Real Estate As a Tool - Article 6.

Real Estate and Personal Financial Planning

In the last several installments of this column, you have been peppered by a steady bombardment of what one hopes (well, I hope anyway) are reasons sufficiently compelling and powerfully enough expressed to prod you to capitalize upon the relative availability of real estate and affordable real estate financing. All of this is conveyed to you in the interest of sound long-term financial planning, leading to financial independence for you and your family.

I beat this drum so mercilessly mostly because I believe it vital for we middle class Americans to have a solid real estate foundation in place so we are that much more likely to enjoy a comfortable retirement as well as a satisfactory work life, one highlighted by coming home each day to the house we want to come home to.

Besides being the "investment" we can physically enjoy the most, our home is also the best hedge against inflation available to us. When interest rates rise, we have a fixed mortgage (not one of those creepy unpredictable mortgages where we have to open the statement each month to see how much they're charging us). Over time, our home can help us make other investments, help pay for college and - if managed properly, fund our dotage.

I also encourage rational real estate investment in this forum because it is unlikely your personal financial advisor is doing so. He or she, if a stockbroker or insurance salesperson, doesn't even want to acknowledge that you might have a real estate holding (unless selling you insurance to cover it). This is because these advisors charge you based upon assets under management or upon dollar value of trades they exercise for you - and thus they have little or nothing to gain by helping you make decisions about your real estate - decisions such as when and how much to buy, what type of mortgage to get, how and when to refinance, even how to borrow money to fix it up.

This is the help many of us need.

Those pretty and colorful asset allocation spreadsheets often employed by stock salespeople, complete with pie charts and graphs and all sorts of footnotes, do not have data fields for such unimportant items as homes, rental properties, vacant land in the path of development or even the building housing your business. Do you know why? It's because those wonderful spreadsheets are created by large companies FOR large companies - that same format is used by large pension funds to allocate its billions of dollars in holdings and it is used by for multimillionaires and trust-fund babies - those spreadsheets were not necessarily created for YOU, the so-called "small investor", the person for whom fully one-third to one-half of net worth is tied up in your personal residence.

There is reason for hope, though. Once you are aware of the possibilities, you can make your real estate investing make sense. You can use the model repeated below and you can use your common sense. You can also check the work - including website and books - of John T. Reed.

Here's the script:

That last part ought to make your stockbroker happy.