GROUPHOMES…..
In yesterdays Wall Street Journal Article that I referenced (retire at 40 years Old) I touched a bit on the wealth effect…now lets learn how to do this with group homes.
I received probably 10 group home subscriber emails afterwords asking about the wealth effect – so I figured that rather than responding to those 10 or so people, I would write to everyone – about 25,000 of you.
So here it is…the Wealth Effect (Andy’s explanation and how it impacts your group homes)
The “wealth effect” refers to the idea that people like you and I will spend more $ when our stocks or real estate go up in value because higher asset prices make us FEEL (note the word FEEL) wealthy. It is basically an emotional high….
And as much discipline as you or I may have….9 out of 10 of us still fall into the trap (including yours truly- But I try to be mindful)
Let me explain…..
Statistically it has been proven and un-proven. (remember the book, how to lie with statistics?)….
But Guys like Robert Shiller (Case Shiller) and Mark Zandi (Chief Economist at Moody’s) will tell you via Statistics, that for every $1 increase in housing value, there is an $0.08 increase in spending…..
Now, I am not sure if they are considering property taxes or not (because you never get to see that money anyway) – but figure that if your housing goes up in value by $100,000 you spend just 4% rather than 8%….which I find reasonable. In essence, you if you have an extra $100,000 in value in your home – they say you will go take a trip to Mexico for $4,000 – $8,000.
THE PROBLEM WITH THE WEALTH EFFECT AND THE TRUE BENEFICIARIES
I have a friend that lives in a very nice part of town. His house is probably worth $1,300,000. Fortunately, it is paid off and he has no underlying debt on it. But when we chat, he often times tells me that his house is going up by 10% per year. This is the wealth effect.
Unfortunately, for every 10% increase in “value” it actually COSTS HIM an additional $2,300 due to the property taxes! Get it! So when we talk about the real beneficiaries, one of them is YOUR LOCAL COUNTY PROPERTY ASSESSOR!
Additionally, in his mind, he just made an easy $130,000 doing nothing….Might he now feel wealthy enough to go spend $25 on a nice tri-tip steak and a $50 bottle of Malbec 2X per week as a result?
That is an extra $150/week or $600 per month – OUT OF POCKET.
The point is that high asset prices often times induce a type of euphoria.
This is the Wealth Effect.
It allows the government and others (the true beneficiaries) to essentially TAKE MORE MONEY FROM YOUR WALLET EACH AND EVERY MONTH even though your cash-flow has not increased.
GROUP HOMES – WHY I FOCUS ON CASH-FLOW PRODUCING ASSETS
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Get Started Now
The problem with interest rates, is that they are outside of your control. Chances are, you are not on the Federal Open Market Committee. But what you CAN CONTROL is your business and your knowledge. You see, Group Homes produce CASH-FLOW each and every month.
A Small 4 bedroom home with 8 beds that you rent for $600 each (cheap) produces a GROSS INCOME of nearly $5,000 each month. If your expenses are roughly $2,000 – you have $4,000 PER MONTH to spend how you wish.
This is the power of BUSINESS. THIS IS THE POWER OF GROUP HOMES LIKE I TEACH IN MY FREE 10-PART COURSE
Interest rates are rising…….what usually happens when interest rates rise?
I want you to be in charge of your financial life and live your dreams. In my opinion, one of the easiest and sure-fire ways to do that is through CASH-PRODUCING GROUP HOMES. I teach all of this in my FREE 10-PART COURSE
Don’t let interest rates matter. Don’t let the Wealth Effect Take your money. Learn how to produce monthly cashflow and help others with my
