Mortgage - Home Loan, Commercial Loan

Generally a person’s home is their largest asset. Real estate is the way that the common person can become wealthy. This happens over time. Real estate is considered a long tem investment. Owning a home is a forced saving account in that with every payment you make you are slowly building equity. Over time, the monthly pay down of the loan and the market appreciation of the home creates wealth for the owner. Some people own rentals thereby multiplying their ability to build wealth.

Certainly the real estate market is cyclical subject to hot and cooler markets over time.. While in the past 3 years Fort Collins has seen little appreciation, the ten years between 1990 and 2000 saw a 100 percent appreciation from an average sales price of $99,000 to $199,000.

The interest paid on the real estate loan does help reduce your income taxes and you would have the ability to depreciate and deduct expenses on rental real estate.

Real estate is generally not considered to be very liquid investment. In the hot market that we experienced in the 1990’s to 2002, homes sold in a matter of hours or days and real estate appeared to be very liquid. In a normal market, typical homes generally take 75-150 days to sell provide they are well priced, in good condition and are reasonably accessible to show. This may not be fast enough if you need cash fast or do not have the ability to continue making payments.

In the current Fort Collins market there are definitely hot pockets (price points or locations that are selling well and reasonably quickly) and cold pockets (neighborhoods that have many homes on the market competing directly against one another or price points that are slower)

Real estate is generally considered to be a long-term investment. When the average home in Fort Collins was appreciating at the rate of 12 percent per year or more real estate seemed to be a place to make a fast buck. Certainly there are many books and TV shows promoting flipping and/or real estate investing as a way to make thousands of dollars in just a few hours. While I don’t doubt that it is possible, it takes a tremendous amount of work and effort to find the deals.

When you refinanced your home, paying off credit cards, car loans or pulled money out to pay for a vacation or college education, remember you have just spent the equity (your wealth) in your home. In a quickly appreciating market this may not have the impact that is does when the market is normal or slow. In a market where homes are selling quickly it may not matter. In the more normal market that we are currently in it can spell trouble for the person that must sell due to a lay off, transfer, health or financial reasons.

With little or no equity in your home you don’t have as much flexibility to reduce the price if the market warrants this to get the home sold. In a neighborhood where there is several similar homes completing against once another, the one that has the best price and condition will generally sell first.

The equity that you pulled out of the house is now sitting in your free and clear car or paid off credit card. You may not have the money to do the cosmetic fix up the house needs to sell in today’s market. You may need to bring money to closing to pay off your loans, brokerage fees and other closing expenses in order to sell your home. If you don’t have the money in saving to do this you may end up with another personal loan!

Clearly there has been a lot of press about people who have gotten themselves into trouble and even purchased or refinanced with adjustable rate mortgages that are now starting to reset. Be careful with how you treat the equity in your home. It can be your greatest source of future wealth if it is allowed to grow and not consumed heedlessly. If you have spent a good chuck of the equity you had in your home then realize what you have done. Work towards paying down your loan over time and building up a cash reserve.