A few months ago I wrote an article about the difference between assets and liabilities and how home ownership was a liability.
Someone wrote to me, because he does not understand how it was possible that I, doing seminars to teach to invest in real estate, say that you should not buy a house.
But I do not say this. I say that it is fine to buy houses (and then sell them). I say there is a difference between homeownership and a house as an investment.
The main difference between homeownership and buying for an investment
In the previous article I spoke of homeownership. the one where you live. That is a liability.
Of course, quite the opposite when it comes to buying houses as investments.
You know that I promote investment in real estate as an exceptional tool – perhaps my favorite – to create financial freedom. That is why I have created the first seminar in Italy: Investing in real estate, which was attended by thousands of people.
It makes sense that a house should be an investment – or that it should be re-sold at a higher price or maybe it derives in rent – and is therefore an asset. It’s something that brings money in your pocket.
Take out a mortgage for a house as an investment – although there are other ways to invest in real estate, even without money as I explain in my seminar.
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It ‘s a matter of financial intelligence
Imagine this scenario: the same house, the same thirty-year mortgage, same bank, the same installment, the same income. All the same.
● Scenario A: Buying the house and going to live there, you have a debt for the next 30 years. Finished. You cannot make real estate investments because the bank will not give you another mortgage (unless you do not have a very high income). And you will be stuck in your work because if you lose it you cannot pay your mortgage and lose the house (and all installments you have paid).
● Scenario B: Purchasing the house and staying for rent where you are currently living. You sell the house with a 30% mark-up (because you know what the # 1 rule of investment property is). While you are selling you suffer a bit having to pay the rent and pay the mortgage, however, after 6 months you have resold the house, you paid off the mortgage and put some extra money in your account. Then you can look for another house and do the same operation.
Is it clear that the financial intelligence of someone who buys the house and goes there to live in is different from someone who buys the house, remains in rent and uses his ability to make loans to buy houses for resale? I do not think there’s any doubt.
Just to reassure you that you have got it right: rich people live in rental properties. I live in rental and follow precisely this reasoning.
Could I afford to buy a house? Sure. But from a financial point of view it would be a mistake. Maybe one day if I want to buy myself a toy I’ll buy the house of my dreams. For now I will follow closely the teachings that I explained in this article.
And, to add insult to injury, with whom are banks more happy to do business? With the ones who pay a mortgage for 30 years or with the ones who annually buy and sell and return 6 mortgages? With the second.
Because they know that, he is a reliable person who pays the mortgage. They know it is an investor and they treat him differently.
And so, while the majority of people, get a mortgage to buy a liability (mistakenly thinking of buying an asset) and in fact remain as prisoners for life, the real estate investor, as I hope you will become, gets a mortgage to buy an asset, a building that, in a few months, will bring money into his pockets.
To your financial freedom,