163: Home Equity: Why Financially Free Beats Debt Free

Financially-Free Beats Debt-Free. You hear me say it all the time. Home equity is a terrible investment – it is unsafe, illiquid, has zero ROI, makes your foreclosure risk greater, and it can leave your assets exposed to lawsuits. Some have called today’s material shocking – a revelation. What you thought was black is white. What you thought was dark is light. Home equity can never go up in value, but might go down value. You must embrace mortgages. I collect mortgages every bit as much as I collect cash-flowing properties. I practice what I preach and only keep 15% equity in my primary residence, and minimum equity positions in investment properties. You would be better off burying money in your backyard than using it to pay down your mortgage. In the 1920s, a common clause in bank loan agreements stated that your loan could be called due at any time. That created fear which still resonates today. But it’s no longer true; banks won’t call your mortgage loan due anytime. 30-year vs. 15-year vs. interest-only mortgage loans are examined. Homes are not meant to store cash, they’re meant to house families. Holding too much equity in any one property can kill your wealth potential. If you want wealth, you need to consider dispersing your home equity among many income-producing properties across different geographies.

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01:37 Eliminating debt often postpones your financial freedom.
04:05 In the 1920s, a common clause in bank loan agreements stated that your loan could be called due at any time. That’s no longer true.
07:23 Paying off debt prevents you from accumulating assets.
08:48 Liquidity, safety, and rate of return are three reasons for keeping a high mortgage loan balance.
11:35 Why your foreclosure risk is greater if you have a high equity position.
16:33 Natural disasters.
19:56 Getting sued, asset protection.
21:40 The ROI from home equity is always zero.
26:15 Cash-out refinances and 1031 Tax-Deferred Exchanges.
28:12 Be your own banker. Create arbitrage.
29:00 30-year vs. 15-year fixed rate amortizing vs. interest-only loans.
30:42 Another example of home equity providing zero ROI and being unsafe.
33:04 Enjoy collecting mortgages. Equity transfers.
34:37 Those with less financial education want to pay off their properties.
36:55 Outsource lower use tasks.
38:56 Control.
40:04 Mortgage payments vs. housing payments.
42:27 A house is not an asset.
43:58 Act at RidgeLendingGroup.com for loans, GREturnkey.com for properties.