Discover the biggest LIE in real estate! It's absolutely crucial that you are aware of this massive lie because it's the foundation of making good real estate decisions. And being ignorant of it is even worse because it can cost you, tens, if not hundreds of thousands of dollars or more! For many people, this is quite a shock to them because they have been taught something quite different their entire life. But as you'll soon see, the truth on this matter is not talked about because the powers that be don't want you to know this wisdom. They would rather you remain unaware. So here it is, the biggest lie in real estate is...
What is the Biggest Lie in Real Estate?
The biggest lie in real estate is that when you buy a property you actually own it. That's right. Real estate ownership in the United States is a lie. It doesn’t matter if you have a mortgage against the property or you own it free and clear. Either way, your state, federal and local governments are your landlords when you are a homeowner or an investor that owns a property. Don't believe me? Think this is some politically charged or conspiracy theory rant? Well, read this article and decide for yourself whether you are an owner or a tenant.
5 Aspects of Real Estate Ownership
If you don't pay your property taxes, what happens? The government takes the property back and they evict you. Notice they use the phrase, "Take it back", as if it was theirs to begin with and then they evict you. Does that sound like you're an owner or a tenant?
As your property value goes up over time, so does your property tax. If you add any improvements that increase the value of the property, they raise your taxes or your “rent” as well. What does that sound like? An owner or a tenant?
For almost any improvements or repairs you make to your property you must apply for, get approval, and pay the fees associated with permits. You must have government approval to do almost anything with the property. Does that sound like you're an owner or a tenant?
It is also mandatory that you use a licensed contractor or repair person when making improvements that require a permit. It can't just be anyone, they must have a license that is issued through the government. In many cases, you can't even do the work yourself. After the most recent hurricane, a Florida homeowner repaired his own roof and has been fined thousands of dollars by the local government for not using one of their licensees. Consider this, if you must hire their set of contractors or repair people, does it sound like you're an owner or a tenant?
Local governments require you to mow your lawn and trim those trees. If you neglect your property you may get a fine. A recent study shows that many local governments make considerable profits from charging homeowners for not cutting their lawns. They're fining them and then adding interest and penalties to those fines. In an extreme case, a former Florida homeowner was slapped with a over $100,000 lawsuit against her personally from the city of Dunedin, Florida. Here's how it happened:
About 10 years ago, she thought she was foreclosed upon and moved to Georgia. However, for some reason the foreclosure paperwork wasn’t finalized. She never received the mail and for ten years she remained the owner never realizing it. As a result, the city of Dunedin just kept stacking on more and more fines for not maintaining her home or yard. Ten years of penalties and fines amounted to over a hundred thousand dollars and the city hired an attorney, located her in Georgia and slapped her with a massive lawsuit.
Understanding Leads to Good Decision Making
Clearly, this is no joke. If you are hit with fines and more taxes for not mowing the lawn and trimming the trees, does that sound like you're an owner or a tenant? These five aspects of real estate ownership build the case that we don't own property, we rent it from the government. In some cases the government is a tough landlord. You may find this discouraging, and I am not trying to deflate your enthusiasm. However, understanding this lie is crucial because it helps form a foundation of good decision making. There are four major decisions of real estate, that when done correctly can make all the difference for you in your success either as a homeowner or as a real estate investor.
4 Major Decisions of Real Estate
1. Buying vs Renting
This is an important decision that everybody needs to make. I have an informative video that I did several years ago called Should You Own or Rent Your Own Home. It dispels the myth that renting is not as good a deal as buying. There are times when renting is a better deal for people. Buying makes sense too, especially if you're going to be in that property for a long time. In the video I talk about a five-year period, but considering this last ten years of real estate increases in value, you might have to be in a property six or seven years for buying to make more sense than renting.
2. Flipping vs Renting
This is directed at real estate investors. I have another helpful video on this subject Flipping vs. Renting where I explain this in depth. That’s why understanding this big lie of ownership is so important . You need to know when it makes more sense to flip that property versus renting it long term. Rentals need to make enough money and be profitable or it makes more sense to cash in now. Remember you have a landlord in the government that needs to be satisfied.
3. Mortgage vs Cash
I think for the most part, most people truly don't understand this at all. I have video on this subject explaining why it almost always makes sense to have a mortgage, long-term fixed rate loans in place against real estate. In fact, now more than ever, it makes sense. Recently we hit almost record lows in interest rates, and pundits are predicting that there will be more interest rate drops before the end of the year. It is so cheap to borrow money against real estate and the amount of money you can earn from that money is significantly higher. The return is much higher than the cost of the debt. For this reason, it's economically irresponsible to strive to own real estate free and clear, especially since you know that you're still a tenant. Even if you own it free and clear, the government can still tax you and take the property from you.
4. Keeping vs Selling
As Kenny Rogers sang, "You've got to know when to hold them and know when to fold them." For example, if you're moving to a new area, do you sell the home you lived in or do you keep it as an investment property? You also need to know when you should sell that investment property. I am frequently asked this question and it’s a simple determination. I fully explain this concept in my video, The Millionaire Misunderstanding, but for now I will give you a cursory explanation.
Return on Equity
You must consider how much cash is being brought in with whatever equity you have in a house or investment property. If you have very little cashflow, you may either want to refinance or sell that property, taking that equity and putting it into a property with higher returns. Remember, the government is your landlord, so that property needs to be high performing. It needs to be producing enough results that it's worth it for your equity to be tied up in it.
These four decisions, when made correctly can have a huge impact on your success and hopefully you can see now why understanding the biggest lie in real estate is so important. The most successful real estate professionals follow the government rules and they still make a fortune. If you want to learn exactly how to do that, read my bestselling book, How to Be a Real Estate Investor.
I want to encourage you to watch the video The Millionaire Misunderstanding. It’s one of my favorite videos and I'm surprised by how so few views there are. I share in depth the return on equity and the impact that can make on your decision-making process.