Today, I’d like to welcome Tom Graneau to my blog with his guest post! Take it away Tom!
Loosing Your Home to Foreclosure Could be a Blessing in Disguise
In 2009, a record 2.82 million home owners lost their property to foreclosure. Based on some reports, this number will rise in 2010, despite the stabilized home prices in some local areas around the country.
For victims of foreclosure, the experience is never pleasant. According to some experts, those who undergo this type of tragedy manifest various emotions including anger, fear, depression. However, for those who have the courage to look pass the pain, there are hidden benefits within the disappointment. Below are five silver linings:
1. Lower home operating costs: Based on Fannie Mae’s statistics, 70 percent of Americans buy homes for financial incentives, down from 83 percent in 2003. While there are other reasons why people buy homes, the wealth building concept has topped them all. Yet, ironically, no financial commitment requires more of the owner’s wealth than home ownership. Self-induced or emergencies, the expense of maintaining a home never stops. From driveway improvements to landscaping, plumbing to roof repairs, remodeling to other creative ideas, the costs keep rising. To complicate matters, most of these expenses are conducted on borrowed funds (credit cards, home equity line of credit, etc.). In most cases, the owner may still be obligated for the borrowed money. Nevertheless, a foreclosure brings the on-going expenses to a halt while reducing the owner’s liabilities.
2. More personal freedom: Home owners are legally obligated for the property. That means, they are directly responsible to maintain the house and land space. Those who are unskilled to perform certain tasks must pay others to do them. Either way, home owners are directly involved, which curtails some of their personal freedom. When the home is gone, so is the burden to maintain it.
3. Lower liability to asset ratio: The term “investment” comes to mind when buying a home. This is partly due to the language used by the real estate and banking industries to encourage home buying. In reality, however, those who buy homes through mortgages immediately assume the biggest debt they can possibly imagine. In most cases, the financial activity plummets their asset while ballooning their liability. As soon as the house liability is removed from owners’ balance sheets, their wealth situation gets improved immediately, allowing owners the opportunity to take advantage of other investment possibilities that make more financial sense.
- Greater opportunity for wealth building: Contrary to popular beliefs, buying a home is the worst type of financial investment one can possibly consider. Pass the highs and lows of real estate fluctuation, most home owners make no more than a zero percent return on their investment in a good housing market. Many lose thousands of dollars, unknowingly. Consider a simple mortgage scenario, for example:
· If you borrow $100,000 to buy a house for 30 years at 7 percent fixed interest, your monthly payment will be roughly $665.00 for the life of the loan (principal and interest only). Your total cost for the mortgage will be approximately $240,000 (interest only), close to 2 ½ times the amount of money borrowed.
· To breakeven on this business transaction, your home must appreciate about 13 percent annually. This would cover the 7 percent interest loan, the 4 percent inflation rate, and roughly 2 percent property tax and home owner’s insurance costs.
· The average annual home appreciation rate is 4 percent, despite the real estate industry’s claim that homes appreciate 10 percent annually. Hence, a net zero percent return or less on the so called “investment.” The situation gets worse because the scenario does not account for other costs associated with the property.
5. More flexibility: Simply put, a home ties you down. Renting provides maximum flexibility. I know. I have been a three-times home owner. Now, I’m a proud renter and plan to keep it that way indefinitely.
Driven by the American dream of grandeur and prosperity, buyers purchase their homes as “smart investments” when in actuality, the best they can hope to get is zero percent return. More commonly, owners lose an enormous amount of money on the deal, driving themselves even deeper into debt as they pour their hard-earned income in mortgage payments and maintenance costs.
In Renters Win, Home Owners Lose, Author Tom Graneau prudently shows readers how to avoid getting trapped in the biggest scam in the country, endorsed by national and local governments and the housing and mortgage industries. Tables, graphs, and various statistics are prominently laced throughout the book to expound the obvious, tangible advantages that renters have over anyone preparing to buy a home.
For those already owning a home—fear not. Graneau concludes by outlining winning strategies and solutions to make their experience a little more agreeable.
Renters Win, Home Owners Lose is a perfect eye-opener for renters, first-time home buyers, and those who plan to upgrade to a second or third home!
Tom Graneau is a personal financial management coach and author of a new book, Renters Win, Home Owners Lose: Revealing the Biggest Scam in America
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