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A Real Retirement Plan for the UnwealthyBy
Friday, January 6, 2012
You are not young, but not yet old. At the beginning of your career, you had great hopes. But things didn't turn out as you hoped they would. You have $10,000 in the bank. You have no equity in your house. And you have trouble making ends meet.
What happened to that dream of living out the last third of your life safe and secure in your own home? What happened to your dreams of retirement?
I have good news for you. It is not too late. You can still change your financial fate and live to enjoy a good, safe, and comfortable life – now, and in the future.
Today, I'd like to show you a special strategy that can provide you with a debt-free home, plus monthly income to cover your retirement expenses for the rest of your life.
As you'll see from the example I'll give you below, you can do it with less than $10,000 down. It can be fully funded in 15 years or less. And in addition to providing you with the security of home ownership and cash flow, it will fatten up your net worth by hundreds of thousands of dollars. You'll be able to cash in that equity or leave it to your heirs, any time you want.
I'm talking about investing in real estate. Please don't stop reading now!
I know that for many people, the very idea of buying real estate is anathema. You may feel this way. If you were suckered into the real estate Ponzi scheme that burst in 2008, you may have sworn off real estate investing for good. But that would be a great mistake. I was urging people (in essays and in books) to get out of real estate years before the real estate market crashed. And now I'm urging you, with the same confidence, to get into it now.
You don't want to be on the losing side of two big economic swings, investing in real estate when it was a bubble and ignoring it when prices were at record lows.
Please be open to what I'm about to propose. It is, as I said, the best way for anyone who isn't wealthy to build new wealth now. Real estate, more than anything else – including stocks, bonds, and gold – has the capacity to give you a safe and comfortable financial future.
In fact, my brother recently did just that for a friend of his, Suzie. Suzie is about 50 years old. She has a good job but a bad credit rating, and she has only $10,000 in savings.
My brother Justin found Suzie a very nice property, just steps from the beach. (This is prime property in Florida.) It has two structures on it: a two-bedroom/one-bath house and a cottage. The property had appraised for more than $400,000 during the boom. My brother helped her get it for $195,000.
To buy this house through a private bank, Suzie would have had to come up with a down payment of 20% ($39,000) and about $11,000 in closing costs. As I said, Suzie didn't have $50,000. And even if she did, her credit rating would have made her ineligible for a conventional loan.
But my brother made it work by getting Suzie a loan from the FHA (Federal Housing Association). (For more on FHA loans, go here.)
What the FHA did was tricky and impressive. First, it loaned her the money to cover the closing costs. Then it required a down payment of just $7,500!
Suzie's interest rate was fixed at 4.375% for 30 years. That means her principal and interest payment came out to about $1,000 a month. She also pays about $100 a month in mortgage insurance, $500 in monthly real estate taxes, and $200 in insurance. Add in $150 a month for maintenance, and her total monthly cost is about $2,000 a month.
But Suzie also gets to deduct her payments of mortgage interest and real estate taxes. That brings her monthly cost down to about $1,700, which is about what she was already paying to rent a similar house.
The kicker is she gets $800 for the studio. That $800 is extra income for her. If Suzie can add that money to her savings, by the time she is 65, she will have put away about $150,000. Assuming a very conservative appreciation on those savings, it would amount to almost $200,000. Extra income is the key to building wealth.
If real estate prices recover at just 3% a year over the next 15 years, the value of her house will grow to about $312,000. Since the principal on the mortgage by then will be about $100,000, Suzie's equity in the property will have grown to about $212,000. (By the way, the equity and gains will be 100% tax-free. Capital gains of up to $250,000 for individuals and up to $500,000 for married couples are available tax-free.)
What's more, if Suzie adds an extra few hundred dollars to her mortgage payment each month, she could pay the entire loan off in 15 years. At that point, she would have a net worth of about a half-million dollars. Not bad for someone who is essentially broke right now!
As I said above, this is one example. It involves getting an FHA loan and finding a property that has a second unit you can rent.
Again, please don't file this essay in your "nice ideas" category. Right now, real estate is priced right, and loans are priced right. This is a real opportunity you should be actively pursuing.
Regards,
Mark Ford
Further Reading:
If you're still not convinced real estate is one of the best values out there right now, Steve Sjuggerud offers proof. See why this is a time for extraordinary deals here: You Don't Believe My Housing Argument? Here's Proof...
Retirement expert Doc Eifrig tells DailyWealth readers about another great way to build the retirement of your dreams. "It may be hard to believe," he says. "But by using what is possibly the greatest income-producing tool for retirees, I was able to string together 49 winning trades in a row in my Retirement Trader service." The key is to think like a long-term investor...
Market NotesTHE BEAR MARKET IN PAPER MONEY CONTINUES As we expected, the euro is taking a swan dive right now...
Regular readers know one of our top trading ideas for 2011 was to short the pan-European currency, the euro. Europe has been heavily involved with socialism for decades. But as Margret Thatcher once warned, the problem with socialism and massive welfare spending is that eventually, you run out of other people's money.
Back in late August, we highlighted the euro's "compressed" state. This is a situation where an asset's day-to-day volatility gradually dries up and the highs and lows move closer together. These low-volatility periods are often the calm before a storm. We expected to watch the euro's compression resolve itself to the downside... which it has in a major way.
As you can see from today's 18-month chart of the euro, the official currency of the world's largest economic zone is plunging. The euro just broke a major support level to strike a multi-year low. This paper-money weakness is bullish for gold... and a continuation of The Greatest Currency Trade of the Millennium.
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