RANT: I Bet You Only Know of Two Ways to Buy a Home

RANT: I Bet You Only Know of Two Ways to Buy a Home

It pisses me off that the american public is so miopic that they have bought into the brainwashing that you cannot buy a house without a bank. I happen to be a real estate investor and my team only buys houses without banks, i.e. cash, direct from sellers. We can buy seller notes, carry notes for people that want to buy from us, or just outright buy houses.

You should NEVER go into debt to buy a house. Some people don’t learn until they are out of money completely.

51% of all transaction of home purchases in Vegas for the past 2 years has been in cash. Way back when, think grandparents, nearly everyone bought their house with cash.

The banks have tried to attract people to take out loans to buy homes and cars on credits for decades now. Even at 0% interest rates, still 30% of the country, before the housing bubble collapse, bought houses in cash. And, we’re not talking rich people. People saved their money and bought houses, as it should be, and should have always been.

As far as ponzi schemes, you’re talking about fractional banking, where a bank has only $1,000 in reserves, but can lend out $10,000 in “loans” based on money they do not have. To keep this working, the lendee is afraid that if he doesn’t pay up he’ll ruin his credit. However, the interest rate he pays BACK to the bank has to come from thin air. So the bank writes a bad check to you, on money that comes out of thin air, and you pay back the bank on money that comes out of thin air. So as you pay back the bank $15,000 dollars, he then turns around and lends out $150,000. And so on.

What really makes it a ponzi scheme is that the people paying back the interest have to take money OUT of the system to pay back the loan.

Let’s pretend that we could actually have a stopping point in time, to this game:

  1. you go to work and make a table
  2. your employer sells the table to john
  3. your employer gets money from john
  4. your employer pays you a salary
  5. you put your money in the bank $1,000
  6. john takes out a loan for $10,000 for a home improvement
  7. John pays back $15,000 from money he gets from work
  8. the extra $5,000 isn’t even in the system and before john can pay it back he runs out of money
  9. the bank did not have $10,000 to lend out in the first place so
  10. the wood john bought doesn’t get paid for
  11. the nails john bought doesn’t get paid for
  12. the paint john bought doesn’t get paid for

So after about a  year the system collapses from fraud. The only real money in the system was the $1,000. And, that is a ponzi scheme BY DEFINITION.

Madoff did the same thing, just with fewer steps and with less cooperation from banks.

  • He got the first round of investors to invest.
  • Here comes the second round and he pays off the first
  • the first reinvest
  • here comes the 3rd round and he pays off 1 and 2
  • by the 50th round, he cannot pay off 30% more than 1-49 have invested and runs away with millions, because it’s paper money and fake returns that they all keep reinvesting.

This is exactly what the banking system does. They keep making loans every hour and people pay off the loans every hour.

The government is in on it, because they have to pump money into the pool every hour, by the millions. By them pumping millions back into the pool of money, it means your 2 dollars is now only worth 50 cent, because it takes 4 dollars now, to buy what 2 dollars could buy before.

Madoff = ponzi
bank = ponzi
government = ponzi
social security = ponzi
income tax = ponzi

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Buying a Home with Cash Discussion

Buy Your Home with Cash not Loans

Buying a House with Cash

In an ideal world, if your parents had brains, your parents would have saved up for the day you become an adult and fork over a nice nest egg for you to go forth and have a much better life than they did.  Some where alone the way this tradition, which dates back almost 10,000 years, got completely lost in the U.S.  Yes, ever since ancient times, the father would either fork over money so that his daughter could have a good life, dowry, or fork over money so his son could have a good life, a sort of  coming of age gift.  Even the poorest people did this.  They all had the good sense that the next generation should have a better life than the last.

It is my contention you should never ever take out a loan, under any circumstances, not for education, nor car, nor a home.  To prove this, I presented a comparative analysis of someone who saved for the same time as someone who took out a mortgage.  Please note that the person who takes out the mortgage overpays for the same house to the tune of anywhere from 30% – 100%.  Not only that, the math gets worse when you account for dollar value over the time period of the mortgage.  Accounting for that you reach nose bleed heights of 200% for the same house.  Even worse accounting for dollar value versus gold, you start to get into ridiculous loses on a mortgage.

I present to you the discussion we had on this subject: On a side note, everyone that responds in the discussion have a vested interest in you not paying cash for a home.  That is to say, they are either brokers themselves, lenders and none of them are actual financial advisers with a fiduciary responsibility for you to earn money.

It is my theory that if I start now and account for dollar value / mortgage / interest / taxes / loan costs associated with the transaction itself / interest on those additional fees  that saving to pay cash for a house = to the time that I would have stayed in the house, I will always come out ahead.  Assuming 10 years, 15 years, 30 years.  Even with moderate interest rate on savings of 4%

Mr N____
Unless you are rich the chance of your paying cash for a house anytime soon is doubtful.  As far as your theory.  You have to decide whether you need the tax right offs from the interests paid on the mortgage against your personal income tax liability or do you want all the free equity in your house.  It is usually a trade off.  I paid cash for my house, but took out a HELOC to offset some of my tax liability.  That is an option as well.  It is best to talk with a personal financial adviser or investment attorney to see which path best fits your situation.

Mr H_____
Not that I’m against buying with cash…but some other items to consider – Did you account for the rent you’re paying to live somewhere else? Appreciation lost by not owning a home? What if rents go up? Etc.

Mr R____
You “took out a HELOC to offset some of my tax liability” ? are you joking? that is the stupidest advice I have ever read!

First off, the tax write off on mortgage interest only applies if you itemize your deductions; by itemizing you give up the standard deduction which for a married couple is what 12,000? so unless your heloc interest is over the standard deduction, or you have a bunch of other deductions to itemize, you won’t save a penny anyways. Even if it bigger, which is a heck of a big heloc, you will only benefit to the amount that it exceeds the standard deduction. In other words, $15,000 in mortgage interest for a married couple is likely to lead to a tax deduction of only 2 or 3 thousand more;

Second off, it is a write off, not a tax deduction, So even if your interest on the mortgage is more than the standard deduction, it will only save you about 1/3 of that amount.

Pretty brilliant, spending $15,000 a year on interest to save $1000 or so on taxes!!!


Maybe this is something that isn’t considered.  Everyone immediately jumps on the “what about how much you’re spending in rent while you’re saving for that house.”    Not to sound negative or anything, but there are a thousands of other scenarios and options where you are not spending a dime to live: you’re a minor; under someone else’s care; living in a paid for house that is not your own.

There are still quite a big chunk of Americans, don’t have the percentage because absolutely noone is interested in knowing nor revealing it, that pay cash for all major purchases and they are not rich.

I’ve never bought a car with a loan.  I’m far from rich.

Also, parents now and since parenting was invented, have saved up for children and when they become adults bequeath the nest egg to them or purchase whatever the goal was for the nest egg: i.e. home, car, education.

So assuming that you’re not some schlept that fell from the sky and just started saving today, if you saved the exact amount for the same amount of years, cash in hand, vs paying the mortgage for that amount of time, wins every time correct?

Saving $3,000 every month for 15 years is = 540,000 without interest, without compounded interest.

Mr R_________

I certainly admire your financial discipline and conservatism.

However, let me reply with an observation:
Just 2 years ago, I was getting 5.5% on my money in short term bonds.
today, you could get a 30 year fixed mortgage at 4.5%.

I have the money to pay cash for my home, but I would rather buy with 20% down, lock up a long term low interest loan, and keep my resources for other investment that, in just a few years, will likely pay me much more than the lack of a mortgage would save me.

Whatever you decide, best of luck!

Buying a House with Cash

Mr P_______
As Mr R implied; the cost of buying and maintaining is the same in either case; and the transaction costs are the same in either case.  The only difference is the cost of the money.

And my opinion is that you are right “most of the time”; that you cannot invest the money you borrow at better rates than the *mortgage interest rate*. 

That if you have a mortgage, the highest interest you can usually “earn”, is to pay off that debt and not pay that interest, unless of course you have high interest credit card debt, that really needs to be paid off first.  But, if you can borrow at 4.375% for 30 year fixed, and invest at between 5% and 15%, you may be better off.  Still, you need to subtract out from your return on investment any tax liability including capital gains tax, unless you use a tax exempt investment (such as government bonds).

Sure, you could say that you need to do that for your house too; but you would need to do that in either case; and if you aren’t selling, there is no capital gains to be paid; and if you die, the tax base is re-based to the time of death for your estate and heirs.

But, I have known many people that thought they could invest the equity better than having a home free and clear; and the investment went sour, and their job went sour (often due to health going sour…), and they end up loosing their home, or end up working extra hard to make the payments to stay in the home, or sell the home to live somewhere else but still with cash coming out of their pocket…

If you have paid off the home, that is a “security” that gives you many freedoms not available to those that have to make loan payments.  To me, it is worth any of that extra interest you couldn’t make on that so called “can’t loose” investment.  Besides, all the money that you would have budgeted for mortgage payments each month can go into that high return investment if you ever find it.

The real issue for people saving to buy a house in the past is that inflation rates (especially of housing) outstripped any interest on the savings, and thus the savings was always a net loss in attempting to reach the purchasing goal.  But that is not the case presently; prices are falling, not rising.  And even when they stop falling, they will stay fairly flat and likely not keep up with inflation.  Thus there is plenty of time to save money if one doesn’t have sufficient cash presently.

Presently, if you buy, the interest rates are such that you pay for the house twice if you have a standard mortgage for the purchase.  In the past, you paid for it 3 times.  But one must consider the time value of your “cash” too.  The problem is that interest rates for bank deposits and inflation, and other investments… is not constant with time; so one must make some kind of assumptions when doing the math.  But I would presently assume about 3% annual “time value” of your cash, as compared to the average of 5% 30 year fixed mortgage interest rate presently; and with that, the only ones that it makes sense to borrow is the single people that have other deductions (large charitable contributions, or medical expenses exceeding 7% of income), making over $373k per year, which puts their tax rate for the money they will “deduct” at 35% for federal and 9.55% for state (of California), which puts the return on anything over the “standard deduction” of $5700 at 44.55%.

So, assuming that interest payments are substantially above $5700 annual (as a person making over $373k per year is probably buying a much bigger house than most of us would buy), the adjusted cost of the mortgage is 5% x (1-44.55%)= 2.78%, which is slightly less than your 3% “time value of money” for your cash, thus worthwhile to them.

NOT worthwhile to those that only get less than 25% back from the Federal Government and less than 4.25% back from the state, especially as one barely gets above the “standard deduction” if at all.

The members of NAR that don’t understand this obviously are not the ones you should be getting any financial advice from.

Mr S_________
There are definite advantages to paying cash for a house, but it does take a long time to do that in most markets. It also takes financial discipline that is hard to come by for most people. Roberto mentioned something to consider also which is lost opportunity cost on the money that is lock in what amounts to a fixed rate investment. That money is not free to invest in other things and you realize no gain until you sell.

I am not a gambler, but I can see the benefit of conservatively borrowing money for a mortgage at 5% and investing the conserved money at 8-10% even with the mortgage interest that I pay. You have to do what you feel is best and weigh the benefits of each. For me, it made more sense to put a little more than 20% down and pay extra on my mortgage every month to pay it off sooner with less total interest. 

Mr P_______
“That money is not free to invest in other things and you realize no gain until you sell.” –

Correct; but the money that would have gone to mortgage payments each month is free to invest.  But as that is spread out over time, it takes even more diligence to invest wisely and avoid frivolous spending.

Still, paying cash, or accelerating payments to remove the debt liability is an “insurance” that one will have a place to live, even with minimal income should something happen, or if one wants to consider changing professions…  That insurance is worth something.  To me, that is as important as health insurance, or fire insurance, or automobile insurance.

You’ve Been Had

As you can see, none of them even explored the value of money, the costs involved in a mortgage, and the idea of paying cash is as foreign to them as drinking water at the beach.

One person did hint that it’s peace of mind, but that person still thought it was a losing proposition to pay cash rather than taking out a loan.  He equated it with being nearly life threateningly important, but it never rose to the level of good sense and good math with him.

People do not need to be feared into doing the right thing, they need to see that the math is on my side, based on reality.  Noone likes to present to them the real math involved.  While everyone can agree that paying $10,000 cash for a house that was $80,000 just two years ago is a steal, they shy away when you say pay $100,000 cash regardless of the circumstances.  I’m here to tell you, taking out a loan for $150,000 for a home is a losing proposition, mathematically speaking.  And, when calculating ALL the costs, people don’t consider nor tell you all the costs involved.

Lenders like to tell you about how you can take out a mortgage at a low low rate and invest the rest at a much higher interest rate.  What they are not telling you is that ALL investment is gambling.  The entire world is crashing down around us due to investments: Greece, Portugal, Spain, U.S.  Yet, they want to imply that investment is the way to go instead of buying a house at nearly half the cost of what someone else payed for it, and the complete security that, no matter what, you will have your home.

They’ve got one hand in your pocket and are trying to give you advice on finance.  The same person has zero financial acumen themselves, yet are trying to tell you how to invest your money.  A house as always been a losing proposition.  While it isn’t as blatant as buying a new car, it depreciates just the same.  It was never an investment.  Income generating property is an investment.  But, that has everything to do with income generation and nothing to do with the fact that it is real estate.  Put a different dress on it and it’s a loser just as everything else is.

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What is the Single Most Effective Way You Personally Can Help Get America Out of this Economic Depression

What Can You Do

I do not think a lot of people are aware of what is really going on with the economy right now. They do not want to hear any more about the economy. They do not want to watch the news talk about the economy. But, the truth of the matter is, regardless of all the speeches, talks and news broadcasts, not one person is telling you: what really is going on; why it is going on; and what you can do to stop it. I have already gone over in my economic blog what were some of the reason of this economic depression. What I would like to discuss today is what you can do personally to take control of your financial destiny, AND in so doing it, help your fellow citizen take control of his financial destiny by proxy.

You might be wondering, why you would be influenced to help your fellow citizen take control of his financial destiny. The answer is simple. By doing what I am about to reveal to you, you are helping yourself. If just 30% of the population helps themselves, this economic depression will be over.

That sounds rosey and merry does it not? But, what I am about to reveal is going to take America through some very hard times and the medicine will be painful. But, let me assure you that, the reason it will be painful, is because the system we have set up now is fraudulent. What I will reveal will result in probably hundreds of thousands of people losing their jobs. You might ask, “how can that be a good thing?” The problem is, they should not have been hired in the first place.

Let me give you a real world example.

A vast majority of Americans used to work in factories for some time. While most would think, on the GRAND scale, that factory jobs are low paying, the fact is that factory work does not require an advanced degree. So, you had quite a large segment of the population making far more money, with only adult level education, than they would in any other segment of industry or business. Because of this the American lifestyle changed drastically. Most people were able to afford what only the rich could afford before. And, with cheaper production methods, whole segments of consumer goods were made available to people that could never dream of owning them before. It was never the same quality as it was when the goods were limited to those that could afford them, but they looked just like them.

With this heightened lifestyle, the American living habits changed. Instead of living off the land and cooking for themselves and eating at home19 out of 20 nights, they began to eat out more and more. This created the fast food industry.

Finally the captains of industry but the wagon before the horse. In order to chase the dollar of the general public, they started cutting corners to make production cheaper. In this pursuit, they finally removed labor altogether as the ultimate means to cut expenses. They did this by automation and / or outsourcing to lower income nations.

[giving them the benefit of the doubt and not assuming this was on purpose to strip the country of its wealth] They cut out the very workers that were their largest clientele. They had undone, what was their bread an butter before. However, the jobs that were lost in manufacturing now switched over into the service industry, including the same fast food industry which saw a big boom when workers were paid more and had leisure money.

Due to not taking a look at their finances and not noticing they could no longer afford it, and being creatures of habit and bending to peer pressure, most Americans continued to buy consumer goods as they had just learned to do. They continued to eat out, making it now a normality to eat out, and an unusual occasion to cook at home. Now it switched to eating at home 6 out of 20 nights. More and more of the population sought jobs and were hired into the very service industry they had helped create to service them, due to their former lifestyle.

That is a real world example of what happened in America. In a very short time, Americans forgot that the items they now bought were once luxury items that only the well to do and rich could afford: television; cars; eating out. Instead of going back to their previous lifestyle when their money was less, they continued to purchase these luxury items. They had been brainwashed into thinking that they were not, in fact, luxury items, but every day items needed for living.

The manufacturers of course did not care that they had done away with a lifestyle that could have continued on growing and growing, but they turned around and egged people on to continue purchasing luxury items. They removed all notion of what luxury was and what normalcy was.

Fast forward to more recent times.

One of the luxuries that became common place were homes. Some of you might be shocked at such a notion. But, let me tear the wool blanket from over your eyes.

Homes were never and will never be a consumer good. From the beginning of the modern homestead, homes have always depreciated in value. This is what realtors, brokers and the government wants you to forget. Why is there a tax write off for buying a home? Because of the depreciation of the home. As soon as you buy land, break it up and plop houses on it, the value goes down. Yes you might be able to sell them for more with brand new houses on it, but from that moment on the value depreciates. Because, the land could have been used for an entirely different project. Also a home depreciates anyway due to its age, maintenance costs and general upkeep.

Realtors, brokers and the government rely on the general population NOT doing their homework and going through the math to figure out the real cost of a home and how much a home depreciates. Let’s say you purchase a home and you think you will live in it and then sell it when you get ready for retirement. Let’s say the original purchase price is merely $300,000.00 and you think you will sell it for a cool $1 million when you get ready in 30 years. Do you think you would have made some money? Look at the chart below.

As you can see in the chart, even if you sold the house for $1 million you would be actually losing money. But, wait, I have even worse news for you.

The chart doesn’t account for taxes going up. The chart doesn’t account for the inflation of the dollar over 30 years. So even if you sold your home for $1 million in 30 years, due to inflation it would be worth $2 million after you account for inflation. So you are double, no triple, no quadruple screwed. None of this is even accounted for in the chart.

Inflation is the single most theft of wealth in the whole nation. Who has control of inflation?

Banks! Namely, the federal reserve.

So what can you do about this mess were in?

  1. take your head out of the sand, sit down to your kitchen table, grab your wife, husband and kids and everyone grab a calculator, pencil, erasers and paper
  2. figure out the real cost of how you live from day to day, week to week, month to month
  3. you are going to adding the cost of inflation to all your calculations, including your paycheck
  4. remove any and all money you have from big banks
  5. buy a house safe and put the money in the safe and only you should know it, not even your kids should know it
  6. keep 10 months worth of cash in there at a minimum, remember to account for inflation
  7. if you must keep money in a bank, put it in a local credit union, and you just CAN’T find one, put it in a LOCAL bank
  8. if your local bank gets bought out by a large bank, remove your cash and find another credit union or local bank
  9. pay off all loans in full, as soon as you possibly can, remember you are calculating everything with inflation
  10. rip up, cut up any and all credit cards [credit is a financial farce and a hoax played on the American population]

You are to pay for everything in cash. If you do nothing else out of the list, because you’re too stupid to breath, at least pay for everything in cash, in full. This practice alone will save you thousands of dollars.

Remember what NOT paying in cash gets you:

  • bank fees
  • over draft fees
  • taxes on items you pay in installments
  • inflation raises the cost of an item you pay in installments
  • interest rates on items you purchase, even minor inexpensive items

Paying in cash would remove 30% of your financial worries.

If 30% of America followed the list of 10 things we would be out of this financial crisis this year. I guarantee it. I put my first-born’s life on that.

Let me leave you with this. I’ve said this before in one of my reports here. The value of houses circa 2008 were dramatically INFLATED. It was a scam to make money and keep making money. Home values should not have been anywhere near where they were. Homes were selling for $100,000 that were worth maybe $35,000. Homes that were selling for $1 million were worth $300,000. And, after looking into they found that everyone was in on it. Noone thought of it as wrong because it seems innocent to say a home is worth a certain amount. The more a home is worth, the more houses will sell in general; inspectors will have more work; more construction; brokers can pawn off loans to big banks; big banks can package and sell the loans as financial instruments to investors who either do not care or who are too stupid to handle their money anyway.

When they say there was fraud, don’t point the finger at the buyer without point the finger at everyone from the house appraiser all the way up to the president of the United States. And, make sure you go all the way back to Clinton, not just Bush, and Obama is just as lying as they are.

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