Jeannie Niles Real Estate Investment
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Don't pay off that mortgage just yet!
I recently had a client call to ask whether he should pay off his mortgage, as Suze Orman suggests in her financial books and articles. This client is 38 years old, owns two homes and was planning on selling one home to pay off the mortgage on the remaining home. This client isn’t the first to come to me with Suze’s supposedly sage advice, and unfortunately won’t be the last. Suze pretty much has a single bit of advice, whether she’s talking about paying for your kids’ education or your own retirement: pay off your mortgage as soon as possible to reduce your expenses during retirement, and avoid paying thousands in interest. When it’s pointed out that, through tax deductions, Uncle Sam will help you pay a healthy percentage of your mortgage interest, her advice is to "Stop drinking the mortgage-interest-deduction Kool-Aid." Now, I’m just a humble real estate broker, who’s never been on a talk show, or sold kits to prepare a will, but **25% to 30% tax savings isn’t much???** Calculated over many years, it’s a **gigantic** amount. Add another 11% for state tax in California and you are now at**36% - 41%**. I’d like to know what **she’s** drinking when she writes this stuff!!! I prefer the analytical, logical approach to financial decisions over her cutesy catch phrases, so let’s return to my client, who was being transferred out of state. Rather than selling his property and paying off his mortgage, he has done the following: 1. Located tenants for his current residence at $200 more than comparable properties in the area. 2. Kept his other home as a rental property for long term investment. 3. Has purchased a third home out of state, with no down payment and a long-term fixed rate loan under 6%. Net Results: 1. He will SAVE, in taxes, 39% of all mortgage interest on his primary residence. 2. He will get depreciation expense on both his rental properties against his earned income. Depreciation is a non-cash item that is a huge benefit of owning rental property. 3. He will get the appreciation on all three properties. He is now much more secure in his retirement, but also is in greater control of his financial situation than he would have been following Suze’s simplistic advice.-
Income property has once again become “Income property”.
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There are many small income properties available in the area. Prices here have declined over 50% since the peak of the market late 2005/early 2007.
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It’s possible to obtain some great apartment financing. 25% down payment and interest rates at 6% or slightly below.
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Cap Rate is an investment tool for analysis that enables an investor to compare one investment to another.
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Cap Rate is the best tool for determining the value of an income property.
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Some of the most outrageous episodes in property ownership that the owners lived to tell about.
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Only 5% sales agents or brokers actually own investment property, and only 10% actually sell a property.
Every investor's situation is unique, and I have over 25 years experience solving problems. Use the form below to ask me about your unique needs.
Jeannie Niles Real Estate Investment
P.O. Box 317
Palm Desert, CA 92261
P: (760) 360-4020
F: (760) 340-9069
E: jniles@realestate-investment.com
