-to-own options require some down payment to secure the agreement, which is not refundable in case the renter decides not to buy.

Homeowners who would agree to a lease-purchase option include people who have had property on the market longer than they wish or owners who had to move and want the house to be lived in. The owner benefits with rental income to help pay the carrying costs of the home, and the strong possibility of selling the house when the contract expires.

Renting a home is cheaper than buying in just three of Britain’s 50 biggest towns and cities, according to a new study.
The findings highlight the stark injustice and worsening situation for millions of people priced out of the property market.

A year ago, it was only cheaper to buy in 40 out of 50 towns.

As the banking industry, rocked by the financial crisis, has tightened lending criteria on mortgages and demanded bigger deposits, it has left many more would-be first-time buyers stuck on the sidelines.

This has forced many more people to rent rather than buy, and spurred landlords to cash in on the rising demand and charge tenants more.

Average rents have been on the rise for most of 2010 and 2011.

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Andrew Carnegie once said “Ninety percent of all millionaires become so through owning real estate.”

I am not sure how accurate that statistic is, but there does appear to be some truth in that statement and it does capture my attention, as I am sure it has many others looking to enter the real estate game as a means of wealth creation.

Perhaps you’re considering buying your first rental property as an investment. You’ve read books by Donald Trump and Robert Kiyosaki, attended a few seminars, and are now ready to take the plunge. Or perhaps you’re the seasoned investor looking to diversify your portfolio or leverage the equity on an existing home. Either way here are a few things to consider.

Eligible properties:

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Russ Whitney is one of the big names in the real estate business nowadays. Being the chairman and CEO of Whitney Information Network, Inc., and Whitney Educational Group, Inc., and being the founder of The Whitney Foundation, Inc.—Russ Whitney really is something!

Russ’ story is one amazing success story—from working in a slaughter house, earning $5 an hour; he successfully became one of America’s youngest millionaires. By the age of twenty seven, he already owned millions worth of properties. But how did Russ Whitney become one of the youngest American millionaires? Here’s his story.

Russ Whitney was born on November 18, 1955, in a small town in Long Island. He was raised by his dad and aunt. They moved to Queens, New York when Russ was still very young and he grew up there. Russ dropped out of high school. He got married and to earn a living, he worked at a slaughterhouse. But Russ wanted more from the life he was living. He strived to learn more ways to earn money.

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