My news release about my new book:
Why is the most advantaged investment on earth a secret? Because average Realtor®s do not know enough about investment and no one else makes money off selling it.
That investment is the American principal residence. It has about two dozen advantages that almost no other asset class has. The second chapter of the John T. Reed’s new book An American Principal Residence is the Most Favored Investment on Earth: Maximize Yours covers those investment advantages.
Reed is a West Point graduate, Harvard MBA, former Realtor® associate, graduate of many Realtor® training sessions, a 52-year real estate investor who started studying the field 54 years ago in college including 44 years owning his principal residence. He has written 40 how-to books, 21 of which are on real estate investment. This is his first solely about principal residences.
Reed’s web page about this new book starts with,
‘Don’t make the mistake I made of assuming real real state investors must buy larger rental properties like apartment buildings and office buildings. After 54 years in the business, I figured out that, “There’s no place like home” for your real estate investment money.’
Reed also notes,
“From 1900 until 1925, Russell Conwell made his ‘Acres of Diamonds in your Backyard’ speech about 5,000 times. He founded Temple University in Philadelphia with the money it attracted. One observer said the speech ‘...is all about developing an awareness of the opportunities that lie all around us — if only we would develop eyes to see them.’ I heard about that speech in my youth, but its truth about your literal back yard still eluded me for 50 years.”
After Reed made this the theme of one of his FreedomFest speeches, he decided to write a book about it.
Other famous quotes comes to mind: “You can go east or west, but home is best.” Reed invested in NJ, MA, FL, TX, CA, but finally realized that he never should have left his backyard, literally.
“A man’s home is his castle” is another quote that should have awakened Reed sooner. In AR, DC, FL, IA, KS, OK, PR, SD, and TX there is no dollar limit on the amount of your home equity you can keep if you go bankrupt. That is a legitimate tool of risk management not available to any other type of investment.
No one wants to go bankrupt, but if you do, better it happen when you have substantial principal residence and in one of the states with an unlimited dollar homestead exemption. Reed’s books often discuss the risks; most others on the real estate investment would never breathe a word about risk.
In the other states, the homestead exemption on bankruptcy ranges from zero in PA and Reed’s original backyard NJ to $550,000 in NV. The federal homestead bankruptcy exemption is a substantial $125,000.
There are other protections like the anti-deficiency judgment statutes in AZ and CA. Those limit mortgage lenders to seeking repayment solely from the foreclosure of the house. Still other states have one-action laws that say the lender can go after the house or your other assets and income, but not both.
Non-recourse mortgages like RAMS or HECMs only allow the lender to get paid from the sale of the house, not your other assets or income.
On and on goes the list of advantages. No margin calls. 0% to 5% or 10% down payments. Try getting one of those to buy stocks.
You can live in a principal residence. But you cannot live in gold or stocks or September wheat futures contracts.
True, the average adult American knows homes have been a pretty good investment, but they think a couple of extra single-family homes is the same as buying a more expensive principal residence.
Not so. Rental houses make you a landlord and do not get many of the benefits of principal residences (defined as the house you live in). Rental houses with mortgages typically have negative cash flow. In a recession, that can destroy your financial future.
One of the problems Reed’s new book addresses is not only do many renters need to switch to being homeowners, but homeowners need to take fuller advantage of the principal-residence benefits by moving up to a more expensive one whenever they can.
Reed himself jokes, “If I had followed my own advice that is in this book in my own life, instead of living in this $3 million ‘dump’ in a top-rated school district in an East Bay suburb of San Francisco, I would be living in a $10 million house next to the billionaires in Silicon Valley ground zero and my kids probably would have graduated from Palo Alto High School.”
To those who disdain such a house, Reed says, “Sour grapes. Don’t knock until you’ve tried it, and few who have, do knock it.”
The book also covers other techniques related to maximizing the benefits you get from your principal residence, like ways to minimize scandalously high transaction costs and using active profit strategies, not just hoping the value of your home rises.
An issue which did not exist early in Reed’s career but does now is huge regional disparities in entry-level home prices. It used to be all regions had similar median prices. No more. Now the highest regional prices are multiple times the lowest. So you may have to move to a cheaper area to start.
Reed has a unique approach to home energy saving: buy where there are few degree days, like in Moraga, CA where Reed once had a home. (You only need air-conditioning about five days a year there.)
Should you buy in a low property tax state? It kind of all comes out in the wash since what you can afford is determined by your income, interest rate, property taxes, and insurance. If you raise one of those you need to lower another.
Also, Reed points out the unexpected, barely known fact that for long-term owners, California is arguably the lowest property tax state as a consequence of the 1978 Prop 13 referendum.
Want a pool? Don’t call a pool guy, Reed says. Pools are notorious for not adding as much value to the property as they cost to create new. Same is true of virtually all capital improvements like solar panels, emergency standby-generator, tennis court, adding a bathroom. It is always much cheaper to obtain such amenities by buying a house where some other guy paid full sticker price to have such an amenity installed new.