Home Equity - Good Or Bad Debt?

The Rich Dad, Poor Dad real estate investing book series (written by Robert Kiyosaki) encourages property buyers to figure out whether they should be investing they’re money in a specific piece of property or not. A winning investment, according to Mr. Kiyosaki, is one that will give the investor a good ROI in a reasonable amount of time. A quality investment is one that isn't a whole lot of capital outlay, such as repairs, to offset the money coming in from the rent.

A lot of people think their home is an asset, but it isn't. Since there’s no money to be earned from most homes, most residences are liabilities. It’s for that reason, the mortgage people get to buy a home is what Robert Kiyosaki calls “bad debt”. There’s only expense in this scenario – but no cash flow.

“Bad debt” (and liability) is considered a bad thing, in particularly since the possession of your house is an illusion. The home owner thinks that he owns a house, simply because he is paying for the claim to live in it. On the other hand, if he were to stop paying for that right, the bank would foreclose and he would be left out in the cold.

What he actually owns is equity, and home equity is just a bunch of numbers. Never the less, acquire enough equity and it will become a deed of ownership. Better yet, it will dissolve the “bad debt”.

When you build equity, you decrease undesirable debt. “Bad debt” costs you money. Decreasing bad debt helps you to make more money.

The homeowner can decrease this type of “bad debt” in two ways. The most obvious way, of course, is to increase the amount paid on the principal each year, or even each month, by making more payments. It’s smart to research beforehand, however, that your mortgage does not specify forfeiture for paying early. It’s even wiser for the individual considering a loan, to be sure it doesn't have a stipulation like this prior to signing it in the 1st place.

Another way to increase equity through decreasing bad debt is by turning a thirty-year mortgage into a fifteen-year loan by refinancing it. This means that the homeowner is paying less interest in the long run, but forking out extra each month. If he can swing it, it’s a great way to increase your equity. Making extra payments will take only 1/2 as much time off the total time to pay the mortgage as refinancing will.

Reading the Rich Dad, Poor Dad books teaches the buyer that it is a good idea to learn as much as possible about the transaction of purchasing and paying for real estate, because those who can to benefit from the buyer's ignorance will definitely not reveal information. There are approaches to avoid spending one's entire life paying for a single piece of real estate. Considering at the act of purchasing a home, not as a resident, but as a real estate investor, will demonstrate to you that most buyers spend far more money than they have to, simply because they don't know any better. Education is the home owner’s best defense.

Alex Anderson is a licensed Minneapolis Realtor who helps people to buy Minnesota Real Estate. Visit her website at GreatMinnesotaRealEstate dot com.