While driving home, I heard a typical hyped up debt free commercial.  The ad said mortgages should be illegal.

If mortgages were illegal, what would housing sales be without loans?

Now considering most people need a place to live, there are a few choices.  First, live with relatives, who bought a home.  However, did they have to get a loan to buy the house?  Second, rent.  Renting is not always a bad idea, just as homeownership is not always a good idea.  Both scenarios have pros and cons.  Third, buy a house.  Based upon Census information, about 48.7 million people have regular and/or home equity mortgages.

With a population of 307 million, approximate 1 out of 6 have a mortgage.  Estimates show 24.3% are under the age of 18, so homeownership in this age group can be kicked out leaving  232.4 available to own a house.

Households in 2000 were105,480,101 and persons per household were 2.59 in 2000 as well.  If you take 307 million people and divide by 3 people per household today, that leaves about 102+ million households which is a close estimate to Census’ past data.

With almost 50 million people having some type of mortgage out of 100 million households, it’s easy to see homeownership would be difficult without a loan.  Therefore, if mortgages were illegal, housing sales would be much lower; and a 27% decline would be the good news.

Just as homeownership or renting has pros and cons, so do mortgages.  Mortgages have pitfalls as we all know, but provide benefits.  The benefits are not just the ability to purchase property, but can increase wealth as well.  Therefore, and having said all of this, don’t buy the hype blasted all over the airwaves.

If you want to turn the tides against the economic superpowers and mega-machines, read Barking With The Big Dogs; if not follow the crowd.

Housing Sales Down 27% Is The Good News is a post from: TOPIX To Share

Many people believe banks are out to get borrowers and cheat them. I would have to agree to a certain extent, because I have met some lenders I would never use. At the same time, I’ve met just as many, if not more, realtors causing me to run in the opposite direction as well.

I once had a realtor, who was also a and mortgage loan officer, say I was cheating myself by figuring qualifying payments based upon net income vs. gross income.

Okay, so I could purchase a more expensive house and qualify for a more expensive mortgage using gross income. Is this qualifying amount to my benefit, or the realtor and mortgage company? (Obviously having a nicer house has many benefits.)

If I knew for certain my income was going to increase, I would have to agree to a certain extent that I am cheating myself.

However, with insurance, taxes, utilities, maintenance, etc., these factors make a big difference in the amount of money left over each month.

The debt ratios for qualifying for a mortgage are 28/36, or 28% and 36% respectively, meaning 28% of income goes for housing and 36% is for total debt. (Some programs allow for higher ratios.)

For simplicity purposes, I’ll use 25% instead of 28%, or 1/4, since it is easy to figure in my head.

With an income of $100,000 per year, the paycheck’s gross amount is approximately $2,000 per week. (50 weeks x $2K. I’ll leave the other two weeks for vacation.)

$2,000 per week is approximately 1/4 of the monthly income. Four weeks per month, even though technically there are 4.33 weeks per month on a yearly average.

If you use 25% of the gross amount, then your principal and interest payment would be equal to one’s weeks pay, or $2,000. But this amount is gross income.

Take 7.65% for Social Security and Medicare plus income taxes. For simple math, let’s say the combined total taxes are approximately 25% of income.

Now the net income is $1,500 per week which accounts for taking out the 25% for taxes vs. $2,000 gross weekly amount.

$500 per month is a big difference in payments.

To give you an idea how $500 per month equates, a thirty year fixed rate mortgage at 6% is equal to $600 per $100,000 loan.

$100,000 loan = $600 / month.

$200,000 loan = $1,200 / month and so on.

If you have a $500 difference per month in payments, the difference is nearly $100,000 difference in a house. ($83K actually.)

Now you see why some realtors and loan officers say you are cheating yourself? You could buy a nicer house for an extra $100,000.

Moving up to a nicer house, the extra $100,000 is a big difference in commissions too. By using the smaller qualifying figures, I’m really cheating the reator and loan officer, not just myself.

Therefore, I think I’ll stay conservative and use the “net” income for many reasons. And, I’ll probably be glad I cheated myself for doing so.

How Bankers and Loan Officers Cheat People is a post from: TOPIX To Share

I’m really not to concerned with the “green” movement. I think “green” is a fad and obviously has political agendas. However, I do believe in efficiency, which is not a fad and won’t go away. Henry Ford and mass production was about efficiency.

As far as environmental concerns go, I’m not fond on the idea of dumping toxic waste in a river. However, technology has come a long way allowing for energy sources of the past to be very clean today.

But getting back to the idea about efficiency, check out what an apartment in Hong Kong, China can look like. I’m sure he loves his place, but I like space and would rather be in Texas. With technology, I can work live in Texas and do work in other parts of the world, and that is a transformer.

Watch the short video and share. You may pick up a concept to be used in your home, office or garage.

Apartment Transformer – World’s Greenest Rooms is a post from: TOPIX To Share

I was reading an article from a person who gives personal financial advice.

One person asked the so-called expert what is a good hedge against inflation?  (The reason I say so-called is because the commentator gives generic advices that is easy to sell and easy for people to understand without have to gain further details and insight.)  The “advisor” said real estate  – paid with cash.  But then again, you have to understand the expert is a person who has been, if not still is, a realtor.

I wouldn’t necessarily agree that a house is a good hedge against inflation.  As I’ve stated before in “How to hedge against inflation“, I think increasing your income is the way to hedge against inflation.

Then another person asked about real estate.   The same “advisor” said this is a good time to borrow.

So which is it, pay cash or borrow? I would expect this “flip flop” action coming from Washington.

Now in defense of the “advisor”, not everyone can pay cash and maybe the last comment from the person in the audience cannot afford to pay cash.  And yes, I would agree, it is a very good time to borrow, and probably a good time to buy a house as well.

But if you could pay cash, would you?  Really?

Factors that should be considered include, real estate, mortgages, investments, inflation, time value of money, etc.  All of the aforementioned topics are not complicated, but may require a little more time than the popcorn in the microwave to learn.

Therefore, don’t get suckered in to the hype about real estate from a realtor, or the easy advice of paying cash by a debt free pundit.  The information may be given because it’s an easy sell, and not real education.

Check out Chapter 3 – It’s All Hype.

Great advice…from a realtor. is a post from: TOPIX To Share

The odds are always with the house, or the bank. I was playing poker with my son. We are simply playing a game of cards, but it is fun to win. (And yes he won too.) Someone wins and someone loses, that just the fact of life. It doesn’t matter if it is checkers, cards, football, baseball or whatever. However, we have the choice to play or not to play games.

But in the game of life, we don’t always have choices when it comes to playing with our money.

No, I’m not talking about poker or any other game. Rather, I’m talking about taxes, inflation, loans, insurance or the stock market. These are “games” that we play everyday. If you don’t learn the rules of the games, the house has the odds.

Have you ever noticed the size of the financial institutions or government monetary figures? Sure you have.

$900 billion or a trillion, such as in the bailout figures.

These institutions use debt and loans all of the time even if they do not use the terms debt or loans. For example, a certificate of deposit at a bank is really a loan from us to the bank. The bank pays CD holders interest and uses the money to turn around and make more money.

The thing about it is that it is not necessarily the debt that causes problems as the debt free pundits proclaim, but rather the actions the action people take when buying items and spending money regarding the financial decisions made. What I mean is did money get spent on vacations, jewelry, boats, or whatever? I $100 or $200 here and there starts to add up. Or, is money invested at random just because some said buy this stock or mutual fund rather than research the markets, trends, etc. Another example might be to buy and hold instead of selling at the appropriate times.

In reality, who has more money, the institutions that use debt properly or the people who tell tell you to get out of debt?

Some banks will go broke, as we have seen, and some will win big. Some win. Some lose. But these players know the game and are playing against other experts.

Most homeowners, and I have made mistakes in the past too (as a result, I have decided to delve into the real estate and banking business rather than just take someone’s word for it), are really not an expert in real estate.  Neither are many realtors or bankers that I’ve come across for that matter either.  To give you an idea of what I mean, is a house really an investment? The property can be, but in most cases it’s not – except to the realtor (or person who loves real estate) giving the sales pitch, or the people who write the tax laws, such as capital gains. More on this in Barking With The Big Dogs. You can also get an idea of housing from my post dealing with the property being a hedge against inflation by reading here.

Therefore, keep your poker face on when it comes to looking for a house.

Even people who preach getting out of debt don’t always tell the whole story. Maybe because they don’t want to tell you or because they don’t know the game itself.

Similar to playing poker, if you are playing poker, you don’t show your hand. You bluff and make it look good if your hand is not very good.

When listening to a show on getting out of debt, or all debt is bad, how much would you put in their “pot” just to sit at the table and learn what you already know… such as don’t spend more than you make.  I would hate to have a 15 year mortgage and lose a job just simply trying to avoid debt.  That’s pretty risky.  Are you willing to bet the house?

Losing income is much more damaging than having debt.  But if you do lose income by all means you do want to get out of debt as fast as possible provided you do not give up additional income in the process, i.e. liquidating income producing assets.  Rather, if you are not making money, then it’s time to walk away from the table.

Before you sit at the table in a bank or at a real estate office (or wherever), you had better learn the rules of the game so you can level the playing field.  Otherwise, they may just clean house.

  Copyright secured by Digiprove © 2010 Mark

How to beat the house (or bank) at poker. is a post from: TOPIX To Share

While writing my book, Barking With The Big Dogs, I touched on the subject of inflation. My point was made that inflation, specifically regarding real estate, is not going away. However, I use examples such as hamburgers and cars.  After all, hamburgers and cars today do not cost what they did thirty years ago.

When I made this comment, Mark Whister, author of many books including 2034: The Corporation and Volatility Illuminated asked me about inflation regarding computers. He stated computers have come way down in price. This is true, I remember when a Compaq 286 cost around $4,000-$5,000 back in the early 1990′s and a good laptop is around a grand or less today.

However, computers have come down in price due to technology improvements, but also consumerism.  More people have access to computer.  In other words, volume.  Unlike houses, computers are hundreds of dollars, not hundreds of thousands of dollars like they were in past.  Plus, with technology changes, equipment gets outdated in a hurry.  Computers are disposable items.

Houses should also go down in price too (unless resources to build them go up).

To give you an idea why prices should fall.  First, houses get outdated and wear out just like cars, although not as fast.  Plumbing needs to be fixed, roofs replaced, doors sag, foundations crack.  Next, with a bigger population, more people buy houses.  If houses and computers are the same, more access to houses should drive prices lower.  (Which is what the government also wants.  Ask Jimmy Carter and the Housing Act he signed which is part of the idea behind the housing crash just a couple of years ago.)  However, land is restrictive in some areas; therefore, supply and demand will drive prices upward.

Unlike houses though, owners and builders do not give them away to sell other services, like computer and cell phone companies do.  People can get a free phone or computer when signing up for services than may go on for a lifetime.  These services are where the money is made, not the technology item.

In reality though, houses won’t go down.  Sure some will lose value, but it’s really to market demand.

Inflation and bubbles are events which the government needs and produces.

When I saw the following comparison, it reminded me of my conversation with Mark and I thought this photo was interesting and worth sharing.

  Copyright secured by Digiprove © 2010 Mark

Inflation or deflation – look at computers is a post from: TOPIX To Share

Quite often I hear the house is a hedge against inflation. On the radio from ads to talk shows, but generally when I hear such statement, I consider the source talking about the property – realtors or ex-realtors.  (Check out Chapter 4 – A Crack In The Equity Foundation.)

Real estate investors who buy and sell the homes may make the claim as well. Make sense, they love to sell real estate.

A house has huge emotional ties. Mix your money side to the equation and that’s what salespeople thrive on.

The problem with the emotional side to the home is that many people will sacrifice their financial future to keep the property.

However, do not forget to figure the costs of home ownership. I’ll bet such costs (repairs, maintenance, etc.) is not factored in to the hype we hear.

I can’t remember an advertisement stating, ” A home is a great investment and a hedge against inflation, but when the costs associating with maintaining, improving or repairing the house, chances are you will lose money.”

Have you heard such an ad?

I’m not suggesting everyone rent vs. of own, but there are other things to consider such as those hidden expenses and budgeting items that will eat away at the profits.

The house is a wealth asset, but also an expense, unless the property generates income from leasing or reselling the home (just as reselling any product for profit) for example.  The definition of an asset is something that provides the expectation of economic benefit in the future.  Unfortunately, profits are not guaranteed.

On the other hand, an asset that provides income is different than a hedge.  To explain what I mean, first, a house is an asset which generally appreciates over time. Even with the current state of property values, houses will generally go up.  In reality, values have to go up – property is a huge tax tax base – from local property to capital gains. So naturally homes need to increase in value.  But you have to sell the property to see the gain (or borrow against the increased equity). Once again, buy and selling real estate is great for the realtor profession.

New home values will be built based upon current costs of materials, labor, etc. which have inflated since the past.  However, as far as an individual making money or losing money, home prices are still based upon supply and demand.

Next, does the house really hedge against inflation.  Inflation (such as health care, education, etc.) is still happening while property values are declining.  Therefore, will the real estate value recover enough to cover inflation in areas such as health care or increased tuition? Maybe real estate is a good hedge against other real estate properties vs. other industries, but the property would have to be localized property values as well.  Florida property tanked much more than homes in Texas.

I like gold and I like houses and both are considered a hedge. They are both hard and tangible assets that you can feel, touch and hold.  They are assets that are / or can be investments.  All investments have risks; otherwise there is no reward.  I would love to have a house filled with gold, but there is more to the story of gold than what you are being told as well.  In the end, does gold or a house pay dividends or produce income?

I would look for ways to increase my income. I think increasing income vs. a house is a better hedge.

  Copyright secured by Digiprove © 2010 Mark

How to hedge against inflation. is a post from: TOPIX To Share

When I look at purchasing a new home or I am doing a business plan for a real estate investor, a couple of aspects are always present whether the house is financed or not.  Taxes and insurance.

When I see the amount of taxes and insurance owed, year after year, I realize complete home ownership is not really possible.  I’ll explain in just a minute, but first, I found something of interest from about a year ago when foreclosures where the hot topic instead of nationalized health care.

Take a look.  Just because foreclosures are not the hot topic right now doesn’t mean the problems will go away, especially if another round of ARMs (adjustable rate mortgages) reset in the near future.  Chance are amendments like the one proposed last year may get “repackaged” and sold to the public again.

Sen. Dodd’s amendment to the $300 billion Hope for Homeowner program on the foreclosure amendment to the stimulus package were designed to increase participation in the program.

Part of the program included a point that people would have to share 25% of their future equity vs. 50%.

Basically the way sharing works is if the home is sold for more than its worth when the loan was refinanced, the FHA get 25% of the gain in future equity, plus a percentage of the write-off amount.

For simple math, if the house is sold for $50,000 more than than the value at the time of refinancing, the FHA gets $12,500 – this is better than $25,000 (50%).

Here’s the deal.

The only way to increase your wealth is through property appreciation.  With amendments such as the one just mentioned, a homeowner would have to give part of wealth too.  Or to look at it another way, if you refinance after taking a loss in value, you’ll have to give up part of the gain (or the gains above the loss that you are recovering).  Looking ahead to 2011, I’m sure more capital gains taxes could be owed.

As far as increased participation, why wouldn’t the government want more of what you’ve got?  Government ownership and involved is pretty obvious by now.

Even if you or I do not have a loan, we’ll never own the home “free and clear” like so many people, mainly the debt free pundits, want us to believe.

If we don’t pay our property taxes, find out who really owns the home – not us.

Taxes have put people out of their homes, even those without a home loan. Do you remember all of the talk and voting on “tax freezes” for senior citizens in the past?  I do.

Owning a home free and clear just eliminates one party, the bank, not others.  Therefore, owning a home free and clear is really a bunch of hype because payments are made month after month, year after year, just not to the bank – and those monthly payments to pay the taxes and insurance can be very expensive.

Own a home free and clear. is a post from: TOPIX To Share

I was having a conversation yesterday with a realtor who is looking to buy some commercial rental property. I gave her some commercial lending information which included rates, prepay penalties, seller seconds (second lien issued by the seller), etc. that I found.

When she looked at the features, she chuckled. I asked what was intriguing and she stated, “these interest only payments, why would anyone want one?”

Well, right there I knew she didn’t understand finance and the relationship to real estate either. I’ll explain shortly after I let you know the rest of the conversation.

To continue, I mentioned I think it would great if you could get interest only payments for thirty years. I wanted to see the reaction I would get after making such a bold statement.

As expected, I got the deer in the headlights look as well as the typical response, which was, “you don’t own anything and you don’t build equity.”

I could have talked for hours on just the two parts of the last statement. However, I simply replied if the property values increase, so does your equity. If property values decline, why do you want your money tied up in property?

After reviewing a business plan, I said you will pay over $100,000 interest per year. She was stunned. I also told her she would make much more than the amount of interest paid. Without the loan, she would make $0 because she couldn’t do the deal.

The type of property does not matter, commercial real estate or a home and whether or not the real estate investor gets an interest only, short-term or long-term loan really doesn’t matter to me. The point regarding the loan decision is what you do with your money should determine the loan to get as I discussed in the Top 10 questions for lenders.

As far as owning anything, you own the property and rent the money.

Buying real estate is a post from: TOPIX To Share

In order to have values decline, wouldn’t there have to be a buyer and seller to determine the market value? If an item, such as real estate is never sold, or will ever be sold, how can the property have a dollar value? I’ve heard of Presidents selling out to special interest, etc., but the White House?

Even this property has lost value is a post from: TOPIX To Share