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QuadWealth teaches our clients that a home is a place to live, not a place to store cash. However, we find that most people tend to accumulate large amounts of cash in their homes in the form of home equity. Does this sound familiar? Have you been taught that paying your house off is the best thing to do? Think again.
In order to manage wealth properly, optimize the performance of existing wealth, and maximize retirement income down the road, it is important to efficiently manage ALL environments that store cash, such as 401(k)s, IRAs, mutual funds, and even the equity in your house. Most Americans consider their home to be their biggest asset, yet they do not manage this asset properly and fail to optimize its potential. Most people are trying to pay down their mortgage as quickly as possible. While this may save them interest, it is costing them much more in opportunity costs. Interest is not always a bad thing if utilized properly, especially interest on a primary residence loan that is typically tax deductible.
Would you pay someone $7 if they gave you $12 back? Obviously, yes! We teach our members to "think like a business owner" and understand the difference between costs, returns and overall value. A business owner would gladly hire a new salesperson and pay them $50,000/yr if that salesperson were able to generate an additional $100,000/yr in revenue. Wouldn’t you? This is what wealthy people do. Wealthy people gladly keep a mortgage and pay the bank 7% interest because the dollars that would otherwise be used to pay off their mortgage are invested in other safe investments earning 12% or more. Again, would you not pay 7% to earn 12%? QuadWealth clients gladly do.
QuadWealth strongly believes that all investments, including home equity, must pass QuadWealth's five investment tests in order for an investment to be a prudent and wise environment to store cash. If any current investments do not pass the following five tests, then we strongly recommend repositioning the failing investments into investment environments that pass each test. Home equity fails each test! It is not prudent and wise to store cash in the equity of a home.
QuadWealth’s Five Investment Tests Applied to Home Equity:
1) Safety
- Home equity can be lost if the value of the property fluctuates due to market conditions.
2) Liquidity
- Home equity is not liquid. It can only be accessed via mortgage loans and/or a sale of a property. Since the mortgage market has tightened so dramatically, it is more difficult than ever to access home equity.
3) Rate of Return
- Home equity has no rate of return. A property may appreciate, but appreciation does not give a rate of return to home equity. Home equity is a dormant, non-performing asset.
4) Tax Efficiency [assets passed on to beneficiaries]
- As a mortgage loan is paid down and home equity increases, tax benefits from a primary residence mortgage decrease.
5) Retirement Income Generation
- Home Equity does not deliver retirement income.
We show our members how to employ their home equity in order to generate additional net worth and income for retirement. We teach our members how to turn their home equity into an asset that can generate an extra million dollars, two million dollars, or more in additional retirement income.
Key Points:
- Borrow money to conserve not to consume. Do not waste home equity on depreciating assets.
- If you store home equity in a bank or credit union, you are in effect lending your money to the bank. The bank then pays you interest to "reinvest" or "loan" your money to other people or entities to earn a higher interest for themselves.
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