Buying a Home in Miami

Stop Paying Rent Before is too Late

As you know, renting has two big problems - the rent can go up, and you don't have anything to show for it except a pile of rent receipts. Me, I like knowing that every month I'm $50 or $100 richer, no matter what. That doesn't sound like much, but if you saw a $100 bill lying on the ground, you'd sure as heck pick it up, wouldn't you? Owning a home is like that - Uncle Sam gives you such incredible incentives, they're just lying there on the ground, and yet some people step right over them, and never scoop them up.

In this article, I will show you in real dollars how you can benefit by owning a home. Maybe no one's ever explained it to you in detail before, or you didn't "get it". Well, if you stick with me though this discussion, I think the light will go on for you.

One of the facts of life is that if you want to have a roof over your head, you have to pay somebody for that roof. In real estate we have a saying, "Whether you rent or whether you buy, you pay for the space you occupy."

You might be thinking, "I can barely make the rent, how in the world can I afford to buy?" There's an answer to that, and I'll get to it later on. But first, let's start with why it's to your advantage to own your own home, then we'll figure out how to make it happen.

Gaining Control

Renting is being out of control - the rent can go up, or the owner can tell you that you have to move. Owning your own home is a rock of stability that can't be taken from you. It gives you a stake in the community, a sense of belonging. And for most people, it is the majority of their net worth.

Look at it this way - in 30 years, if you rented at $1000 a month, you would have paid out $360,000 and have nothing to show for it. But if you bought a home today for $250,000, at the end of 30 years you would have paid it off and you would own it free and clear.

Obviously this example is way too simple, because we all know that rents go up, so you would have paid much more than $360,000. And we all know that home prices go up too, so the house would be worth much more than $250,000. How much more? How does a million dollars sound?

The Rule Of 72

Now might be a good time to bring up the "rule of 72". This rule tells you how long it takes your money to double at a given interest rate. For example, if the interest rate were 5%, it would take 72/5, or 14.4 years for your money to double.

Did you know that home prices have gone up 7% a year on average for the last 30 years? Now I'm not talking about Hawaii, I'm talking about the entire country, in good times and bad, the average was 7% a year, according to the National Association of Realtors. This means that if we see only average appreciation, home prices will double in 72/7 or 10.3 years!

Yes, in fact it was about 10.3 years ago when I remember them saying "We've just sold the last house under $100,000 in Escondido". And just this last week I read in the paper a similar article declaring, "Homes under $200,000 are just about extinct in Escondido."

Become A Millionaire

So how do you become a millionaire? Buy a house for $250,000 and pay it off in 20.6 years and you'll be one. How? In 10.3 years the house will be worth $500,000 and in another 10.3 years it'll be a million. Oh, you haven't paid off the loan yet? That's right, you still owe around $100,000 on it, so really you have $900,000 in equity, which is what we call the difference between what the house is worth and what you owe on it. OK, so you have 9 more years to go, but in any event, at the end of the 30 years you'll own the house free and clear, and it'll be actually worth closer to $2 million by then.

I know this sounds ridiculously hard to believe, but consider that 30 years ago people were buying houses for $40,000. Then consider the Bay Area around San Francisco where small old houses, like the $200,000 Escondido ones, are going for $600,000 today. Is it so ridiculous to imagine that this area might become like that in the next 30 years? Most cities in San Diego County have no building room left, or are very close to it. After that, watch prices take off.

I mean, imagine you're on the moon, looking at the earth, looking at the USA from far above. Now imagine everyone in the USA all wanting to live in the little strip of land in the middle of the Pacific Ocean. Got the picture? I realize not everyone wants to live here, but I want you to understand that a great many people do.

In Hawaii, prices are expected to continue to rise because our population is increasing faster than we are building houses. That's the bottom line. People are coming from other states, from other countries, and we're having babies. Unless some disaster causes the number of people to decrease, home prices are expected to continue to climb.

So the question is, what do you do about it? Continue to watch? Or participate and take control of your financial future?

Investment Benefits

You'll build equity (the difference between the value of your home and the balance of your mortgage). You can sell and collect your equity in cash, gaining liquidity. Profits are usually greater on home investments than most other investments.

Home equity provides a source of emergency funding, since you can borrow on your equity in most states. Land appreciation adds to the value of your home. The growth in population constantly increases the housing demand (and the value of your home). Home owning can be an important part of retirement planning.

But I Can't Afford A Home!

Let's say you'd like to buy a home of your own, but think you can't afford to do it. I would say just the opposite - that you can't afford not to do it. Let's see if I can make it easier for you to swallow.

The government doesn't want you to pay rent your whole life and end up being dependent on the state, and so Uncle Sam is willing to subsidize your home purchase! Your mortgage interest and real estate taxes are tax-deductible. I'll explain.

Before you get your paycheck, your employer takes out the taxes, and then you get what's left to pay your rent, put gas in your car, whatever. But when you buy a house, you take your house payment out of your salary first, and then pay tax on what's left.

This is such a huge, critical, and important difference that I need to repeat it. As a renter, you're used to the idea of the government getting their share first and you living on what's left. As a homeowner, you use your salary to pay for your home first, and then let the government have a share of what's left. This is how the wealthy think. They think "how much tax do I want to pay?" not "gee, I wonder how much I'll have left after taxes are taken out." And owning your own home is a key step in starting to think like the wealthy

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