Debt Is Debt
I just had a conversation with a rich guy. I can sum up our hour-long conversation with these words: debt is always debt.
Yes, even your home. Deep down we all know that Rich Guy’s advice is right. You just know it makes sense to get rid of ANY kind of debt. Can the majority of us really afford a home without a mortgage? Not in my experience. But Rich Guy did make a strong argument for paying down that mortgage as quickly as possible. It’s food for thought anyway.
I’m sure you know that if you make one extra mortgage payment per year on a 30 year mortgage then you will knock about 7 years off of your payment time frame. That’s a bunch of money. And don’t be fooled into thinking that you need to pay some company to set this up for you. Simply make an extra payment, and be sure to include a note to your mortgage company that you want the principle reduced by the extra payment amount.
As evidenced by the recent and ongoing collapse of the sub-prime market, home ownership does come with pitfalls. The first step towards being able to pay down your mortgage is having a mortgage that is small enough: buy only what your can afford. The Denver real estate market has lots to offer the careful home shopper right now. Do your research. Take your time. Put 20% down if you can afford to.
Don’t Gamble!
If you are a first time home-buyer, or a first time investor my advice is that you should NOT try to time this housing market. Don’t buy a home like you’re buying a stock- thinking that you’ve got this market figured out and that you should be able to flip a house within two years, timing it for the inevitable market upswing. Can you afford to be wrong? Can you afford to pay the mortgage on your investment property or your first time home should the market take longer than 2 years to correct? If you have plenty of cash in the bank, then maybe you can. But if you’re doing a 100% finance mortgage, live paycheck to paycheck, and don’t have much in savings, then the answer is no, you can’t afford to take that risk.
You can always find a renter to pay the mortgage for you, right? Maybe. Maybe not. Have you driven around Denver lately and seen the signs for free rent? Can you compete with that? If your rental property has some clear advantage like a location right near a college, or a very desirable neighborhood for renters like Wash Park, Platt Park, or Highlands, then maybe you do have a clear advantage over the big multi-unit apartment complexes offering free rent. Do your research. Go on craigslist and check that your rental competition is in a certain neighborhood before you base a purchase on the fact that you will certainly find a renter at the exact price you need.
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