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.

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