There is an unspoken rule in the real estate market. You must have a bank mortgage to buy a house. But did you know there is a secret way to buy a house without a mortgage.
There is a secret financial trick that you can use to buy the house of your dreams in about 8 years and have NO mortgage payment. I know this sounds ridiculous but it’s true. When I write this article, most of the time, I focus on the negative aspects of home ownership and what to avoid when buying a house. This week I thought I would focus on the other side of the table. What to do if you are NOT in financial trouble or at risk of losing your house.
In the last couple of weeks I have gotten emails from people who are trying to get into their first house or upgrade their current house. I rarely get questions on what to do to save a house. So I will try to give more attention to upgrading your current home. Now back to what you really want to know. How do I get a house with no mortgage? Before I tell you how to do this please remember that having no mortgage on a house, while it is a help, it is not the answer to all your financial concerns.
You will still have to pay property taxes and electric, gas, etc. And remember I said the house of your dreams. Not your current house so more than likely you will be facing higher gas, electric, and utility bills. Your taxes also could be substantially higher. So if you are okay with these issues then I’ll share my secret with you. Have you ever heard of compounding, or compounding interest. Compounding is basically when you start with a small amount of money and allow it to build up over time, then you take the money that has built up and reinvest it with the original money to get an even higher return.
Over time you can reach huge returns by just continuing to reinvest your profits. Well if I haven’t gotten too technical, this technique of compounding can be used for a house as well. You can buy a house for a below market price stay in the house for about two years, do some minor improvements and sell the house at a profit. This is because house values over time always rise, and by buying a house under market value the value rises even faster.
Take all the profit from that house and put it down on your next house that you buy below market value also. Do the exact same technique, by the fourth or fifth house you will have a larger house, very little if any debt and you won’t have paid taxes on any of the profit from the sale of your other houses. The reason you won’t pay any taxes is because the government allows you to not pay taxes on the sale of your home if it is your principal residence for two years and you take the profit from the sale and put it toward your new home purchase. It’s the government’s way of saying thank you for stimulating the economy (by selling your house and buying another one).
Now I know you are probably thinking that you don’t want to move every 2 years. You don’t HAVE to move every two years, two years is just the minimum that you have to be in the house to qualify for the tax exemption. This is a great technique for younger couples who don’t mind moving (especially to a larger house) every couple of years. Now for the disclaimer. Before you start selling your house please check with your accountant to make sure that you can qualify for this exemption. Also, this technique may seem a little complicated. If you have questions about how to do this shoot me an email and I can explain it a little further.
Till next time, Good luck and God Bless and remember… If you have any questions about saving or selling your home or any topics on real estate that you would like to know more about please email me and I will answer your questions in this column.