Buying a Home to Get Rich

I saw an interview with the author David Bach this weekend. He has written several books, but the latest is called "Start Late, Finish Rich". You might be surprised to hear that one of his primary strategies for finishing rich is owning your own home.

According to Mr. Bach, the real estate market has outperformed the stock market for over 25 years. While you can still be subject to ups and downs, the very good news is that home owners typically end up with a property which is worth much more than you paid for it. And, at the same time, you can get a lot of nice tax breaks along the way that a renter never gets.

Are you thinking about getting into the housing market? If you are, but are holding back, consider that the interest you pay on your mortgage is tax deductible in the US. Not to many other investments are as "safe" as your home, and also give you a tax break. After all, you have to pay to live somewhere, no matter what. If you don't own, you are paying rent, and you aren't getting a tax break on that!

In addition, while you are paying a mortgage, you are building equity. In layperson's terms, you are paying off your home. At the end, you'll have an asset that you can sell or leverage to buy ... perhaps an investment property?

David Bach really loves real estate as an investment. He loves it so much that even if you find that you can't afford in any way to buy a property, he's big on real estate funds! Now, you have to know what you are investing in and you have to diversify (fancy talk for making sure you aren't all in one type of fund) but it still makes you an "owner".

What else does Mr. Bach say? Well, mostly the common sense stuff that isn't very glamorous -- but works. He reminds us to max out our 401ks or other retirement savings plan. He reminds us to "pay ourselves first" and ensure that our savings (both inside our 401k and outside of it) get money first, before we start using the rest up. It helps us to live within our means (as opposed to outside it by an average of 20%.) He reminds us how easy it is to "find" money in our budgets, if we are willing to do a little work and keep our sites on the longer term. After all, you do want to retire rich, right?

Even if you are starting in your 40's, you can have the retirement you've dreamed of, if you can find $10 a day to put into savings. Now, $300 a month might sound intimidating, but $10 a day? David Bach calls it "the Latte Factor", after those expensive coffees some of us like to drink. (We won't mention names here, but I've been known to frequent such establishments...) Now, a upscale expresso coffee drink might set you back $3.50. Add a muffin or other goody to that and you're suddenly out at least $5. If you also happen to use a convenience store to buy yourself a bottle of water or a snack, you might have found your second $5. Cut those out, and bag a goodie from home for a treat. Perhaps you could carry a thermos bottle with your preferred drink, either hot or cold. Suddenly, without too much "self-denial", you could have your $10 a day, and your savings could be growing.

Of course, simplicity works best. Take $300 off the top each month and have it moved to a mutual fund or other savings vehicle. Then live off the rest. No complicated budget. No crazy "rules" for how you spend your money. If you are like most of us, you'll find that you'll start to live within what's there.

This is the time when housing prices usually slump, at least a little. If you are renting, and thinking about buying, now could be the time. If you can save $300 a month, you could be putting that towards a mortgage.


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