We own a medium sized house that has a small mortgage. It’s enough house for us and we can live here comfortably. It is also cheaper than renting, even in our rural area.
It’s good enough to keep me from mourning the cost of owning a home.
But suppose we had decided to buy a McMansion instead. The cost of some homes in our neighborhood are in the high six figures and most of the homes here are second homes. Many people who have homes here also have another McMansion somewhere else.
What they have invested in houses they own may be as much a couple of million dollars.
Now we are talking about TWO really crappy investments.
That money could be working WAY harder to make them enjoy comfortable lifestyle and additionally make their loved ones comfortable, too.
This is where the problem arises. The houses are things they own that must be purchased and maintained, but they are NOT an investment in the sense that they produce income.
Additionally these houses may or may not produce a profit when they are sold.
In fact in many areas in the US McMansions are selling for deflated prices and are not paying off as investments. They are certainly selling at a loss in our area.
The two houses are just expenses. They have to be paid for, maintained, repaired, remodeledand they are taxed. Plus they produced no income. Some of our neighbors occasionally rent their homes but not frequently enough to offset the costs.
Maintenance on any house is a considerable cost that no one really wants to pay, so anything that gets done tends to be the stuff that HAS to be done like fixing leaks, replacing old roofs, and keeping essential appliances that work.
Many of the houses that exist here are so out of date that they linger on the market for YEARS because no one considers them worth remodeling.
Then I think about what else someone could do with $2,000,000.
It could be in an income producing asset instead.
You could be in some type of business.
You could buy investment property instead.
Suppose you bought a multiunit rental property.
Look for a masonry building or complex for sturdiness, one in a nice area near shopping, entertainment and work. Conventional financing is readily available, although if the property needs significant renovations, you may need a commercial bridge loan since most banks won’t loan against a property that isn’t “stable”. Commercial bridge loans fill this gap in financing until your property is stable and can qualify for traditional cheaper bank financing.
Use the same amount of money to finance it.
Maybe live there.
You get a lot of benefits.
- It’s a business loan on a property that has cash flow, the best kind of investment.
- You have deductions for repairs and improvements.
- You get depreciation.
- You get business and investment level tax advantages.
- Best of all you get an investment level asset that really makes you look great on paper so you can get MORE investments that actually pay YOU for buying them.
You can chose to have your money sitting idle and slowly fading to zero or you can make the same money work for you.
It’s a great concept. Money can work for you…
YOU can work for money.
That’s the essence of investing.
What do you want? You can chose, too.