Thursday, March 20, 2008

Dumbing Down Our Youth, Society (Financial Speaking)

I've been doing a slow burn for a few weeks now.

Particularly since I saw the latest "you are slowing down the wheels of progress if you use cash or write checks" commercials pushing Visa cards.

Well, I came close to duct-taping my head last night when I saw ANOTHER commercial I had been warned about by some colleagues in a networking group I belong to. Knowing my dislike of TV ads promoting irresponsible financial behavior (my words), they knew I'd be riled up by the latest ad from a credit card company/giant bank whom I will not name. Trust me, you'll know it the next time you see the television advertisement.

In the spot, a wife or girlfriend tells her male significant other "well, I guess it's time to get a new TV." He dutifully (giddily, truth be told) heads to the local big box electronics store where he is introduced to a plethora of flat panels, flat screens, big screens, BIG BIG BIG possibilities. And as he reclines in a luxurious plush leather recliner (reminiscent of my own "Black Beauty" recliner at home), he quickly pulls out his mobile cellular/internet/mp3/backscratching device and rapidly taps into his charge account to see how much he can spend.

Now notice, he is no longer shopping to see what he needs. He is not shopping based on a budget. HE IS SHOPPING BASED ON HOW MUCH CREDIT HE HAS LEFT ON HIS CHARGE ACCOUNT.

(insert scream here)

Folks, this is what I'm talking about. Kids and even adults are being trained to just "spend what you have," instead of working from a budget. It's no wonder I have so many people who realize they should have gotten into real estate long ago, and could be quite comfortable now, but they are in non-productive debt up to their eyeballs. And they gladly pile it on.

I'll get off the soapbox now. But for everyone who says they have trouble putting money aside, in order to purchase something for a long-term investment, I'll show you some item they bought (but really didn't need) because they had a little extra credit they could use. As for the TV couple, yes they needed a TV. But we are led to believe that he picked out the biggest and best.

Did he need the biggest and best? Probably not. But the credit card company made it so very easy for him to spend far more than he probably needed. A giant flat panel screen that will make him happy for a while, until he gets his monthly credit card statement.

But then, that's the credit game.

Thus endeth the lesson.

Monday, March 17, 2008

Use Your Investment Property As Health Care Insurance

Geez . . . the meltdown on The Street continues today. I've actually had calls from a handful of people who threw all their money into stocks and are now asking how 1031 exchanges work. The bad news is that unless they already own property for investment (not their personal home), the exchange won't benefit them until they purchase their second property.

But that's not what I want to write about today.

I picked up a nugget from colleague Furman Tinon last week that I wanted to pass along. We were talking at our weekly Columbus Real Estate Exchangors (CREE) meeting and the subject of health insurance came up. As people's premiums skyrocket, for short term medical needs or longer-term catastrophic healthcare requirements, healthcare is striking fear into the hearts of many. As if gasoline prices didn't already do that!

First off, a warning; This will make some brains explode, particularly those people who are urging on government-run, mandatory universal health care . . . Now, with that said:

One benefit to owning investment real estate is that it can be an adjunct to your existing health care insurance. Now I'm not saying DO THIS. I am suggesting it as an alternative, or as a supplement. But consider the following:

In today's market, there are nice homes in nice neighborhoods that can be purchased at a discount. They will appreciate back to where they should be and beyond over the next several years. Remember, investment real estate is NOT flipping. It is holding income-producing property for the long term -- for appreciation, income and the huge tax advantages, both annually and when you trade up through a 1031 tax-deferred exchange.

Additionally, investment real estate is not your house (unless you are charging your kids rent). Consider getting control of (purchasing) two, three or even four nice homes. You don't have to do it all at once. You can do it over time, and trust me, unfortunately home prices look to stay depressed for a couple years anyay. Rent them out. You don't have to have high equity in the homes, just control over them. How? Look at your insurance expenditures over the past several years and get an idea of what you pay out each year. If you applied the money you spend on premiums, co-pays, and policy-holder obligation toward paying down the mortgage more quickly, your investment real estate equity jumps that much faster.

And by building equity more quickly, you are building wealth quickly.

If you control the homes, you can re-finance and take money out to take care of your healthcare needs. Surgery coming up? Expecting a big out-of-pocket expenditure? Pull money out of your investment property.

It is a tax-free loan to yourself.

I ran it by a mortgage guy I trust, and his response was, "oh yea, that makes GREAT sense." And he wasn't looking at fees he could collect; he was looking at the cost/benefit of this approach to healthcare. The same response (generally) came from a tax attorney and a CPA whom I consulted. Soooo . . .

Add your name to the long list of uninsured in this nation! And quite possibly, be far more secure for it. Just something to chew on on a Monday.