The 4 Stages Of Wealth Building As A Homeowner

One of the primary objectives of owning a home is to let the home appreciate over time and become a pillar of a family’s financial strength.

But before we can discuss “wealth”, we need to identify the stages to get there.

Stage 1

Having “Emergency Cash” is the first stage. It’s having $5-7,000 liquid for life’s inconveniences (the boiler breaking down, the car needing work, etc). When faced with the inevitable challenges that arise, many people are forced to run to their credit cards to make it through. They become stuck with high interest rate, non-tax deductible borrowing.

Stage 2

The second stage is the elimination of “Bad Debt”. We define “Bad Debt” as any debt whose interest is not tax deductible. Obviously, those high interest rate credit cards must be the first to go. But we also want to divest ourselves of the borrowing associated with car loans, boat loans, student loans, and personal loans because it typically can be done cheaper.

Stage 3

Shockingly, when you arrive at stage three, you will be considered in the Top 5% of Americans in terms of financial security. Stage three is accomplished when you have 3-6 months of your total expenses in reserves. The average homeowner (who is logically financially better off than the non-homeowner) has less than one month’s expenses in reserve! When life shows them more than a minor inconvenience (like a job loss, an illness/disability, or worse), most people are in a panic situation. With 3-6 month’s reserves, you will have time to weigh options and make better choices.

Stage 4

True financial security is attained when you become “Debt Free”. But not without debt. We consider our clients “Debt Free” when they have enough liquid assets to pay off whatever mortgage they have outstanding. Wealth building almost requires utilizing the tax benefits of having a mortgage in combination with strategies that utilize The 3 Miracles of Money…

The 3 Miracles of Money

1.       Compound Interest – The impact of money left to grow upon itself can be dramatic. If you had $1 on Monday and you could double it every day ($2 on Tuesday, $4 on Wednesday, etc.), by the end of 20 days, you would have $1,048,576.00!!! Now, you can’t double your cash every day, not even every year, but the concept holds true…..compounding interest is a good thing!

2.      Tax Free Growth – The ability to accumulate assets without giving Uncle Sam a third of it (in the form of Federal and State Income Taxes) is how the $1 became $1 million. If the growth was taxed at 33% ($1 on Monday gave you $1.67 on Tuesday – instead of $2- and so on), your $1 would only grow to $28,466.20 after 20 days!!! THAT IS NOT A TYPO! You would have “lost” over $1 million.

3.      Leverage and Arbitrage – If you can put up a minimum of cash and take title to a significant asset (like a down payment on a home….the smaller the down payment the better), you can leverage that cash investment to large returns. At the same time, if you can take the cash that you don’t bury in home equity and effectuate a spread between your “after tax cost of money” (mortgage payment) and your investment options (hopefully, in a tax free environment), you can gain the exponential growth that creates wealth.

Special thanks to Dave Cook for providing this information.  

Want to know more about home ownership?  Call me, Laura at 303-726-1051.

I Walk the Line

“Papa bought this house when I was four years old. I’m sure that crack was there when we moved in. I’ve never even thought about it before because its been that way since I can remember.” . . . Forty years of family life in a single place - home. Birthday gatherings, Christmas mornings, BBQ’s, high school proms, Sunday suppers, running through the garden, building forts, sobs of sadness, screams of laughter. Into this hallowed space enters a buyer.

“Does this crack indicate structural issues? Why are all the window sills a different type of marble? We can always just tear it out and open this up. This will need to be dealt with.” The potential new owners of the home, for this brief and unique moment, the time between first seeing their new home and the moment they move in to begin building a life there, see 2 worlds – the one that has been and the one that will be. “We instantly saw entertaining guests well into the evening in a setting by which all who enter will undoubtedly be enchanted . . . the sweet home and all the land on which it sits feels hidden away from all the rest of the world. . . magical . . . like a retreat . . . just waiting for us.”

As an agent, I walk a fine line; on one side: working to stay present to the world of the Seller – attached yet needing to move on – on the other side: the world of the Buyer – desirous to own a new home yet cautious lest they take on more than can be comfortably handled. Buying and selling a home is an enormous financial transaction, one that takes skill, knowledge and great attention to detail. It is also a powerful emotional transition.

As artists our personal space is tremendously important. For performers home provides sanctuary from the public nature of our lives. For painters it may be the inspiration that fills canvases. For a musician the structure may be the sound proofing necessary to record our latest opus. For the writer it may provide a room of one’s own to ponder our thoughts. For a filmmaker it may contain the dark corner to view our work.

Home means something different to each individual or couple with whom I work and there are always at least two sides to every story, two sides of the line. One is letting go; the other is taking hold, stepping into the future. I am grateful to be walking that line between past and future. Many thanks to those of you who have invited me into your process. And for those of you who are considering making a transition I would be honored to walk the line with you.

“I think the most significant work we ever do,
in the whole world, in our whole life,
is done within the four walls of our own home.”
Stephen R. Covey

Ponies are Driving the Market

OK so, Weds is my blog day and I always look forward to spending a few minutes writing. This morning began like any other Weds – I brought my computer into my art studio, got comfortable and began to put down some ideas to share. But it didn’t come so easy today and the results of my efforts were rather dry but informative so I figured what the heck, I can’t be brilliant every time.

But when I went to upload my entry I discovered my internet connection was kaput. Now that wouldn’t normally be any big deal but on top of the sewer back up, the hailstorm, the basement flood, my assistant quitting, 2 deals falling through it was the proverbial straw!

To my rescue came my wonderful biz partner, Lil, who encouraged me to shift my perspective by telling me a story that I want to share with you:

There was a psychiatrist doing a study on tolerance levels and how individuals respond to adversity. For his experiment he filled a large room 4 feet deep with horse manure and then invited various people to enter the room. Every single person who entered the room was filled with disgust - except one young boy. When the boy entered and immediately began diving and building, rolling around, making snowmen and building wacky structures. After an hour or so the boy finished playing and exited the room. The psychiatrist was fascinated by the boy’s reaction and wanting to understand why his reaction was so different asked the boy, “So talk to me. What were you thinking in there?” The boy’s response . . . “With that much horse shit I figured there had to be a pony in there somewhere!”

Thanks for the wisdom and the laugh Lil! And now on to the original blog entry.

Just the Facts! Real Estate Market Update

If you haven’t heard yet the Denver real estate market is shifting.

For the first time in years median home prices were a little higher in July 2009 at $229,900 than July 2008, at $229,200. The average home price Jan-July 2009 vs. the same period 2008 is down 6% compared to an 8% drop in the period Jan-May 2009. The price range from $200-$300K saw the most activity this July.

The drop in Denver single-family (DSF) unit volume, Jan-Jul 2009 vs. the same period in 2008 is down 18% compared to –21% Jan-May.

These numbers might not sound like anything to shout about but when we consider bank-owned properties under $185K we see the beginnings of a return to property selling at a premium.

For the DSF homes that sold in 5 days or less, the discount has been history since about Feb 2008. In July of this year these distressed properties sold at an 8.5% premium. Homes selling in 10-30 days the typical property started selling at a premium, not a discount, in August 2008 and that premium has grown to about a 3% average. Bank Owned or REO properties taking more than 30 days to sell continue to sell at a discount, but that discount is declining. Regular homes in the under %185K range are still selling at a modest discount of about 2% and this has been steady for a while.

Carpe diem baby!!!

Richard Florida, in his book, “Rise of the Creative Class” identifies creativity as the distinguishing marker for the next wave of leaders and producers in our society.

Society is changing & the driving force of this change is the rise of human creativity as the key factor in our economy and society. The creative individual is no longer viewed as an iconoclast. I have great news for you. We, as creatively minded people, are the new mainstream. Creativity is becoming highly valued. Systems are evolving to encourage and harness new ideas, new technologies, new industries, new wealth. All other economic things flow from creativity. Creativity is essential to the way we live and work today. Human creativity is multi-faceted and multi-dimensional. It involves distinct kinds of thinking & habits that must be cultivated both in the individual and the surrounding society. Creatively minded people are indeed the chief currency of the emerging economic age. And our economic function is to create new ideas, new technology and/or new creative content. We engage in complex problem solving. We can never be forced to work but are never truly not at work.

Paul Romer claims the “the most important ideas of all are ‘meta ideas’ – ideas that support the production and transmission of other ideas”. Thriving Artist Alliance is a meta idea! We are committed to supporting the creative.

Einstein said, “Every act of creation is at first an act of destruction.” Thriving Artist Alliance is engaging in what economist Joseph Schumpeter called, “the perennial gale of creative destruction”. What TAA is destroying is the Starving Artist Archetype - an outdated archetype that must be laid to rest. If what Richard Florida is saying in his book is true, then our time, the time for artists and creatives has finally come. Couple this with our current real estate market and you’ve got an unprecedented moment in history that we may truly never see again. Carpe diem baby!!!

Real Estate Code of Ethics

Colorado is unique in so many ways - from the natural beauty of the Rocky Mountains to our beer brewing Mayor, John Hickenlooper. One of the most powerful differences is the way we do real estate. Yesterday I had the opportunity to take the National Association of Realtors® Ethics class. Here are a few of the things I learned:
- Our real estate Commission was voted #1 in the country for 9 years running.
- The NAR Code of Ethics & Standards of Practice contains 17 Articles outlining a code of conduct and establishes obligations that maybe higher than those mandated by law. These guidelines are geared to protect the consumer.
- Colorado is 1 of only 23 states in the nation with true Buyer Agency Relationship agreements. When I bought my first home in 1987 I was more than a little surprised to discover that even though I had a Buyer’s Agent, my agent in reality worked for the Seller as a sub-agent.
- Of the 41,000 real estate agents in Colorado only 24,000 subscribe to the NAR Code of Ethics. So the next time you buy, sell or invest in real estate make sure your agent has taken the Realtor® pledge.

I PLEDGE MYSELF
To protect the individual right of real estate ownership and to widen the opportunity to enjoy it;
To be honorable and honest in all dealings;
To seek better to represent my clients by building my knowledge and competence;
To act fairly towards all in the spirit of the 
Golden Rule;
To serve well my community, and through it my country;
To observe the REALTORS® Code of Ethics and conform my conduct to its lofty goals.

Great class Wally. Thanks for being a brilliant teacher!