It’s absolutely critical that you know about this massive lie because it is foundational when making sound real estate decisions. In fact, being ignorant of it can cost you, tens, if not hundreds of thousands of dollars! For most people, this will come as quite a shock because they’ve been taught something completely different their whole life. That’s because the powers that be don’t want you to know this truth. They would rather you remain ignorant. So here it is, the biggest lie in real estate.
What is the Biggest Lie in Real Estate?
The biggest lie in real estate is that when you buy a property you own it. Shocked? Well, it’s true. Real estate ownership in the United States is a lie. It doesn’t make a difference if you own it free and clear or if you have a mortgage. The reality is, if you are a homeowner or real estate investor, your state, federal and local governments are your landlords. Don’t believe me? Well, continue reading this post and decide for yourself whether you are an owner or a tenant.
5 Aspects of Real Estate Ownership
For almost any improvements you make to your property, you must apply and get approval from your local government, and then pay the fees for the permits. You must have government approval to do almost anything to your property. Does that sound like you’re an owner or a tenant?
2. Licensed Contractors
It is also mandatory that you use a licensed contractor or repair person when making improvements that require a permit. These tradespeople must have a license that is issued through the government. In many cases, you can’t even do the work yourself. If you have no choice but to hire their set of contractors or repair people, does it sound like you’re an owner or a tenant?
3. Property Taxes
If you don’t pay your property taxes, what happens? The government takes the property back and they evict you. Notice they use the phrase, “Take it back“, as if it was theirs to begin with and then they evict you. Does that sound like you’re an owner or a tenant?
4. Tax Increases
As your property value goes up over time, so does your property tax. If you make any improvements that increase the value of the property, they raise your taxes or shall we say “rent” as well. What does that sound like? An owner or a tenant?
5. Property Maintenance
Local governments require you to maintain your property and if you neglect your property you could get fined. A recent study revealed that many local governments make substantial profits from charging homeowners for not cutting their lawns. Not only do they levy a fine, but they also add interest and penalties to those fines. In a radical case, a former Florida homeowner was hit with an over $100,000 lawsuit from the city of Dunedin, Florida. Here’s how it went down:
About 10 years ago, the owner thought she was foreclosed upon and then moved to Georgia. However, for some reason the foreclosure paperwork wasn’t finalized. She never received the mail and unaware, for ten years she remained the owner. Consequently, the city of Dunedin just kept piling on more and more fines for not maintaining her home or yard. Ten years of penalties and fines amounted to over a hundred thousand dollars and the city hired an attorney, located her in Georgia and slapped her with a massive lawsuit. Clearly, this is no joke. If you are hit with fines for not maintaining your property, does that sound like you’re an owner or a tenant?
Knowledge Leads to Good Decision Making
These five aspects of real estate ownership build the case that we don’t own property, we rent it from the government. In some cases, the government is a harsh landlord. You may find this disheartening, and I am not trying to deflate your enthusiasm. However, understanding this lie is important because it helps form a foundation of good decision making. There are four key decisions in real estate, that when done properly can make all the difference in your success as a homeowner or as a real estate investor.
4 Key Decisions of Real Estate
1. Flipping vs Renting
This key directive is for real estate investors. You need to know when it makes more sense to flip a property as opposed to renting it long term. This is one reason why understanding this big lie of ownership is so important. Rentals need to be profitable or it makes more sense to cash in. Don’t forget, you have a landlord in the government that needs to be satisfied. I have a helpful video on this subject called Flipping vs. Renting where I explain how to make this key decision in depth.
2. Buying vs Renting
This is one major decision that everyone must make. I have an informative video that I did awhile ago called Should You Own or Rent Your Own Home. It dispels the myth that buying is always better than renting. The truth is, there are times when renting is a better deal for people. Buying makes sense too, particularly if you’re going to be in that property for an extended period of time. In the video I recommend about a five-year period, but considering the property value increases in the last ten years, you might need to stay in a property six or seven years for buying to make more financial sense than renting.
3. Mortgage vs Cash
This is a topic that most people truly don’t understand at all. I have teaching explaining why it almost always makes sense to have long-term fixed rate loans in place against real estate. In fact, now more than ever, it makes sense with record low interest rates. The return is much higher than the cost of the debt. For this reason, it’s economically irresponsible to strive to own real estate free and clear, especially since you know that you’re still a tenant. Even if you own it free and clear, the government can still tax you and take the property from you.
4. Keeping vs Selling
As Kenny Rogers so famously sang, “You’ve got to know when to hold them and know when to fold them.” For example, you need to know when to sell your investment property. Or, if you’re moving to a new area, do you sell the home you lived in or do you keep it as an investment property? I am often asked these questions and it’s a simple determination. I explain this concept in my video, The Millionaire Misunderstanding, but for now let me give you a brief explanation.
The main thing to consider is how much cash is being brought in and how much equity you have in a house or investment property. If it’s producing insignificant cashflow, you may either want to refinance or sell that property, then take that equity and put it into a property with greater returns. Remember, the government is your landlord, so that property needs to be high performing. It needs to be producing enough profits to make it worth tying your equity up in it.
I want to encourage you to watch the video The Millionaire Misunderstanding. It’s one of my favorite videos and I share in depth the return on equity and the impact that can make on your decision-making process.
These four key decisions, when made wisely can have a massive impact on your success and hopefully you can see now why understanding the biggest lie in real estate is so important. The most successful real estate professionals follow the government regulations and they still make a fortune. If you want to learn exactly how to do that, I encourage you to read my bestselling book, How to Be a Real Estate Investor.