A couple of weeks ago, Shailesh (fellow genius) wrote about how equity management is overrated. Personally, I think it is underrated as it is often misunderstood. As many believe, he went on to explain how it is about debt leveraging, putting off paying down your mortgage in order to invest instead. He even went on to mention that it seemed to make sense during the housing boom, but doesn’t anymore. Please read his post as he mentions a lot more about his perspective.
Truth be told, proper equity management goes far beyond the simple debt leveraging. It is really about striking a balance between managing both debt and equity to enhance one’s overall financial and investment plans, putting one’s financial plan on steroids if you will. It is not something that is easily understood in its entirety, so don’t feel left out if you don’t follow what I am talking about.
Due to the rules of money, such as the time value of money and truths about home equity itself, paying off your mortgage can prove detrimental to your finances, costing hundreds of thousands of dollars over time. Mortgage planners (those which supposedly know equity management) provide education on these concepts, then take your situation and create a customized “mortgage plan” that will help you meet all of your financial goals, using your mortgage as a tool.
To add to the confusion, equity management may tell someone it is better to pay off the mortgage, though that is very rarely the case. Most often it does suggest use of those exotic loans that have gotten a bad rap due to their misuse, so keep an open mind. To understand equity management, you have to understand the concepts and why it works. It is also best for those which have the discipline to stick with the plan.
I am sure you are wondering what concepts I am talking about. Some things you may not realize are that home equity has no rate of return and is not a safe investment overall. Every dollar you send to pay off your mortgage is a dollar you have lost access to without refinancing, which in a financial crisis will not be an option. So, a god question to ask yourself would be which would you rather have $50,000 in equity or $50,000 in a safe investment account?
Shailesh says he has never been comfortable with equity management and I respect that. It certainly is not for everyone. He does talk about his concerns and so let me address them…
The first was about mortgaging to the hilt and the market crashing as it has. Well, if the equity was invested properly, that drop in value would be offset by the money in the bank, only now you would have “lost equity” working for you. If you had to sell the home for a loss, it would actually be better to have money in a side investment to pay off the loan than to end up in a short sale or even break even.
The second concern he had was what about life events? Well, as with any financial plan, equity management has to change as things change, which is why you need to revisit your mortgage plan regularly. As for having cash to switch homes if need be, the answer should be yes, again if properly invested.
The third he talks about is studies showing since most families stay in a home only 7 years and refinance every 4 on average, equity in your home is the best way to ensure mobility. I disagree for various reasons, but one would be that during that same time period, little equity is actually built up for most. Another would be the added flexibility, liquidity, etc. that equity management provides.
The last concern he described was that it doesn’t work fro those with tight budgets, erratic spending patterns, those with credit card debt, etc. I again disagree here as proper equity management will develop a plan that works with anyone, catered to the individual. Equity management is not reserved only for the wealthy, and the reality is that it can help the average family become wealthy.
Again, I respect Shailesh and his concerns, but as one who practices equity management myself and has provided many families mortgage plans that are helping them meet their financial goals by using their mortgage as a tool, I have to disagree with it being overrated. The bottom line, as I see it, is equity management can help anyone, regardless of what the markets are doing since it is centered around the individuals financial goals and dreams.
Unfortunately, there are many “mortgage planners” that don’t implement equity management properly, causing more harm than good. If it is done properly, you can reap huge rewards. But as Shailesh is concerned, equity MISmanagement can prove disastrous as well.
Is the real estate industry endorsing Carson’s nomination to HUD?
(BUSINESS NEWS) Ben Carson’s initial appointment to HUD was controversial given his lack of experience in housing, but what is the pulse now?
NAR strongly backs Dr. Carson’s nomination
When President-Elect Donald Trump put forth Dr. Ben Carson’s name as the nominee for Secretary of Housing and Urban Development, NAR President William E. Brown said, “While we’ve made great strides in recent years, far more can be done to put the dream of homeownership in reach for more Americans.”
At the time of nomination, the National Association of Realtors (the largest trade organization in the nation) offered a positive tone regarding Dr. Carson and said the industry looks forward to working with him. But does that hold true today?
The confirmation hearings yesterday were far less controversial than one would expect, especially in light of how many initially reacted to his nomination. Given his lack of experience in housing, questions seemed to often center around protecting the LGBT community and veterans, both of which he pledged to support.
In fact, Dr. Carson said the Fair Housing Act is “one of the best pieces of legislation we’ve ever had in this country,” promising to issue a “world-class plan” for housing upon his confirmation…
Job openings hit 14-year high, signaling economic improvement
The volume of job openings is improving, but not across all industries. The overall economy is improving, but not evenly across all career paths.
Job openings hit a high point
To understand the overall business climate, the U.S. Labor Department studies employment, today releasing data specific to job vacancies. According to the department’s Job Openings and Labor Turnover Survey (JOLT) for April, job openings rose to 5.38 million, the highest seen since December 2000, and a significant jump from March’s 5.11 million vacancies. Although a lagging indicator, it shows strength in the labor market.
The Labor Department reports that the number of hires in April fell to 5 million, which indicates a weak point in the strong report, and although the volume remains near recent highs, this indicates a talent gap and highlights the number of people who have left the labor market and given up on looking for a job.
Good news, bad news, depending on your profession
That said, another recent Department report notes that employers added 221,000 jobs in April and 280,000 in May, but the additions are not evenly spread across industries. Construction jobs rose in April, but dipped in professional and business services, hospitality, trade, and transportation utilities. In other words, white collar jobs are down, blue collar jobs are up, which is good or bad news depending on your profession.
Additionally, the volume of people quitting their jobs was 2.7 million in April compared to the seven-year high of 2.8 million in March. Economists follow this number as a metric for gauging employee confidence in finding their next job.
If you’re in the market for a job, there are an increasing number of openings, so your chance of getting hired is improving, but there is a caveat – not all industries are enjoying improvement.
If you’re hiring talent, you’ll still get endless resumes, but there appears to be a growing talent gap for non-labor jobs, so you’re not alone in struggling to find the right candidate.
Economists suspect the jobs market will continue to improve as a whole, but this data does not pertain to every industry.
Gas prices are down, so are gas taxes about to go up?
Do low gas prices mean higher gas taxes are on the way? Budgeting for 2015 just got a bit more complicated, if some politicians have their way.
Gas taxes and your bottom line
Many industries rely heavily on time in their vehicle, not just truck drivers and delivery trucks. Sales professionals hop in their vehicles throughout the day, as do many other types of professionals (service providers like plumbers, and so forth). For that reason, gas prices and taxes are a relevant line item that must be budgeted for 2015, but with politicians making the rounds to push for higher gas taxes, budgeting becomes more complicated.
Gas prices are down roughly 50 cents per gallon compared to a year ago, which some analysts say have contributed to more money in consumers’ pockets. Some believe that this will improve holiday sales, but others believe the timing is just right to increase federal taxes on gas. The current tax on gas is 18.40 cents per gallon, and on diesel are 24.40 cents per gallon.
Supporters and opponents are polar opposites
Supporters argue as follows: gas prices are low, so it won’t hurt to increase federal gas taxes, in fact, those funds must go toward improving our infrastructure, which in the long run, saves Americans money because smoother roads mean better gas mileage and less congestion.
Gas taxes have long been a polarizing concept, and despite lowered gas prices, the controversial nature of the taxes have not diminished.
While some are pushing for complete abolition of federal gas taxes, others, like former Pennsylvania Governor, Ed Rendell (D) tell CNBC, “Say that cost the average driver $130 a year. They would get a return on that investment” in safer roads and increased quality of life, he added.
The Washington Post‘s Chris Mooney points out that federal gas taxes have been “stuck” at 18 cents for over 20 years, last raised when gas was barely a dollar a gallon and that the tax must increase not only to improve the infrastructure, but to “green” our behavior, and help our nation find tax reform compromise.
Is a gas tax politically plausible?
Mooney writes, “So, this is not an argument that a gas tax raise is politically plausible — any more than a economically efficient tax on carbon would be. It’s merely a suggestion that — ignoring politics — it might be a pretty good idea.”
Rendell noted, “The World Economic Forum, 10 years ago, rated us the best infrastructure in the world,” adding that we “need to do something for our infrastructure, not in a one or two year period, but over a decade.”
Others would note that this rating has not crumbled in just a few years, that despite many bridges and roads in need of repair, our infrastructure is still superior to even the most civilized nations.
Regardless of the reasons, most believe that Congress won’t touch this issue with a ten-foot pole, especially leading up to another Presidential campaign season starting next year.
“I think it’s too toxic and continues to be too toxic,” Steve LaTourette (the former Republican congressman best known for his close friendship with his fellow Ohioan, Speaker John Boehner) tells The Atlantic. “I see no political will to get this done.”
Whether the time is fortuitous or not, and regardless of the positive side effects, many point to a fear of voters’ retaliation against any politician siding with a gas hike, so this matter going any further than the proposal stage is unlikely.
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