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Errata and supplemental material for the book An American Principal Residence is the Most Advantaged Investment On Earth: Maximize Yours!

Posted by John Reed on

CA homestead exemption increased

On page 24 of my book  An American Principal Residence is the Most Advantaged Investment On Earth: Maximize Yours! I said that the homestead exemption for CA bankruptcies was $175,000 for seniors.

It used to be. Now it is $600,000 for everyone. That is the highest state dollar amount in the nation. But seven states have potentially higher limits because they have acreage limits rather than dollar limits. DC has no limit at all. 

The advantage of no prepayment penalties on principal residence mortgages

Bonds other than US Treasurys have a clause named a call premium. That is what in the fixed-rate mortgage business is called a prepayment penalty. Principal residence mortgages in the U.S., as far as I know, no longer have prepayment penalties. 

This creates a heads the borrower wins; tails the lender loses situation that exists nowhere else other than US Treasurys. If mortgage interest rates go up after you get your mortgage, you just sit tight. The lender loses because if they sell the mortgage after market rates go up, they have to sell it at a discount. 

But if mortgage interest rates go down, or your credit score goes up, borrowers with a brain will refinance to get the new lower rate. That screws the lender because it means they now must reloan the money at lower rates. The lack of a prepayment penalty makes the mortgage interest rate a one-way street in favor of the borrower.  This is a big good deal available only to borrowing to get a principal residences mortgage.

Home equity does not count for “accredited investor” status

Investopedia says,

An accredited investor is an individual or a business entity that is allowed to trade securities that are not be registered with financial authorities. They are entitled to this access by satisfying at least one requirement regarding their


• income

• net worth

• asset size

• governance status

• professional experience.

In the U.S., the term accredited investor is used by the Securities and Exchange Commission (SEC) under Regulation D to refer to investors who are financially sophisticated and have a reduced need for the protection provided by regulatory disclosure filings. 

VerifyInvestor.com says,

Even though the primary residence presents a significant boost to net worth for many, Rule 501 excludes its value for net worth calculations, posing additional challenges for some individuals.

I do not recommend that you qualify as an “accredited investor.” I have never tried. We would have qualified years ago, but being able to invest in riskier assets like unregistered securities never sounded like a good idea to me.

You can still qualify for “accredited investor” even though you follow the advice in my An American Principal Residence is the Most Advantaged Investment on Earth: Maximize Yours! book by income, net worth if you have more than $1,000,000 outside of home equity, or your professional experience. 

Rich Dad Poor Dad author Robert Kiyosaki says being an “accredited investor” is one of “the secrets of the rich.” He’s an idiot and a BS artist.
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https://johntreed.com/blogs/john-t-reed-s-real-estate-investment-blog/61651011-john-t-reeds-analysis-of-robert-t-kiyosakis-book-rich-dad-poor-dad-part-1?_pos=8&_sid=04aff1df7&_ss=r

“Accredited investor” sounds to me like something insecure people like to drop at back-yard barbecues and cocktail parties to impress others. Consulting a psychiatrist is a better way to deal with that problem than buying rental property so you can say that you are an “accredited investor.”

I see the fact that Rule 501 does not count home equity as a virtue. Simpler is better than complex. Rule 501 says if you follow my new book’s advice, you got rich by too simple an approach. Good for you being that smart.

 


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