James Brausch Versus Leverage

A very popular and very successful Internet Business Owner, Mr. James Brausch has an interesting take on Owning Your Own Home.

In this post he argues semantics and outlines the story of his wife’s run-in with a bank teller who tries to sell her a mortgage. As the story goes, there was a difference of opinion in what the phrase “Owning your own home” means.

Now James and his Wife are fortunate enough to literally own their own home and the acres of land surrounding it. They own their home free and clear of a mortgage, which must be very satisfying for them. However, the vast majority of families do not own their home free and clear of a mortgage, if they are “home owners” at all and not renters. Obviously, this is where the miscommunication between his wife and the bank teller occurs.

Now, James makes quite a good living off of software products (and other products/services) that he creates himself. Some of his products are very mathematical in nature and rely heavily on statistics and probabilities. The same reliance on probabilities can also explain the bank teller’s actions.

Just like the vast majority of internet users cannot/will not create their own statistical software programs, the vast majority of people who refer to themselves as “home owners” do not own their home free and clear of a mortgage. Therefore, using James’ own logic on probability, the bank teller is statistically correct in assuming that his wife may be a candidate for a mortgage when she casually says that she “owns her own home”.

This post was not created to argue semantics, but to illustrate that James Brausch and his wife may want that mortgage!

What?

That is correct, you read that right. Since mortgages are backed by real property, the interest rates can be below prime rate. In this case, James and his wife may take out a mortgage (or Home Equity Loan) at a very low interest rate, using their property as collateral and invest that money elsewhere, to earn a higher rate of return.

There are several financial institutions or mortgage brokers that one can call on for quotes. Thrifty Mortgages, for example, has thousands of mortgages to choose from and will help put you in touch with a mortgage broker.

This process is known as leverage.

Since James’ business is very successful, I will assume that his return on investment would be much larger than the ~6.0% he and his wife may pay on a mortgage or HELOC. In turn, he may opt to use this loan to create more products or services. He might decide to hire additional staff or to purchase advertising for his products, further accelerating his wealth.
*Note: Obtaining a mortgage or HELOC puts your personal property at risk if the terms of the loan are breached.

Why Doesn’t James Brausch Have A Mortgage?

There are a few reasons why James and his wife might not have a mortgage.

James and his wife might take great satisfaction in knowing that no matter what happens, they will still own their property and that the bank will not foreclose on them for not making a monthly payment. This is a very powerful emotional feeling and they should take great pride in this accomplishment.
*Please note that property taxes are still owed to the local taxing authority.(Thanks Mark)

James, being as intelligent as he is, may have decided that there is no better investment that he could make with the equity in his property. This may be true in his case because his Internet based business model requires very little overhead and he has already gained success and notoriety for his products and services. James may have deemed that any additional investment required could easily come out his current business revenues, protecting his personal property from risk.

I concede that James Brausch is much more successful than I am and that I envy his business and the fact that he owns his property free and clear. However, I thought I should add my two cents to see if I can help James leverage his assets and accelerate his wealth even more.

UPDATE: Thanks for the link James (I don’t own my home, but I do have a positive net worth!). Words do mean things and this was a compliment to you.
Thank you James for all of your inspiration. Your blog is one of only a few select daily reads for me!

8 comments

  1. I would argue that neither of you are right.

    James and his wife may have a deed that says they own the home and land, but the reality is that the local taxing authority has a permanent lien on the land. They are the TRUE owners of the property and improvements.

    Don’t believe me? Watch what happens if James and his wife decide not to pay their property taxes.

  2. Mark,
    You are absolutely correct. I did neglect to mention that property taxes will forever be due…unless there are some drastic changes to state and federal law.
    Thanks for the catch!
    Tyler

  3. Tyler,

    Believe me, I dont relish being right about that little factoid:(

    I dont know what the solution is, but something just doesnt seem right when an 85 yr old widow loses her home at a sheriff’s auction because of property taxes. Its not an uncommon thing. A family can pay their bills, pay their mortgage in full, pay their taxes and serve their country/community for 50-60 years – and still never escape the property tax man.

    Gotta be a solution out there somewhere. Maybe its the Fair Tax that Boortz promotes, maybe something else.

    Mark

  4. The answer would be to move to the Dominican Republic. While they do have taxes, most don’t pay or are even asked to pay. And there are some good tax bargains is a number of Texas towns. New Mexico has property at $25 a year. So if you can scrape together $1000 before retirement, that might hold you if $25 is beyond your level of ambition.

  5. Jon,
    Thanks for the comment! I never take anything personally, it just isn’t worth it. I was just trying to display an alternative point of view and never siad it was better or worse than his philosophy…just different.

    Mr. Chuck,
    Funny you should mention that. I was just in the Dominican over New Years. The only thing stopping me from purchasing a nice condo with ocean view for under $100K US and moving down there was the suspect health care.

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