Business and Finance Solution

Acres of Gold

admin — Fri, 14 Nov 2008 05:36:50 +0000

A few years ago I stumbled upon a goldmine.Now this precious commodity was not something that you could touch, but rather one to look at.This goldmine has made more successes out of the average man than any other vessel in history.

This goldmine is so obvious many of us miss it or take it for granted.What could it be ? The internet !

With a good computer, an internet connection and your creativity you can do so much. There are countless ways in which you can display your talents for the world to see.

Their have been countless life changing inventions throughout history. The net deserves to be among the most innovative. Anyone from a ten year old to your Grandpa can use it to their advantage.

It is changing lives. The Internet can be like a drug, it may not “hook you” the first time. But as you start to use it regularly, you can’t seem to live without it (that’s me alright!).

And what’s best about it is that it belongs to everyone. Not the government, nor corporations or secret societies. It is for us all to have.

We should be careful what purposes we use it for though.It can be used to educate, inform and communicate to improve people’s lives. Don’t use it for wrongful purposes. Why create a shortcut when you can blaze a trail ?

Go ahead and discover that goldmine under your nose.It may not glitter but it is certainly not fool’s gold.

To your success and mine.

Insider’s Guide to Snaring the Best Lease Deal

admin — Sat, 01 Nov 2008 16:08:14 +0000

Every year, thousands of business owners and financial managers are faced with the task of obtaining attractive financing for equipment their firms want to acquire. Snaring the best leasing arrangement requires only a bit of planning and a smidgeon of finesse. You can save time, land a better lease deal and make the leasing experience less of a conundrum by considering several important factors.

Plan Ahead

Before seeking lease proposals, invest a little time in planning and preparing. Establish priorities by considering the relative importance of such factors as lease pricing, balance sheet considerations, ongoing leasing needs and the necessity of the prospective lessor to have specialized equipment/industry knowledge. If the transaction is relatively insignificant in the overall scheme of things, a truncated planning process might be in order. If not, allow enough time to: 1) identify and pre-qualify lessors, 2) review and select a lease proposal, 3) allow selected lessor to conduct due diligence and get credit approval, and 4) to complete lease documentation.

Assemble an information package for prospective lessors that anticipates what they will want to know before submitting a proposal, including: 1) background information on your company and management bios, 2) three years of financial statements and interim financials, 3) a list of company trade and credit references, and 4) a description of the equipment to be acquired, including acquisition cost. Anticipate questions about your firm and disclose them in advance.

Choose the Right Leasing Company

The starting point for getting an attractive leasing proposal is in choosing the right leasing companies to bid. All leasing companies are not alike. Some specialize in specific industries, some in certain equipment types, and still others in transaction sizes. Leasing companies also vary in size, capabilities, expertise and integrity. Do your homework to pre-qualify leasing companies that will bid. Lessor qualities to look for include: 1) knowledge; 2) reputation; 3) ability to perform; 4) helpful business contacts; and 5) a relationship approach. Try to identify at least three leasing companies to bid.

As in any field, leasing professionals have varying degrees of knowledge and expertise. Look for leasing representatives and managements that have a good understanding of lease structuring, equipment issues, documentation, credit evaluation, the capabilities of their firms, your industry and other leasing issues. Avoid lease ‘sellers’ with obvious limited knowledge. It is too easy to be led down the painful path of misinformation and misrepresentation.

Because the entry bar for setting up shop in equipment leasing is relatively low, it is important to locate leasing companies that have good reputations in the business. Check to see whether the bidding leasing companies belong to one or more of the major industry trade associations (e.g. ELA, EAEL, UAEL, and NAELB). While membership in these associations doesn’t guarantee high ethical standards, each of these organizations has standards and processes to review members’ unethical business practices. Contact relevant associations for references. Then, get several names of customers, banks and vendors to contact.

Along with good ethics, the ability to perform as agreed is equally important in considering leasing partners. Ask for and get financial information, background information on the key managers, a listing of recently completed financings, names and contacts at key funding sources for each leasing company being considered. Review this information and follow up with the contacts provided. If your industry and/or the equipment to be leased are highly specialized, make sure the leasing companies have completed several arrangements similar to the one you are seeking. Check lessors’ websites and brochures to make sure that the type of leasing arrangement you are seeking is specifically referenced and discussed.

Good leasing partners offer more than equipment financing. In many cases, lessors have met or worked closely with bankers, attorneys, CPA firms, business insurers, equipment vendors and investors. If the leasing company serves a wide variety of customers, some of these contacts can prove invaluable. Try to get a feel for the depth and breadth of each leasing company’s ability in this area.

Since you will be working closely with the selected leasing company and may have additional leasing needs in the future, why not choose a leasing partner that values relationships? Although it is not easy to identify relationship-oriented leasing companies at the quoting stage, check customer references to inquire about lessor follow-up, attentiveness, willingness to learn about customers and willingness to be helpful.

Get a Large Enough Lease Facility

Right-sizing the leasing facility can save a lot of time. Look for an arrangement that will cover equipment needs for at least the next six to twelve months. A helpful rule of thumb is to obtain a leasing facility that is at least 20% more than what is needed. If a leasing credit line is an available option, this can be a helpful tool in securing the right amount of lease financing.

Choose a Lease Term That Matches Equipment Use

The term of the lease should match the expected use of the equipment as closely as possible. If the term is too short, the monthly cash outlays for the equipment might exceed the expected benefits to be derived from the equipment (cost savings or revenue production). If you sign a lease that is too short that also includes fair market value end-of-lease options, and you exercise one of these options, you might wind up overpaying for the equipment. If the lease term is too long, you might lose the flexibility of upgrading to newer more desirable equipment. More than a few lessees have been stuck with equipment they no longer need, yet they still have a significant lease balance remaining.

Notwithstanding your preference, a shorter lease term returns the lessor’s investment in the equipment faster and lessors generally perceive a faster recovery to be a credit enhancement. You might be able to manage any mismatch between your preference and the lessor’s by obtaining favorable end-of-lease options. Seek end-of-lease options that include: 1) the right to return the equipment to the lessor; 2) favorable renewal options; and 3) favorable purchase options. Seek ways to limit what you are charged by requesting fair market value options that are “capped” (have upper limits) or favorable fixed options.

Look For Lease Flexibility

Obtaining lease flexibility can easily trump obtaining the lowest price. In fact, you can trim lots of money from overall leasing costs by having a flexible leasing arrangement.

First, make sure the lease allows you to include most of the equipment you intend to acquire. Also, check that it will be easy to add more equipment to the lease as your needs change. The better leases provide for multiple schedules under a master lease or the ability to amend existing leases to make additions. What if you no longer need some of the equipment? An early termination formula is useful in these situations. Generally, these formulas consist of present valuing the remaining rents. If the equipment has a strong residual value, try to negotiate a more favorable termination charge by incorporating some of the anticipated residual value.

A flexible lease arrangement anticipates upgrades. Usually, at the time of equipment upgrade, the present value of rents associated with the upgrade can be combined with the present value of the remaining equipment rents to create a revised schedule. Other methods might be required in the event that the lessor will incur penalties or additional charges resulting from the way the lessor has funded the lease.

Will you be able to terminate the lease early without an onerous charge? An amount consisting of the present value of the remaining rents plus a termination charge no greater than 3% to 5% should compensate the lessor for early termination in most leasing arrangements. Where equipment has high residual value, request that a portion of the anticipated residual value be applied to reduce early termination charges.

Does the lease have flexible end-of-lease options? Clearly, if the lease contains a nominal purchase option, there is little need for additional end-of-lease flexibility. Otherwise, a good array of end-of-lease options is desirable. Request the right to return the equipment to the lessor without undue penalty or expense, the right to purchase the equipment at a fair or reduced price, and the right to continue leasing the equipment at a fair or reduced rent. Use of ‘caps’ in fair market value purchase or rental options can greatly reduce potential costs at lease end. Beware, however. Lessors may insist on fair market value ‘floors’ (lower limit) when they agree to ‘caps’.

It may become necessary to relocate the equipment to another site. Make sure the lease provides that equipment can be relocated without unreasonable penalties or charges, subject to notifying the lessor. Keep in mind that equipment relocation may create extra expense for the lessor, particularly if it is to be moved to another state or to multiple locations. Most lessors perceive multiple locations as adding additional risk to the transaction in the event they must repossess the equipment. As long as these considerations are taken into account, the lessor should permit relocation of equipment with reasonable notice and reimbursement of lessor’s direct costs and administrative expenses.

Is there a sufficient notice period at the end-of-lease for you to indicate your desire to renew the lease, purchase the equipment or return the equipment? The notice period generally ranges from one to six months, with three months being typical. If you violate the notice period, the lease kicks into an automatic renewal period, usually one to six months. You should seek notice and automatic renewal periods that are short, to avoid unintended additional lease charges. If the lessor is unwilling to negotiate this provision, you can manage the situation by making sure the notice requirement is fulfilled within the allowed time.

Look For Competitive Lease Pricing

Lease pricing is a function of many factors, including: market rates, perceived lessee credit risk, lessor competition, equipment collateral quality and equipment re-marketing prospects. Get at least three lease bids, if possible. At the end of the day, lease pricing is market driven. A properly completed present value analysis will bring into focus comparison of diverse proposals otherwise difficult to make. Make assumptions about the equipment residuals and incorporate all anticipated costs and fees. Take into account the amount and timing of the periodic rental payments, any advance rental payments, security deposits, cash collateral, interim rents and commitment fees. To achieve an accurate analysis of cash flows, you should incorporate any tax charges/benefits as they are to be realized.

If you are concerned about the impact of the lease transaction on your firm’s financial statements, compare the impact of each proposed lease on the balance sheet and income statement (if lease accounting is not your forte, get a qualified accountant involved). For example, if your company is sensitive to adding additional debt to its balance sheet, a capital lease should probably be avoided. As you can see, there are several ways to evaluate lease proposals and to compare lease pricing. The important thing is to use an analysis method with consistency and to choose the method that best fits your company’s priorities.

Understand All Fees and Penalties

Leasing proposals vary in the types and amounts of fees and penalty charges. Some common lease charges include: commitment fees; documentation charges; charges for attorney fees; and charges for UCC financing statements. Additionally, some leases might contain penalty charges for late rental payments or early lease termination. These are only a few of the possible fees and charges. It is important that you go through the lease proposal and lease agreement to identify likely charges. If fees or charges are significant and likely, you should incorporate them into your pricing analysis.

Understand the Lessee’s Major Responsibilities and Obligations

Most lease proposals cover the basic terms of the lease, but are silent regarding many of the obligations and conditions normally included in the lease agreement. Lessors usually will not negotiate the lease agreement before receiving a signed proposal letter. While negotiating lease terms might not be customary or practical at the proposal stage, requesting a copy of the lessor’s standard lease along with the proposal letter is a good idea. In their standard agreement, look for any onerous or non-standard terms that would otherwise eliminate the proposal from consideration.

There are lease provisions that are common to almost all ‘net’ lease agreements, including: 1) prompt payment of rent, taxes and other required payments; 2) equipment & liability insurance; 3) equipment maintenance and upkeep; 4) tracking and reporting relocation of equipment; 5) freedom from any liens or other encumbrances against the equipment; and 6) return of equipment. Less common lease provisions, such as financial covenants or requiring personal guarantees might not be competitive or might result in you rejecting a proposal that is otherwise attractive. Review the proposal letter and the lessor’s standard lease agreement to insure that they are free of provisions that are problematic.

In all cases, it is important that you have the right to terminate the proposed transaction if you and the lessor can not come to terms on the lease agreement, especially if onerous terms appear in the lease that are not covered in the lease proposal.

Conclusion

Snaring the best lease deal and relationship need not be like getting a root canal. With a dash of advance planning and a few well defined objectives, you can find a good match. Remember to establish your priorities in making a decision on lease proposals and allow enough time to go through the proposal, lease approval and documentation phases. Also, while lease pricing is usually of utmost concern, make sure you consider other factors that can increase costs or create problems.

Market Impeders and Market Inefficiencies

admin — Wed, 29 Oct 2008 01:08:28 +0000

Even the most devout proponents of free marketry and hidden hand theories acknowledge the existence of market failures, market imperfections and inefficiencies in the allocation of economic resources. Some of these are the results of structural problems, others of an accumulation of historical liabilities. But, strikingly, some of the inefficiencies are the direct outcomes of the activities of “non bona fide” market participants. These “players” (individuals, corporations, even larger economic bodies, such as states) act either irrationally or egotistically (too rationally).

What characterizes all those “market impeders” is that they are value subtractors rather than value adders. Their activities generate a reduction, rather than an increase, in the total benefits (utilities) of all the other market players (themselves included). Some of them do it because they are after a self interest which is not economic (or, more strictly, financial). They sacrifice some economic benefits in order to satisfy that self interest (or, else, they could never have attained these benefits, in the first place). Others refuse to accept the self interest of other players as their limit. They try to maximize their benefits at any cost, as long as it is a cost to others. Some do so legally and some adopt shadier varieties of behaviour. And there is a group of parasites – participants in the market who feed off its very inefficiencies and imperfections and, by their very actions, enhance them. A vicious cycle ensues: the body economic gives rise to parasitic agents who thrive on its imperfections and lead to the amplification of the very impurities that they prosper on.

We can distinguish six classes of market impeders:

Crooks and other illegal operators. These take advantage of ignorance, superstition, greed, avarice, emotional states of mind of their victims – to strike. They re-allocate resources from (potentially or actually) productive agents to themselves. Because they reduce the level of trust in the marketplace – they create negative added value. (See: “The Shadowy World of International Finance” and “The Fabric of Economic Trust”).

Illegitimate operators include those treading the thin line between legally permissible and ethically inadmissible. They engage in petty cheating through misrepresentations, half-truths, semi-rumours and the like. They are full of pretensions to the point of becoming impostors. They are wheeler-dealers, sharp-cookies, Daymon Ranyon characters, lurking in the shadows cast by the sun of the market. Their impact is to slow down the economic process through disinformation and the resulting misallocation of resources. They are the sand in the wheels of the economic machine.

The “not serious” operators. These are people too hesitant, or phobic to commit themselves to the assumption of any kind of risk. Risk is the coal in the various locomotives of the economy, whether local, national, or global. Risk is being assumed, traded, diversified out of, avoided, insured against. It gives rise to visions and hopes and it is the most efficient “economic natural selection” mechanism. To be a market participant one must assume risk, it in an inseparable part of economic activity. Without it the wheels of commerce and finance, investments and technological innovation will immediately grind to a halt. But many operators are so risk averse that, in effect, they increase the inefficiency of the market in order to avoid it. They act as though they are resolute, risk assuming operators. They make all the right moves, utter all the right sentences and emit the perfect noises. But when push comes to shove – they recoil, retreat, defeated before staging a fight. Thus, they waste the collective resources of all that the operators that they get involved with. They are known to endlessly review projects, often change their minds, act in fits and starts, have the wrong priorities (for an efficient economic functioning, that is), behave in a self defeating manner, be horrified by any hint of risk, saddled and surrounded by every conceivable consultant, glutted by information. They are the stick in the spinning wheel of the modern marketplace.

The former kind of operators obviously has a character problem. Yet, there is a more problematic species: those suffering from serious psychological problems, personality disorders, clinical phobias, psychoneuroses and the like. This human aspect of the economic realm has, to the best of my knowledge, been neglected before. Enormous amounts of time, efforts, money and energy are expended by the more “normal” – because of the “less normal” and the “eccentric”. These operators are likely to regard the maintaining of their internal emotional balance as paramount, far over-riding economic considerations. They will sacrifice economic advantages and benefits and adversely affect their utility outcome in the name of principles, to quell psychological tensions and pressures, as part of obsessive-compulsive rituals, to maintain a false grandiose image, to go on living in a land of fantasy, to resolve a psychodynamic conflict and, generally, to cope with personal problems which have nothing to do with the idealized rational economic player of the theories. If quantified, the amounts of resources wasted in these coping manoeuvres is, probably, mind numbing. Many deals clinched are revoked, many businesses started end, many detrimental policy decisions adopted and many potentially beneficial situations avoided because of these personal upheavals.

Speculators and middlemen are yet another species of parasites. In a theoretically totally efficient marketplace – there would have been no niche for them. They both thrive on information failures. The first kind engages in arbitrage (differences in pricing in two markets of an identical good – the result of inefficient dissemination of information) and in gambling. These are important and blessed functions in an imperfect world because they make it more perfect. The speculative activity equates prices and, therefore, sends the right signals to market operators as to how and where to most efficiently allocate their resources. But this is the passive speculator. The “active” speculator is really a market rigger. He corners the market by the dubious virtue of his reputation and size. He influences the market (even creates it) rather than merely exploit its imperfections. Soros and Buffet have such an influence though their effect is likely to be considered beneficial by unbiased observers. Middlemen are a different story because most of them belong to the active subcategory. This means that they, on purpose, generate market inconsistencies, inefficiencies and problems – only to solve them later at a cost extracted and paid to them, the perpetrators of the problem. Leaving ethical questions aside, this is a highly wasteful process. Middlemen use privileged information and access – whereas speculators use information of a more public nature. Speculators normally work within closely monitored, full disclosure, transparent markets. Middlemen thrive of disinformation, misinformation and lack of information. Middlemen monopolize their information – speculators share it, willingly or not. The more information becomes available to more users – the greater the deterioration in the resources consumed by brokers of information. The same process will likely apply to middlemen of goods and services. We are likely to witness the death of the car dealer, the classical retail outlet, the music records shop. For that matter, inventions like the internet is likely to short-circuit the whole distribution process in a matter of a few years.

The last type of market impeders is well known and is the only one to have been tackled – with varying degrees of success by governments and by legislators worldwide. These are the trade restricting arrangements: monopolies, cartels, trusts and other illegal organizations. Rivers of inks were spilled over forests of paper to explain the pernicious effects of these anti-competitive practices (see: “Competition Laws”). The short and the long of it is that competition enhances and increases efficiency and that, therefore, anything that restricts competition, weakens and lessens efficiency.

What could anyone do about these inefficiencies? The world goes in circles of increasing and decreasing free marketry. The globe was a more open, competitive and, in certain respects, efficient place at the beginning of the 20th century than it is now. Capital flowed more freely and so did labour. Foreign Direct Investment was bigger. The more efficient, “friction free” the dissemination of information (the ultimate resource) – the less waste and the smaller the lebensraum for parasites. The more adherence to market, price driven, open auction based, meritocratic mechanisms – the less middlemen, speculators, bribers, monopolies, cartels and trusts. The less political involvement in the workings of the market and, in general, in what consenting adults conspire to do that is not harmful to others – the more efficient and flowing the economic ambience is likely to become.

This picture of “laissez faire, laissez aller” should be complimented by even stricter legislation coupled with effective and draconian law enforcement agents and measures. The illegal and the illegitimate should be stamped out, cruelly. Freedom to all – is also freedom from being conned or hassled. Only when the righteous freely prosper and the less righteous excessively suffer – only then will we have entered the efficient kingdom of the free market.

This still does not deal with the “not serious” and the “personality disordered”. What about the inefficient havoc that they wreak? This, after all, is part of what is known, in legal parlance as: “force majeure”.

Note

There is a raging debate between the “rational expectations” theory and the “prospect theory”. The former - the cornerstone of rational economics - assumes that economic (human) players are rational and out to maximize their utility (see: “The Happiness of Others”, “The Egotistic Friend” and “The Distributive Justice of the Market”). Even ignoring the fuzzy logic behind the ill-defined philosophical term “utility” - rational economics has very little to do with real human being and a lot to do with sterile (though mildly useful) abstractions. Prospect theory builds on behavioural research in modern psychology which demonstrates that people are more loss averse than gain seekers (utility maximizers). Other economists have succeeded to demonstrate irrational behaviours of economic actors (heuristics, dissonances, biases, magical thinking and so on).

The apparent chasm between the rational theories (efficient markets, hidden hands and so on) and behavioural economics is the result of two philosophical fallacies which, in turn, are based on the misapplication and misinterpretation of philosophical terms.

The first fallacy is to assume that all forms of utility are reducible to one another or to money terms. Thus, the values attached to all utilities are expressed in monetary terms. This is wrong. Some people prefer leisure, or freedom, or predictability to expected money. This is the very essence of risk aversion: a trade off between the utility of predictability (absence or minimization of risk) and the expected utility of money. In other words, people have many utility functions running simultaneously - or, at best, one utility function with many variables and coefficients. This is why taxi drivers in New York cease working in a busy day, having reached a pre-determined income target: the utility function of their money equals the utility function of their leisure.

How can these coefficients (and the values of these variables) be determined? Only by engaging in extensive empirical research. There is no way for any theory or “explanation” to predict these values. We have yet to reach the stage of being able to quantify, measure and numerically predict human behaviour and personality (=the set of adaptive traits and their interactions with changing circumstances). That economics is a branch of psychology is becoming more evident by the day. It would do well to lose its mathematical pretensions and adopt the statistical methods of its humbler relative.

The second fallacy is the assumption underlying both rational and behavioural economics that human nature is an “object” to be analysed and “studied”, that it is static and unchanged. But, of course, humans change inexorably. This is the only fixed feature of being human: change. Some changes are unpredictable, even in deterministic principle. Other changes are well documented. An example of the latter class of changes in the learning curve. Humans learn and the more they learn the more they alter their behaviour. So, to obtain any meaningful data, one has to observe behaviour in time, to obtain a sequence of reactions and actions. To isolate, observe and manipulate environmental variables and study human interactions. No snapshot can approximate a video sequence where humans are concerned.

Apply Credit Cards

admin — Thu, 16 Oct 2008 07:43:37 +0000

Credit card and debit card now have changed the nature of people in paying something. The form of money is now become not so popular. Because by using both cards, we will get many advantages of we compare with if we pay with money. One of the differences is to minimize the theft risk. Walking around with a large amount of money will make you become the target of criminals.

Even has the same function, which is as the payment tool, both cards had different concept. The easiest way to compare them is that debit card is paying something using our money that has been deposited in our bank account, while credit card is pay something using the credit card issuer money, then you will be sent bill from the credit card issuer to replenish its money. It is now the most common payment method used. WE can use credit cards not only in retail store or other common tore, online stores sometimes also include credit cards as their payment method.

There are many choices in credit card, many issuers have different promotions and advantages. To make you easy in choosing the best credit card, you can go to creditcardflyers.com. There are many credit card offers there and you can have detailed information for each credit card. You will also receive information of the types of credit cards like frequent flyer miles credit cards, reward credit card and business credit cards. Each type of cards has different benefits for the holder, for example the frequent flyer miles credit card are offering you points when you use your card to pay something as well as when you are travel using airplane. After you get enough points, you can exchange that points you have with certain gift or rewards. Or you can have hundreds or thousands free miles flying with airplane.

Should I BUY or RENT My HOME?

admin — Tue, 14 Oct 2008 22:24:39 +0000

Buying a Home is the American Dream. It is more than a place you put your hat at the end of the day. It defines you, protects you, and prospers with you. Yes, Home Ownership is a noble pursuit, but it always starts with this first, important question: Should I buy or Rent my Home? The answer, surprisingly, is not so obvious.

Now the question of “affordability” is an important one, but that’s not the subject of this article. We have a free calculator at our website. You’re welcome to use it. The subject of this article, however, deals with the questions that must be answered, before a renter can migrate into the magical realms of HOME OWNERSHIP.

Here are 5 MAGIC POINTS that you need to examine, on whether or not to BUY or RENT your next Home:

EXPENSES
COMMITMENT
MONTHLY PAYMENTS
TAX RETURNS
WEALTH

1. EXPENSES:

Renting a home requires that you give a check to the landlord each month. That’s it. You’re done. Everything else is simply taken care of for you. When you OWN a home, you are in business for yourself, and this means that you must handle all of the expenses yourself.

You are responsible, of course, for the monthly mortgage payment to the bank…

You must pay all your utilities, including phone, gas, electric, cable, trash, water, etc.

Don’t forget your responsibility to take care of maintenance. Not having enough money in the bank account is not a good enough excuse. If it’s broken, ya gotta fix it!

Don’t forget your Homeowners Association Dues, your Membership Fees, Property Taxes, Special Assessment taxes, insurance…yada, yada, yada.

When you rent a home, you give the landlord a check. When you buy a home, you must ensure that all expenses are met and managed every single month, forever…

2. COMMITMENT:

Renting and Buying have different financial commitments.

To rent a home usually requires a lease. Sometimes it’s month to month; sometimes it’s a 12 month lease. But, no matter what, there’s always a way out. Your commitment is limited to the time you choose to stay and reside there.

When you buy a home, you usually sign a 30 year mortgage, which most people would argue, is like forever. You are committed to ensuring that the payment is delivered to the bank or lender every single month, on time. They don’t care if you want to move at some point. You can sell your home of course, but you can’t just break your mortgage, like you can break your lease.

Buying a home requires a long-term, financial commitment. Renting a Home simply requires that you cut a check each month you reside at the home of choice.

3. MONTHLY PAYMENTS:

It always appears that a renter will pay less each month on monthly payments. Let me shed some light on this subject. Examined closely, this is as far from the truth as the moon to the Earth. Let’s use an example:

As a renter, you pay $800 a month, let’s say, that increases 5% each year. The math may differ with you and your landlord, but you get the idea. Barring rent-control, this is inevitable. Simple enough.

As a Homeowner on a fixed rate loan at $1000 Principal and Interest per month, the payment never changes…Never…Not ever…

In other words, the renter’s monthly rent will eventually SURPASS the homeowner’s mortgage payment…Much faster then you might expect.

In this example, our Renter’s Monthly Payments will exceed our Homeowners Mortgage Payment, in about 6 years.

4. TAX RETURNS:

A renter usually does receive a tax benefit from the State and Federal tax boards each year, sometimes referred to as a “renter’s credit”. But the Homeowner receives a deduction on the Interest paid on their loan. This is a huge benefit to the homeowner.

Let’s use the same example with our $800 renter. At the end of the year, our renter might receive a $600 renter’s credit on their 1040EZ form when doing their taxes. Simple enough.

Our Homeowner, on the other hand, paid a total of $12,000 in mortgage payments, of which about $11,500 went towards INTEREST. This INTEREST is a write-off.

Let’s see…$600 versus $11,500. Hmmm. I like that math. That equates to a nice healthy tax return for most of us, come April of next year.

Take those thousands of dollars in tax return, and go on a nice Cruise around Jamaica!

5. WEALTH:

It’s arguably much, much harder for a renter to build wealth. There is no built-in mechanism for appreciation, whereas the homeowner has postured themselves wisely for the future.

Let’s say we have a renter that wants to get wealthy. Great! They must go find a business to run, or a stock to invest in, or come up with a great invention, or be the next rock star, or follow a family friends “tip”, and go do Cattle Futures from August to September (just an example, folks…I don’t know anything about cattle…). In any event, most people would be concerned that our renter is following the proverbial “pipe dream” towards wealth.

But let’s say we have a homeowner who wants to build wealth. Great! What do they need to do? Simple….Nothing…Pay the mortgage…Live in the house…Go work your job. That’s it. Real Estate appreciates in value, on average, over the long haul, like no other financial vehicle. It is a virtual certainty, and it is automatic. The homeowner controls the total value of the home. That’s the magic of leverage.

Let me drive the point home: Someone might buy a house at $150,000, let’s say, and over the course of 7 to 10 years, it is completely reasonable to suggest that this very same house could be worth around $600,000.

Renters do not have a built in advantage for building wealth, whereas Real Estate appreciates in value as a virtual certainty. They don’t call home-ownership the “American Dream” for nothing!

SUMMARY:

The subject of deciding on whether to Buy or Rent, is not simple. In the end, it boils down to a question of complexity. Being a Renter is simple. Being a Homeowner is more complex, and yet, that does not mean that it is not within your grasp. It IS!!! There are so many people that are just waiting in the wings, yearning to help you get there. Real Estate Agents, Mortgage Brokers, Friends, Family, etc.

With all of these resources around you, just about anyone can own a home, and in this great country, the American Dream of Home Ownership is completely within all of our grasps!

But do me a favor. Give yourself the time to examine these important questions first. Look within. As we all get older in life, we yearn for more. Buying versus Renting is a common theme in this journey. As we wave goodbye to the younger years, we say so long to the simplicity of life, and we say hello to the promise of prosperity, wealth, and a better tomorrow. We also say hello to higher, more complex things. Often times, it’s simply the willingness to accept complexity that will get you to the understanding you need.

Best of luck on your journey, from Renting to Owning your next Home!

We’ve enjoyed providing this information to you, and we wish you the best of luck in your pursuits. Remember to always seek out good advice from those you trust, and never turn your back on your own common sense.