How To Build Wealth in America! 

"The Man Who Chases Two Rabbits Catches Neither."
– Confucius, Philosopher

If You Put Your Efforts and Energy Into Trying To fulfill Two Goals at The Same Time, You won't Succeed in Either One.

There's nothing, absolutely nothing, about people who have money that's better than people who don't.  But if you want it, or at least want some sort of financial security or retire wealthier than most people, simply follow the instructions as to where to find it. WEALTH IS NOT COMPLICATED TO ACHIEVE!!!

In a country of incredible financial opportunity, becoming a wealthy is a matter of taking the right steps, which includes changing his mindset, taking action and being determined.

One of the many patterns I've noticed is that some people in the United States are much richer than others.  We have a nation filled with great opportunities: free education, easy investing, and cheap interest rates.  And yet there's stunning financial inequality!

The real question is, how did the ones at the top get there? Obviously, some do it through inheritance, and some have phenomenal athletic or musical abilities. But what about the others? How did they get to the pinnacle of wealth?

The first step is to look at your finances very closely.  You need to ensure that you create monthly positive cash flow.  In other words you must realize that you cannot use credit cards or tap into your home equity, because you  live beyond your means.  Credit cards are designed to make credit card companies wealthy.  Each time you refinance your property to pull out cash out to consolidate your debts or to purchase a car, you defeat the purpose of building wealth through real estate. YOU MUST START THINKING DIFFERENTLY NOW!  

The second step is to have a plan to save at least 10% of your income.  Without equilibrating assets and liabilities by accumulating lots of stocks, REITs, and cash, you won't get there.  

The third step is to start building your retirement.  If you haven't already started planning for retirement, there's no better time to start.  The sooner you start the better off you'll be. You must understand how critical it is to diversify your investment portfolio.  

The fourth step is to lower your tax down to the legal minimum.  

If you are willing to view your house as your overall investment portfolio, you will start accumulating wealth. You must understand how important it is to manage effectively all your liabilities to increase your wealth.

They borrow strategically. What the wealthy often do have are mortgages. More than half, 55.5%, have a primary mortgage, compared to 44.6% of households overall.  

Another 15% carry loans on other real estate, compared to 4.7% of the general population.  

Mortgage money is pretty cheap debt at current low rates. Although many wealthier folks can do and own their homes outright, financial planners say, many prefer to put their money to work for them in investments that can earn higher returns.  

If you rush to pay off your mortgage, you are most likely neglecting to build your retirement. So once you retire and that you see that your social security is meager, you will most likely take a reverse mortgage like many retirees do.  

You will take a loan against your home equity and will deplete all your equity little by little. You will eat up all the equity you have tried to build, while rushing to pay off your mortgage.  

You would have been better off building your retirement during your earlier year and let the money compound.  

It does not sound smart to eliminate the only tax deduction given to consumers.  

To achieve wealth and financial security you must learn how to successfully manage home equity to increase liquidity, safety, rate of return, and tax deductions. You must learn how to view your mortgage and home equity through a different lens, the same lens used by the affluent for long-term financial security.

Before You Rush To Pay Off Your Home, Take A Lesson From The Wealthiest Americans


A (mythical) belief among Americans is that the wealthy are more likely to own their homes free-and-clear than are their middle- or lower-class counterparts.  That's false!

According to MSN Money:

- 55.5% of Wealthy homeowners have a mortgage
- 44.6% of the overall population has a mortgage
- Stated differently, wealthy Americans are 25 percent more likely than everyone else to have a mortgage on their home.

One major reason why wealthy homeowners are more likely to have a mortgage is because the interest paid on a home loan is a tax-deductible expense. 

The same can't be said for car loans and credit card debts.

Because mortgage interest is tax-deductible, therefore, the "bottom line" interest rate on a home loan is lower than the interest rate written on the actual mortgage note.  For example, a homeowner in the 33% tax bracket with a 6.000% mortgage rate is paying an after-tax interest rate of 4.02%. 

Do the math on your own mortgage:

(After-Tax Interest Rate) = (Note Rate) * (1 - Taxable Income Rate)
Suddenly, mortgage debt looks cheap(er).

Wealthy homeowners often work with financial planners to take a bank-like approach to borrowing money.  If their "bottom line" mortgage rate is really 4.02%, the financial planner tries to find a low-risk investment whose post-tax return is greater than 4.02%. 

If the financial planner accomplishes this goal, the wealthy homeowner is borrowing at a low rate, and earning interest at a high rate, just like a bank. That interest rate spread is profit.

The good news is that (1) Anyone can use the tax benefits of a mortgage to their advantage, and (2) Financial planners like to work with people that have a plan, regardless of income.  So, even if your means are limited, you can still emulate the Wealthy in managing mortgage debt and other finances.

And that fact apparently is a surprise to lots of homeowners, concludes a study by Harris Interactive. 91 percent of homeowners deemed equity in their primary home an important financial asset. Yet there was not much understanding of how to get the most out of a home equity.

It takes more effort than just making the monthly payment on time!

Many homebuyers and homeowners are not factoring in the prominence of a mortgage in their overall financial portfolio and do not manage it as they would any other significant investment.

It really pays to evaluate your mortgage in the context of your overall financial situation. It's more a matter of monitoring your mortgage relative to the environment of (interest) rates. You don't want to be passing up an opportunity to save a significant amount of money long term.

For example, an older couple approaching retirement may think that paying off their mortgage makes the most financial sense. But there may be other options that have a better financial upside.

The study also found that homeowners are actually conservative when it comes to their equity. Six in ten homeowners would consider tapping equity as a source of funds and 70 percent of those say they would use the money for home improvements.

How serious are you about retirement? What does “retirement” really means for YOU? Is it just an empty word or abstract concept.

Remember, mortgage planning is not just about rates. Real estate is “THINKING OUTSIDE THE BOX”.

Retirement is a serious matter It’s about being a real trusted resource to real people who have real struggles. Homeowners need Mortgage Planners in their lives, to bring creative ideas to their attention and empower them to have a better life. Sometimes it’s the small, simple things in life that make all the difference in the world!  

In less than three years, the first of approximately 75 million American baby boomers will turn 65. No government can change that, so until someone discovers the fountain of youth the end is not far away. In a few years, the U.S. government will begin to operate in the red, paying for campaign promises made years ago by politicians who are no longer in power.

Do the math. If 75 million baby boomers begin collecting $1,000 a month in Social Security and Medicare benefits, that comes to $75 billion in additional monthly spending. That's a lot more than the one-time $168 billion stimulus package starting in May 2008.

If you are willing to view your house as your overall investment portfolio, you will start accumulating wealth. You must understand how important it is to manage effectively all your liabilities to increase your wealth.
 

These 3 elements are also commonly used as the test of a prudent investment. When evaluating a potential investment, experienced investors will ask the following 3 questions:

1. How Liquid Is It? (Can I get my money back when I want it?)

2. How Safe Is It? (Is it guaranteed or insured?)

3. What Rate of Return Can I Expect?

Home equity fails all 3 tests of a prudent investment.

To achieve wealth and financial security you must learn how to successfully manage home equity to increase liquidity, safety, rate of return, and tax deductions. You must learn how to view your mortgage and home equity through a different lens, the same lens used by the affluent for long-term financial security.
 

Home equity is serious money. Learn how to separate it from your home to conserve it, not to consume it.

How you handle issues of home ownership may well determine whether you achieve financial freedom.

In April 1998, The Journal of Financial Planning (published by the Institute of Certified Financial Planners) contained the first academic study undertaken on the question of 15-year versus 30-year mortgages. They concluded the 30-year loan is better. Based on the same logic, wouldn’t an interest-only loan be better than an amortizing loan?

If mortgage money cost you 4-5%, the chances are pretty good that you can earn 5% on your money. Interest rates are relative.  In the 1980s, money was costing 15%, but one could still earn 15% on their money.  Due to the tax deductibility of mortgage interest and compounding returns, you can actually borrow at a higher rate and invest it at a lower rate and still make a significant profit.  

People fear mortgages because they know with a 30-year mortgage they will spend more in interest than the cost house. In the case of a $300,000 loan with a 6% interest rate thee borrower will pay $347,514.56 in interest payments over the life of the loan.  This fact alone makes people crazy and they’ll do crazy things without thinking the consequences. Things like taking a 15-year loan or making extra principal payments and signing up for bi-weekly loan programs.  Yes people do crazy things to save money, but the truth is that saving doesn’t equate wealth accumulation.

People who want to save money on their mortgage fail to consider the importance and role that a mortgage play in the wealth accumulation process.

By trying to pay off your mortgage earlier and doing extra payment you are ignoring the fact that every dollar you give to the bank is a dollar you did not invest.

Mortgages today cost around 6% and stock has been averaging about 11% return since 1926. Thus by getting rid of a mortgage that actually cost you 4.5% after tax you fail to get a higher return investing that low cost money you borrow from the bank.

Let’s look at Alex and Patrick. They both earn $75,000 a year. Both have $50,000 in cash.  Both buy a $250,000 house.  Patrick wants to minimize his mortgage, so he uses his $50,000 in savings as a down payment, and he opts for a 15-year loan at 6.75%.  His monthly payment is $1,770, but only 64% of that payment is tax-deductible interest; the rest is principal.

Therefore, Patrick’s net after-tax cost for his mortgage is $1,489.  And to pay off his mortgage even quicker, Patrick sends in an extra $100 with every payment.  Of course, these payments are devoted entirely to principal, and therefore provide no tax deduction.  

Patrick’s decision to send extra payments to his lender is a critical point.  You see, every time you send extra money to your mortgage company, you deny yourself the opportunity to invest that money elsewhere.  In business school, professors call this “opportunity cost.”

It means, essentially, that every time you turn left, you deny yourself the opportunity to turn right.  So, although paying off the mortgage saves you interest, you deny yourself the chance to earn interest with the money you used to pay off the mortgage.

Alex understands this, and therefore, he obtains a 30-year mortgage at 7% (a bit higher than Patrick’s rate).  He puts down just $12,500 and finances the rest.  Even though Alex’s mortgage balance is bigger than Patrick’s ($237,500 compared to $200,000), his monthly payment is lower (because it’s a longer term).  That’s not all.

A full 88% of Alex’s payment is interest, meaning that Alex’s after-tax cost is just $1,234 a month, $255 less than what Patrick has to pay!  Alex invests this savings of $255 each month for five years, earning 8% after taxes per year.  And, instead of sending an extra $100 a month to his mortgage company, as Patrick does, Alex adds it to his savings

Over five years, Alex has about $79,000 in savings and investments. Patrick, however, has no cash whatsoever, because he’s placed every available dollar into mortgage payments.  So, when both men suddenly find themselves out of work, Alex is in excellent financial condition, but Patrick is in real trouble.  He has no savings to tide him over, and he can’t gain access to the $100,000 worth of equity that’s in his house because, being out of work, the bank turned down his loan application.

(It’s true: Lenders don’t care about how much equity you have in the house.  They lend money only to people who can repay the loan.  With no job, Patrick has no income, and therefore, he cannot qualify for a loan. Indeed, Patrick has fallen victim to the biggest misconception in real estate: A mortgage is not a loan against the house; it’s a loan against your income. Without an income, you cannot obtain a loan.)

If Patrick doesn’t get a job real soon, he’ll lose his house. How ironic!  Patrick, who never wanted a mortgage in the first place and who did everything he could to eliminate his mortgage as quickly as possible, is now in serious financial jeopardy!  Alex, though, is in much better shape.  With $79,000 in savings, he’s easily able to make his payments each month. In fact, he can make mortgage payments for four years, giving himself plenty of time to find a new job!  

And that’s really my point. When you have a mortgage, you are required to make only that month’s payment.  As I explained at the beginning, you are never required to pay off your loan immediately. You might want to do so, but that doesn’t mean you must do so.

You must not send extra payments to your mortgage lender. Invest that money instead, just as Alex did.  Never prepay your mortgage payments like Patrick did, because once you give money to a lender, the only way you’ll ever get it back is to re-borrow the money or sell the house.

Selling your home is the last thing you want to do, and if unemployed, you probably will be unable to get a loan when you need it most.  Besides, if you’re simply going to borrow it back later, why bother giving the money to the lender in the first place?  

Consider a house that could be purchased for $250,000 cash. That property could appreciate 3.5% a year. In 30 years, it would be worth $713,321.79.

Consider the same investment of $250,000 that could be invested elsewhere at 8% annually. In 30 years, it would be worth $2,733,932.41. That’s a difference of $2.020,610.4. The degree to which you learn to borrow smart will determine the degree to which a portion of that $2.020,610.4 increases YOUR wealth, not the wealth of others.

No other investment asset or debt is as misunderstood as the house. If you own a home free and clear, it could be costing you a great deal of money. If you own a home with a mortgage, you could be focusing too much on the repayment of that debt, either because this is the only asset you own or if you pay extra towards the principal. Real estate is a wonderful investment, but like any other investment it must be approached with the perspective of Safety, Rate of Return, Tax Advantage and Liquidity.
 

A mortgage is a financial tool that can help you achieve your financial dreams. It needs to be planned and structured properly.

Successfully Managing Your Home Equity To Increase Liquidity, Extend Safety, Maximize Tax Deduction & Increase Rate of Return

You can accumulate enough cash in an investment account to pay off your mortgage sooner, and even in less time than with other accelerated mortgage payment programs. Most importantly you will get the following benefit:

Maintain liquidity by allowing your home equity to grow in a separate side account that is accessible in case of any emergency (i.e. unfortunate event such as divorce, accident, loss of employment or other unforeseen event).

I have noticed that Americans tend to spend more time focusing on spending their hard earned money, planning vacation, and living paycheck to paycheck. Very few people focus their energy learning what to do with their money and find ways to prosper.

Many homeowners make the mistake to accelerate their mortgage payment using bi-weekly mortgage programs and pay additional fees to their lender. Some will just send in bigger monthly payments to eliminate their mortgage as soon as possible.

The problem with paying off your mortgage early has major disadvantages such as:

What homeowners need to consider is a different approach to pay off their mortgage even quicker than if they were using any other traditional accelerated payment methods.

If homeowners would deposit those extra payments in a separate account that is more liquid, they would eventually accumulate enough money to pay off their mortgage quicker and sometimes even in shorter time as with any extra principal payment method.

Anytime you send in extra payment to your lender you are somewhat saying: “Mr. lender here is some extra money. Do not pay me any interest, it’s yours. But when I need money again, I will borrow it on your own terms and will provide you with all the documents necessary so you approve me". Not the smartest approach to pay off a mortgage.

Let’s assume you deposit this money into an investment account, the money will be more accessible and you will most likely be able to pay off your mortgage earlier. Using this method you will also get advantages that you won’t get if you send in extra payments to your lender.

Over the last 15 years of your 30-year mortgage, you could enjoy over $272,141.00 in interest tax deduction adjusted on your annual income (assuming you meet all IRS guidelines). Just imagine if you were investing the money you saved in taxes in any business venture or in stock. You could increase your net worth even more over someone who chose a 15-year loan and cannot enjoy the benefit of mortgage interest tax deduction.

When investing your money you need to consider the following:

How liquid is your money? It is important to get access to your money in case of an emergency or crisis. Liquidity is one of the most important factors when considering investment. Imagine you invest $100,000 and you cannot withdraw your money for 6 years without incurring a 20% penalty? Would that be a prudent investment? Most likely not, thus the importance of liquidity.

What is the rate of return? The higher the return, the better the more attractive your investment. An 8% rate of return on $500 monthly investment over 30 year will gross $750,647.59 and a 10% return will gross $1,140,162.66, a $389,515.1 difference

How safe is your money? How risky is your investment and is there any guarantee?

Saving for retirement and being able to live the quality of life you've earned has become increasingly challenging, especially in today's climate.

It is much more difficult to obtain a loan when you are a retiree and on a fixed income.

What is the biggest secret in real estate? Your mortgage is a loan against your income, not a loan against the value of your house. Without an income, in many cases you cannot get a loan.

While paying off the mortgage saves you interest, it denies you the opportunity to earn interest with that money.

Making Money Like Banks Do

It’s easy to understand how banks can borrow money from the Federal Reserve at 4 or 5 percent then lend that money to consumers and businesses at 6, 8, 10 or 12 percent and make money that way.

Why can’t you do the same? Remember that money you borrow at 6 percent isn’t costing you that much since the interest is tax deductible. Many successful businesses and smart individuals use debt to accumulate wealth.

The True Cost of Borrowing Money

Interest Expense $20,000
Tax Deduction Savings $6,000
True Cost of Interest $14,000

Federal & State Tax Bracket 34%

Interest Rate 6%
Less Tax Benefit 2.04%
True Interest Rate 3.96%

The above figures show that if you are in a 34 percent federal and state tax bracket, the net cost of borrowing at 6 percent is really costing you 3.96 percent. The other 2.04 percent is in fact paid by the government.

If you borrow $150,000 at 6 percent, the interest is costing $9,000. When you deduct the $9,000 interest off your income, the government gives you back $3,060. The real cost is now $9,000 - $3,060 = $5,940.

Debt is a complex concept. There is good debt and bad debt. When used intelligently, debt can help you build wealth. One of the secrets to wealth is to differentiate between good debt and bad debt.

Bad debt makes you poor. If you use a credit card to purchase an item you cannot afford cash you incur a bad debt.

Good debt is investment debt that creates value such as, real-estate loans, home mortgages and business loans. Good debts are also tax-deductible and produce more wealth in the long run.

How To Differentiate Good Debt From Bad Debt

When you buy something that goes down in value immediately, that's bad debt. If it has absolutely no potential to increase in value, that's bad debt.
Good debt is investment debt that creates value; for example, real-estate loans, home mortgages and business loans.

If you are talking about reducing current debt, that's where it starts to get tricky. If you take a home-equity loan because you have a 20% credit card, and you go with a 7% loan that's tax-deductible, that's good debt.

The concept of bad debt comes in when discussing the purchase of disposable items or durable goods using high-interest credit cards and not paying the balance in full.

Every month that you make a partial payment on your credit account, you are charged interest. The item you purchased continues to lose value, and the amount you paid for it continues to increase.
When you buy items, they lose value immediately as you begin to use them. So if you borrowed money using high interest credit cards to pay for them, that's bad debt.

Another bad-debt area is car debt. As soon as you drive out of the car dealership lot your car as already decreased in value. Unfortunately many people borrow to buy cars before homes . For most people, their first major loan is a car loan.

When is Debt Good?

The best type of debt is debt that builds wealth over the long run, and the No. 1 example of that is mortgage debt. Home values have increased an average of 6.5%, per year over the past 30 years. So when you borrow money to purchase a home, chances are that's good debt.

About 40% of Americans are renters and one of the fastest ways to build wealth in America is buying where you live.

Personal Debt

Personal debt is money borrowed to make a purchase an asset that will depreciate in value. If you borrow $25,000 at 8% to buy a new car, what will it actually cost you? Your car payment of $548.72 over five years will cost you $32,923. In five years from now your car may be worth $10,000. Over a long period of time your car will most likely be worthless.

Investment Debt

Investment debt is money borrowed something that will typically increase in value. For example, consider the purchase of a property for $250,000 with a 30-year mortgage of $200,000 at 6.5% interest rate. If the property were to appreciate at 3.5% per year, it would be worth $701,698 in 30 years.

Your total payment for the house would be $200,000 plus total interest paid over the life of the loan: $255,088.97, thus $455,088.97. Thus you would gain $246,610.97 in wealth related to this debt, not adjusted for inflation.

Joe has a home valued at $500,000 and owes $100,000. He has neglected building his retirement and does not know how much he needs to retire on 80% of his pre-retirement income. But he realize that he can no longer neglect his retirement as the life expectancy in the U.S is 78 for a man.

He needs to make sure he can supplement his social security benefits for 23 years if he is to live till age 78.

So he decides to pull out $200,000, to avoid putting all his eggs in one basket. By investing the $200,000 in a diversified and more liquid account he will be able to accumulate $985,360.55 after 20 years with an 8% return on his investment.

My name is Andre Plessis, founder of The Wealth Creation Team. I am a Financial Educator and Mortgage Planner committed to raising your Financial IQ. I will teach you How Money Works. I will educate you that your mortgage is a tax deductible financial tool, not just a debt.

Here is what a properly structured mortgage will do for you:

- Allow You to Invest More Money into Retirement and College Savings Plans
- Protect Your Money in case of Disability or Job Loss
- Permit You Instant Access to your Money in case of Emergency or Opportunity
- Reduce The Federal Income Taxes you pay
- Eliminate Financial Stress for you and your family