A repeating newspaper ad finally caught my
attention: “Are You House Rich and Cash Poor?”
The investment program, offered at a seminar, seemed clear enough. The homeowner incurs a mortgage loan through
the featured Mortgage Consultant and then permits the pre-designated Wealth
Strategist to invest that money.
As the ad explained, a justification for
borrowing on your personal residence is that with a residence free and clear of
a mortgage loan, “. . . you earn a zero percent return on that equity. You have all that money locked up and you get
nothing for it. It’s just sitting there,
virtually unemployed.”
Let me offer a second opinion. Home equity is not unproductive. My residence, delightfully free and clear of
mortgage, has a potential monthly rental value of, perhaps, ten thousand
dollars. I’d need to generate a pile of
pre-tax income if I had to rent my own house.
Who sez I’m getting nothing by having it paid-off?
But economics aside, it’s the concept I
reject. It’s unwise to incur a loan on
your home, which must be paid, to
invest in something that may or may not produce the cash flow to make the
payments. Admittedly, it can be argued
that if the investment is a surefire winner which you personally direct, with a
return well in excess of the borrowing cost, it might warrant the risk. In this particular offering, however, you’ll
not be in control. Rather, your fate
will be in the hands of a mortgage
consultant and a wealth strategist
who will explain things as you enjoy a full complementary meal at their “free
educational investment seminar.”
As implausible as it may seem, many persons
select their investments no more judiciously than by response to mass
solicitation advertising. This is not a
winning formula. Rather, the route to
financial independence requires that you scrupulously avoid questionable
enterprises, that you know exactly what you’re doing, and that you at least
oversee, if not directly control, the substance of your investments.
♦ ♦ ♦ ♦ ♦
If you enjoy this weekly Straight Talk by Al Jacobs, you’re invited to check out my monthly Financial Newsletter, as well as my new book, The Road to Prosperity
♦ ♦ ♦ ♦ ♦
No comments:
Post a Comment