Saving Your House, Or Saving Your Future Ability to Buy One
If there is one positive thing you can do for yourself during Social Distancing, getting a financial education is as good a choice as any.
Wealthy people use money to buy assets. They buy assets that create streams of income. Preferably income streams that beat inflation. If you had $1 in year 1 when bread cost a dollar. And you had $1.04 in year 2 when bread cost $1.03 you got wealthier. So the goal for the wealthy is to buy assets that grow money faster than costs.
So what assets do wealthy people buy? There is a lot of talk about the stock market right now. And wealthy people may in fact own stocks, but who really makes money on stocks. The Broker. They get paid when you buy. They get paid again when you sell. And in many instances, they get paid on your stock’s increased value as well.
I stay away from stocks.
Where most people really build wealth is in Real Estate.
For the sake of an easy example let’s say there are a total of 100 dollars currently in the US. If the government chooses to put 2 new dollars in circulation that means there are now 102 total. That means each dollar in circulation is now worth about $.02 less than before the new money was printed. And over time that decrease in value is going to be born out in the necessities people buy, such as gas, bread, eggs and other essentials. Because there is more money around, people will charge more for the things we need most. This is called inflation.
What is our biggest necessity? Real Estate.
Real Estate is not only the most essential commodity in America, it is also the most valuable.
In short-term economic stress, Real Estate prices may fall. If enough people lose their jobs it can create less demand. In the long term, however, because more dollars are put in circulation, the value of Real Estate is guaranteed to rise. Especially in 2008 and now, when the governments answer to recession risk was to print money.
What does this mean for you in the short term. Well, if you can hang on to any Real Estate you own, then do everything you can to do so. Check out this link to our best ways to avoid foreclosure. On the other hand, if you have Real Estate that you can no longer pay for, it is in your best interest to sell it while you still have equity.
The economy will come back. It always does. And so, will you. Corona Virus will be conquered like every other set back in American history. Starting with the Cotton crash of 1818 we’ve seen these calamities dozens of times. And in each instance, we’ve come back stronger.
What you want to protect is your ability to bounce back quickly. Ideally, that means you still own your current residence.
Check with your lender to see if you can get a forbearance that actually works for you. Avoid a forbearance that comes due directly after it’s over. It’s no use getting a three-month reprieve from paying your mortgage if you owe four months of mortgage four months from now. On the other hand, if your lender will extend your loan by three months by adding payments to the end of your mortgage, that is free money for you and you should take advantage of it.
If, on the other hand you can’t figure out a way to protect your asset and it becomes apparent you are going to lose it, make sure you don’t lose your credit rating as well. Protecting your credit is the second biggest way (beyond saving your home) you can assure your ability to bounce back faster. While lending guidelines have gotten very strict lately, they had actually been getting looser prior to Covid-19. The underlying metrics of the Real Estate market are nothing like the crash of 2008. We expect lending to bounce back quickly. There is no better way for a lender to secure their money than against your property, so they have every incentive to lend to you again.
If you can sell your home and take out some equity that is a win. If you can sell it without getting equity, while protecting your credit score that is also a win. Both options are going to give you the best chance to get back into another home quickly. And in so doing start truly building wealth in your life.
If, however, you are in a bind and need some help, reach out to us. Our team has come up with creative strategies for literally thousands of homebuyers over the last two decades. We will try to find a solution that helps you get the best possible value for your asset!