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DAY 80

UPDATE: Friday, 13-May-2005 10:29 PM

I wanted to take some time in my blog today to talk about real estate. I am very familiar with it as I studied it and then went into real estate sales and investing after getting my license. The problem was that I was 21 at the time. It's been a while since and I have lived thru two boom and one bust cycle in the real estate environment.

I think we are headed for one rather bust cycle shortly. It will be a very rude awakening for a lot of people.

Here is a sure sign of it: Take a moment to read this article from Money Magazine about a new trend in real estate financing -IO loans. These are interest only loans that help home owners refinance at lower monthly rates. Or simply afford more home.

Initially, it sounds like a good idea. Many Americans already living from paycheck to paycheck can get an extra few hundred dollars a month to cover expenses or even while refinancing pay off a lot of high interest debt.

But what are they doing getting an IO type loan?

What they are doing is gambling. An IO type loan may sound good with a good sales pitch and some cash in hand. But often the home owner is better off playing blackjack --the odds might be better there.

History always proves that one cannot get something for nothing. Exchanging a fix-rate 30 year mortgage for an interest only loan that *will* adjust to interest rates is a gamble. Period.

The problem is that the gamble, when the rates go up, or the housing market takes a turn for the worst, will cost dearly.

The reason I am pointing this out is because in a sound financial success plan DO NOT gamble with the home mortgage finances.

Just because there is an availability of a home loan with another 1% or 1.5% less interest --don't jump for that and forgo the security of a FIX RATE home loan.

Sometimes the finance companies make it easy with NO CLOSING COSTS, little paperwork, etc, etc. The bottom line is that the money will come from somewhere.

Most likely form your pocket when rates go up a bit.

Perhaps, the best way to take advantage of the situation is to split a monthly payment and make TWO bi-weekly payments. By doing that you'll make ONE extra payment annually (13 Total payments) and that will bring the 30 year loan down to less than 15 years. It's been a while since I did the calculations, but I am sure there is a web site somewhere that does this for you. It might be as little as 13 years. Anyway, check it out and do that math.

The other solution is also to make one EXTRA annual payment and that will shorten the years.

BUT, whatever you do, don't refinance a sound, FIXED LOAN mortgage just to save a few hundred up front on your home loan. This will end up costing you dearly in the near term as the housing market has been on a run and that run, history has shown, always takes a breather and that's when things start to heat up in your house hold finances.

Another idea that I keep hearing about are people talking about moving up. Well let me point this out. Your current home may have doubled in value, but so has the "move up" type of home that you are looking to buy. AND if the buying of the move up home is during the top end of a bubble in real estate, like we will see soon, then the new "move up" home is actually a move down.

If you are wondering about what I am talking about, just read a bit about real estate in London, England over the past few years. The bank of England raised rates to around 4.75% (don't quote me) but it's around there and the market sank over night. The sellers market became a buyers one and it has cooled off.

A lot of the purchasing was for investment reasons, much like what is driving up prices on the coasts in the USA and sooner or later the market will take a breather.

The investors who bought early and sold out early will move their funds to stocks or safer investments and you'll wonder where all the buyers went.

Think it can happen? It tends to happen about every ten years. There's always a real estate 'correction' like there is always a stock market 'correction'.

My conclusion in all of this was that your home is your castle. Make sure that *you* own it and not the mortgage company. The only way to do that is to pay it off ASAP -- as soon as possible. Don't gamble with the mortgage loan to gain a buck or two in cash flow on a monthly basis.

IF your kids want the latest iPOD's and sneakers and such and must have the latest trendy wear --TELL THEM to GET a JOB. That way they'll learn a few lessons getting to pay for things while earning it.

Now that I have gotten this out of the way, there is another point I would like to make. The reason the 31-STEP Success Plan's financial success started with such a small amount, and I insisted that everyone start there is because when you do that the funds can be left *untouched* and used to keep moving up the STEPS.

That will free you up to think up more and more ingenious ways of doubling it.

To the steps! This was my Sunday blog. I have a busy weekend ahead of me so I got an early start. Hope you have a great weekend. I'll be back soon. Sam out.

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