Posts Tagged ‘Investment’

If you have not Refinanced yet, Why not? Do you need a personal Invitation?

If so, here it is……

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You are cordially invited to save hundreds of dollars off your monthly mortgage payment by refinancing your loan today. Dan Shlufman and Classic Mortgage hereby request the presence of your loan application at our processing center in Maywood, NJ. We would be thrilled to share this special time in history with you when we have the lowest interest rates on record.

The pleasure of your patronage is respectfully requested. Please RSVP to the contact information listed below at your earliest convenience. We want to make sure that we have funds put aside so that you can enjoy a lower monthly payment for 15, 20 or 30 years.

 

If you would like us to book a hotel or a flight which you can pay for with these savings, please let us know. Also, if you need cash to pay off high interest credit cards; for a home renovation; college or a business investment, you can do that too.

Contact me today and find out how you can save hundreds of dollars on your monthly payment by refinancing. You can also buy a new home with a great interest rate. As Eddie the pitchman from the 80’s might say, “act now, these Crazy rates won’t last forever!”

 

Warmly (or, maybe with this weekend’s weather, I should write “Hotly”),

 

Daniel M. Shlufman, Esq.

 

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“Don’t Buy a Home As an Investment” A Faulty Logic and Fuzzy Math

While I was reading the Sunday paper I came across this article from The Wall Street Journal and got intrigued by the title. Don’t Buy a Home as an Investment: After Costs, It Typically Doesn’t Yield Much. Think of It as a Place to Live.

I always enjoy the Wall Street Journal’s columns and generally agree with them. However, in this column listed above, the author came to his conclusion first and then tried to justify it. He neglected to include several important factors and then he discounted his extraordinary return on his Manhattan apartment for no apparent reason. Read more here: Don’t Buy a Home as an Investment

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The investment return for real estate is not always as high as it looks. But, the beauty of this investment is the leverage that you get from mortgage financing. Photo courtesy of consultist.eu

Dear Mr. Clements:

As for your NJ house, while including some operating expenses, you failed to properly account for the cost of renting a similarly situated home for your 12 years of home ownership. You indicated that you were not counting the $106k in interest for this purpose. But, $106k/144 mos. would only give you a house rental of $736 per month (which is not even remotely possible).  In addition, you did not apply the same 25% “tax  benefit” to this that you did to the real estate taxes, which would lower it further. The adjusted real estate tax of $90k/144 or $625 per month should have been ADDED to the cost of housing as opposed to the cost of ownership and not been taking into account as to your investment return. Even adding $736 for interest and $625 for taxes would only give you $1,361 per month for rent which would not have covered a house rental in NJ which would have been $2,000-$3,000 per month.  If not left out of the analysis as it should have been, then $1,000 or so should have been added when looking at the value of living in a house, not subtracted.As for the actual investment in your house, it was NOT $165k unless you bought it for all cash, which I doubt.  You should only be including the original down payment you made (plus closing costs) and any principal payback that were paid in your 12 years of ownership.  So your investment would be reduced by the existing principal amount of your mortgage debt at closing (because this was not your money used for the investment, it was the bank’s).  So, though the payoff amount on your mortgage was not included (i.e. deducted from your investment) in your analysis, it should have been.  Only when taking these other factors into account can you determine your actual investment return.

As for your Manhattan apartment, it was a “home run” in any way you look at it. We can disagree as to the amount of the investment return, but not as to the overall picture of a huge gain in two years.  Again, was this apartment purchased for 100% cash?  You neglect to include this very important fact which affects your investment return (I.e. you did not invest the full purchase price of $570k plus $7k of closing costs, only a certain percent of this).  Therefore, your net sales price of $750k (i.e. $800k minus $50k in closing costs) gets compared to your investment (whatever amount that might have been). Once we know that number, we can determine the investment return.

All that said, I will agree that the investment return for real estate is not always as high as it looks. But, the beauty of this investment is the leverage that you get from mortgage financing (which is my business).  To fail to properly include this information on your analysis of your two home purchases is, if inadvertently omitted, at a minimum, a disservice to your readers. If it was done intentionally, then it is just another example of improper journalism where the facts were manipulated to support the conclusion.  I am hoping that it was the former. If so, please provide a follow up so that your readers can get a more complete picture of the situation.

Dan.