Is defeating the beast of debt the best way to reach retirement wealth?

wealthI’m back! I’m been on a hiatus for the past 4-5 months, nose to the grindstone writing Learning Spring Boot. But I turned in my last rewrite about two weeks ago, and after a bit of decompression, am more stoked than ever to write!

I was spurred to comment about cash and cash flow based on what I heard on the radio. I listened as someone talked about how to get out of debt and move forward with reducing costs. The person calling in was stuck with student loan debt. They had already tackled some other things like credit card and auto loan debt.

As I listened, I kept hearing the same things. Get rid of debt, get rid of debt, and more git rid of debt. On the face of it, it make sense. But I kept thinking, what happens when they get past all this debt? What then?

Consumer debt is a menace. Many people take on too much. They don’t budget well. Translation: we all make more than enough to get by. Because we don’t manage our money well, we end up spending too much on things we don’t need. Get it under control, and you can go far. But at that stage, people start stuffing their spare change into 401K plans and IRAs. They don’t realize how much they are shooting themselves in the foot.

401k funds have shown a 20-year history of performing at or below 4% annualized growth. How bad is that? Inflation is slated to be around 3%. This means that if you get the average (and don’t tell yourself you’ll beat the average), you are barely ahead of inflation. How good is that?

When you consult a financial advisor, they will talk to you about how this fund and that fund are performing. That may be true, but there are some innate biases built in that aren’t obvious. First of all, the funds that exist today aren’t the same funds that existed ten years ago. When funds perform poorly and people dump their holdings, brokerages houses end up closing things out. Those that are left, get transferred into another. And the next year, if you were to ask for the brokerage house’s average performance, the closed out fund isn’t part of that picture.

Another factor not mentioned is that funds don’t invest; people do! People buy funds. People buy stocks. People buy real estate. Hence, the question you should ask an investment advisor is how has his clients performed? What is his client’s average annualized growth rate? What is the average/minimum/maximum life he has held clients? A good investment advisor that is making his people wealthy should have long standing clients. Their annualized growth rates should be high. Measuring the performance via a prospectus is the wrong focus and won’t reflect how clients are doing. In other words, it won’t show how YOU will do.

So if you realize that 401K funds aren’t the answer, the next question is: what DOES work? What are you willing to do to get there? I invest in real estate, stocks, and EIULs. And being cash flow positive with no consumer debt, I am willing to take on debt. The caller on this radio show sounded unready for anything like that. I fear they will clear out all this debt and then be unready to entertain borrowing money to invest in real estate. Instead, they are going to go with the host’s plan of buying up mutual funds. Things will really sizzle, because they won’t be hampered by car payments, student loan payments, and credit card payments. And they will make it to retirement, perhaps saving up $1MM.

And that is when they will discover that it’s not enough. Their financial advisor will tell him or her that they can start withdrawing NO MORE THAN 4%, i.e. $40,000. Then Uncle Sam will ask that they submit $4000 in taxes. (I’m being gracious and assuming that landing in a lower tax bracket results in an effective tax rate of 10%). At the end of the day, this person that tackled small bits of debt thirty years earlier, is now raking in $36,000/year. That maps to $3000/month.

Can you comprehend living on that tiny amount of money? Do you see cruise trips or spending a month in France on that kind of cash? Was slaughtering the beast of debt and not considering future loans to buy cash flowing real estate worth it? Not for me. I plan to reach retirement with MUCH more than $1MM, because it takes much more than that.

Stay tuned for more discussions about building retirement wealth.

Would you refi your house to invest? I would…AM!

house_cashListening to a popular radio show this afternoon, I heard caller ask about refinancing from a twenty year mortgage into a thirty year one. The host asked, “would you borrow against a paid off home to infest?”

I would.

The host went on to point out how you need to pay off your home as fast as possible.

Sorry, but mortgages are one of the best wealth producing vehicles out there. As Dr. Dave says, “we should wake up each day and figure out how to get more mortgages.”

If you’re new to this blog then these words must sound crazy. They probably go against every piece of financial advice you’ve ever heard.

But mortgages are the cheapest form of money you can buy. The trick is to use the money to buy cash flowing assets from which you can pay off the mortgage and then keep the cash flowing asset.

The concept of investing cash from your home and is known as equity harvesting. I used a Heloc on my house to invest in VNR. The results have been great.

Mutual funds are just fine…if you’re rich

rodin_thinkeI listened to a famous financial radio host talking on another radio show this morning. The question was asked, “do you still believe in the 401k?”

His answer? “I invest in some mutual funds in a 401k along with rental property I pay cash for.”

I listened to this and could immediately see the fallacies in such a statement. Let’s dig in and examine them.

First of all, the key to building a retirement portfolio is putting money there. Duh! The reason many of us read a report or a prospectus is because we don’t have gobs of money to fund a portfolio. Instead we have much less so we must lean on the power of ROI and compound interest.

What do I mean? Imagine you made $1,000,000 each and every year. What if you could live off just half of that? I promise you: saving $500,000 every year for twenty years will set you up real nice.

With no growth at all, that adds up to $10 million. And if you bought something that yielded a paltry 1%, you would be raking in $100,000 forever without dipping into the principle.

Instead of plowing half a million into some 1% CD, what if you peeled away half of that and bought a new rental every year all cash? I think accumulating twenty rentals would be very nice.

$5 million in rental equity could easily yield $20,000/month in rent. Apply Murphy’s rule and assume you only get half due to repairs, maintenance costs, vacancies, etc. $10,000 is still pretty good.

Combine that with an adjusted $4000/month in CD interest, and you will do just fine.

As a side effect, people would probably stand up and take notice. The synergistic effect would let you write books that would sell like hot cakes because everyone would want to know how you did it.

So how did you do it? The secret is the original business you built that generated all that capital in the first place!

If none of us become entrepreneurs, we have to think up other ways to scrape up some capital. If your rich, you can afford to pay all cash. Not rich? Then your stunting your returns by going too debt-is-evil. There are good ways to take in debt and mitigate the risk.

Make no mistake. We can still accumulate $5-10 million in rental property. We just have to be ready to take on strategic debt, hire the right experts and do things smarter. We have to keep our eye on the ball.

We can become very successful. Sadly no one will want to read a book about how we did it. Oh well. You win some you lose some

But it irritates me when certain rich people go out of their way to tell us that mutual funds are great for everybody. They’re not. They suck. It just doesn’t matter how badly they suck when your pile of gold is really big.

To generalize that this approach to building retirement wealth works for eveyone is ridiculous. History doesn’t support it. And this is where I must part ways with this radio host when he begins to talk about investing.

When dealing with banks, assume NOTHING

house_cashMy four rental property mortgages came up way short in escrows this year. It meant they were going to increase my monthly payments by a huge amount. I discussed it with my real estate broker and my mortgage broker. It was agreed that it would be better to plunk down the cash to pay off the shortages. But that isn’t the point of this article.

You see, a month ago I sent checks in to pay off the shortfall. This was needed before I could request they stop collecting escrows. As this month’s payments went through, I noticed a shortfall still being reported on the website. I called them up, and sure enough, they had NOT applied the checks towards the escrow shortfall. Despite the checks being labeled as explicitly to be paid towards the shortfall.

Instead, the bank put the money towards this month’s payments. The extra cash in a couple of the checks was applied towards principle. When discussing this over the phone, I asked if they could reapply the checks. “No.” Essentially, what was done, was done.

I had dropped a chunk of cash and my issue wasn’t resolved. I hammered things out to get the balances paid off. It was quite a bit of cash to straighten things out.

Not only does this reaffirm the need to carry big cash reserves, it also highlights that anytime you need do anything different than make a standard monthly payment, don’t assume the bank will do it right. Call them up and make sure they are doing what you want with your money.

Financial math often isn’t straightforward

wealthWhen you decide to pick up the gauntlet of investing for retirement and step away from passively throwing money into your company’s 401K plan, you may enter a perplexing world. Don’t be afraid!

For starters, you might start visiting lots and LOTS of websites looking for opinions. Be aware: many people can and will state opinions wrapped in feel-good language like “think about…it makes sense”. It doesn’t make it right. That’s why you need to learn how to drive a spreadsheet and crunch numbers on a calculator.

The only way to really deduce if they are right is to do the math yourself. This might involve either using a calculator or a spreadsheet. Another tool to have at your beck and call is a mortgage calculator.

Let me pick one example. I have a primary residence, a vacation residence, and four rental properties. They all have mortgages. So what do you do if you stumble across a surplus of cash? Try googling “pay off mortgage early” and you’ll find loads of opinions. People often suggest paying off your primary residence first. Many will state it is way more important than paying off rental mortgages. They’ll probably mention a dozen different reasons.

But simply put, your permanent residence doesn’t yield cash. The only way to get that money back is to SELL your permanent residence. You ready for that? In my situation, no. I’m not moving anytime soon. Sinking any extra of today’s dollars would be flat out stupid.

The plan is to knock out the rental loans as fast as possible to make it an option to liquidate a unit when the time if right. That combined with the accelerated depreciation I’ve set up will generate the biggest bang for the buck.

A finer point in this example is exactly how various pay off scenarios impact the bottom line. Currently, I’m piping extra rent towards the smallest rental mortgage every month. I’m interested in throwing a one time payment against it next month. What impact would it have?

Learn how to drive a spreadsheet and a mortgage calculator

Like the title says, some things just aren’t intuitive. I found a mortgage calculator that includes the ability to add extra on a monthly, annual, and one time basis. The extra monthly amount I’ve been paying is bringing the pay off date from 2042 in to 2020. Nice! What does my tentative single payment next month do? It pulls the payoff date in six months. What?!?! I thought it would have a bigger impact. It doesn’t. The question arises: is this the best usage of such money?

This discovery also raises the question about what if I could make an annual contribution to the rental mortgage? I began to go down my laundry list of extra sources of cash. The two I can think of is using one of my 6-month bonus checks or one of my 6-month ESPP options. The bonus check is currently used to fund my vacation property. But what if I routed one of my two ESPP checks into that rental property? I hastily punched it into the mortgage calculator in lieu of the one time contribution. I see the payoff date move up to 2017, just three years away. That’s more like it!

I’m planning to have a review of everything with Jeff Brown. I’m going to tell him that I can pipe extra cash annually, or even twice a year courtesy of my ESPP. Who knows? Maybe I need one of them to pay for insurance and taxes. One question I have for him is whether or not it really makes sense to put that single lump sum payment on the loan, or perhaps use it to beef up my cash reserves.

To top things off, I used the same calculator to find out where my second smallest rental mortgage would be in 2017, and calculated when it would pay off assuming I apply all the rent from the first unit. Answer: 2020! So, with extra rent added on a monthly basis minus one mortgage payment and throwing in a chunk of ESPP once-a-year, I can pay off the first loan in five years, and the second one three years after that. Estimating the 3rd and 4th units is probably absurd at this point, because there is too much variance that can happen in the next eight years. But I can only imagine that pointing the rent from four units with only two mortgage payments will be grand.

Circling back to the original topic at hand: you need to understand some fundamental concepts and when to use the right calculators. Plug numbers into a spreadsheet on an annual basis, and see how the balance of your loan drops based on paying the minimum vs. an increased monthly/annual/one-time amount. Also consider how you would get your hands on that cash down the road, and think about what you would do with the money at that stage. Buy more rentals? Stocks? Fund another EIUL?

Kicking around some ideas? Send me a message and I’ll be happy to discuss things with you.

Looking at a friend’s decision to sell off a rental

A close friend of mine recently completed a big shift in finances.

They had lived for years in a small home and managed to pay it off. Then they moved to a slightly bigger home and turn their first into a rental. Apparently they were able to use the rent from the first home to pay the mortgage on the second.

The big change is that last month they sold their old home at a profit from what they had originally bought it for. They took all their equity and paid off their current home’a mortgage.

He went on to tell me that somehow even with the rent he had a hard time making ends meet. He has never made close to what I make so I can’t sleight him for doing what was best for family.

He also said the stress was bad. They always feared getting a bad tenant that would trash the place. We have visited them countless tunes before they moves and I can testify it wasn’t a Class A place.

The final nail in the coffin was the amount of emotional attachment he had to the place.

This may not be what I would have done, but I don’t have his financial position, his stresses, or his situation. No way I can criticize something like that. He got good usage out of the equity of his old home and managed to work his way to a better situation. I can only wish him the best.

Investing in the anti-mortgage

I previously talked about the differences between 15 year and 30 year mortgages, factoring in inflation. What I didn’t have time to evaluate was investing options.

People that take on a 15 year mortgage like to boast how they can nuke their giant mortgage in 15 short years and then invest full steam from there on. That is true!

But this picture isn’t complete unless we look at the investment options of someone with a 30 year mortgage. In that other article, we were borrowing $200,000. The difference in payments was a little over $500.

The person with the 30 year mortgage would have a difference of $6294.54 to invest. If that investment grew at 5%, after 30 years, they would be holding a tidy sum of $418,202.19. It’s not guaranteed (hence the reason we call it risk capital), but buying shares of VNR, GD, BP, KO, WMT, or any of the other blue chip stocks would probably have a fair shake at earning at least 5% based on their history of growing dividends. This is known in certain circles as an anti-mortgage. You put the money you could have used to accelerate payoff of your mortgage into something that actually has a higher yield. (P.S. I’m not talking about mutual funds here!)

For the person with the 15 year mortgage, we are going to assume they can’t set aside anymore because they are focused on paying down the note. So for the first 15 years, their investment portfolio stays at $0. Now at year 16, they are able to start investing much quicker. Their annual mortgage payment was $17,752.51, almost three times what the 30 year note holder was investing. Assuming the same growth of 5%, in 15 years they would have accumulated $383,073.67.

They are clearly in second place, but not by much. Being behind by only about $35,000, they could catch up with just another four years. What’s the problem with that? The assumptions made here are the issue. I only assumed a 5% growth rate. I have seen historical averages of EIULs yielding closer to 8%, but I wanted to make this exercise conservative.

This also assumes that you will be ready to invest when year 16 rolls around. The problem is the fact that life inherently intervenes. People have kids, go back to school, run into emergencies, etc. Trying to guess what money you’ll be saving 15 years from now is risky. I would rather be saving now and letting the power of compound interest and growing dividends help me sooner rather than later.

Plans to invest often have to be readjusted. I started off by putting away 15% of my paycheck for years into a 401K plan. At one time, I was putting away 18% and hitting the IRS limit. But now there’s no way I can put aside that much. I have too many other obligations, i.e. mouths to feed.

I have since come to learn that I was in the minority when it came to saving money in the early days. It has opened a door such that my wealth building opportunities are better than ever. Because I built up a chunk of cash early on and have been able to repurpose that money into more effective opportunities, things are going great. And thankfully I’m not in the middle of paying off a 15 year mortgage. At one time, I was dead set to take any spare cash and use it to pay off the mortgage. Thankfully, I didn’t get any!

Before you make your decision on what type of loan to get, make sure you understand ALL the financial impacts. Fiddle with a spreadsheet such that you understand where all your money is going.

15 year vs. 30 year mortgages

A topic you can always find vibrant discussion on is whether you should finance your home with a 15 year or 30 year mortgage. Among the many articles I’ve read on this subject, there seem to be two major opinions: 30 year mortgages offer more flexibility with a lower payment and 15 year mortgages help you eliminate debt more quickly.

Analysis based on inflation

Something that seems rare (only found it in one article) is the discussion of inflation. So I did what any truly independent, active investor should do: I crafted a spreadsheet to analyze both of them including the effects of inflation. The results are surprising.

First off, let’s assume you are borrowing $200,000 at 4%. For a 30 year mortgage, your monthly payment (without taxes and insurance) would be about $954. If you add up all the payments and subtract the original balance, you’ll find that total interest paid on a 30 year note comes to $143,739.01. That is 75% of the purchase price!

Compare that to a 15 year mortgage. Your monthly payment (assuming they are at the same rate) would be higher at $1479.37, which is more than $500 higher. Adding up 15 years of payments and subtracting the loan balance results in total interest of $66,287.65. That is less than half of the 30 year note’s total interest charges. You would be saving about $80,000. Sounds big, right?

Not so fast payoff breath. We haven’t factored in what you can buy with a $20 bill 30 years from now. If we pick a steady annual inflation rate of 3%, then each year, the amount of debt you pay becomes less and less in effective dollars.

The first year of payments on a 30 year note would total $11,457, but in the second year, that amount of money would only be worth $11,124 in today’s dollars. Go on out to year 30, and that amount of money would only buy what $4862 will buy today. Your dollar’s value would decline by almost 60%. If we reduce each year’s payment by 4%, total all those payments, then subtract the original balance, the amount of EFFECTIVE interest you will have paid is only $31,318.65. Inflation will have effectively knocked out $90,000 of that interest.

Let’s compare that to how inflation impacts a 15 year mortgage. The first year of payments will add up to $17,752, but the 15th year will effectively become $11,736. Add up those inflation adjusted payments, subtract the original balance, and you have an EFFECTIVE total interest of $18,286.16. In this situation, inflation has knocked out $48,000 of interest payments.

Bottom line: a 30 year note will reduce your interest payments to $31,000, effectively sidestepping $90,000 in interest. A 15 year note will reduce your interest payments to $18,000, skipping $48,000. The difference between these two is now only $13,000. Are you ready to put down an extra $500 each and every month only to save $13,000 in the long run?

Assumptions

Let me put all my cards on the table. This analysis has a LOT of assumptions.

It assumes inflation is 3% each and every year and is consistent. It assumes you can secure a 4% mortgage and that 15 and 30 year notes have the same rate. I’ve heard that rates have already risen even more than that. The bigger the gap between your loan’s rate and inflation, the more total interest you will save with the 15 year note. You can probably guess that if 15 year notes are a little cheaper than 30 year notes, you can save even more interest.

But if inflation rises in the future, things can quickly shift in favor of the 30 year note. If you had 5% inflation with a 4% note, then the 30 year note would save you almost $10,000 in total EFFECTIVE interest. 6% inflation moves 30 year savings to over $15,000. I’ll let you imagine what happens if we have any form of runaway inflation in the next 30 years.

This analysis assumes you stay in the same home over the life of the loan. Banks have studied how long loans last, and the average appears to be 2-7 years. That’s why they add extra fees if you want to reduce the interest on your loan. They know you probably won’t stay long enough to realize the savings and are locking in their profit.

Risk vs. Reward

Why do banks want to encourage you to take a 15 year note? After all, they tend to offer slightly lower rates for 15 year mortgages. In fact, I can remember seeing a giant banner at my old bank that bragged “save over $100,000”.

Banks aren’t stupid; they do things that serve their best interests. What is the advantage to them? Basically, they get their capital back sooner rather than later. The faster you pay off the balance, the faster they gather their profit and get recapitalized. And since this article is focused on inflation, they prefer getting their money in today’s dollars rather than tomorrow’s devalued dollars.

Always remember that fixed debt favors the borrower in times of inflation, because future payments are always worth less. In fact, in one article, someone commented how his father once had to work two jobs to afford a $3000 mortgage he had taken out decades ago. But towards the end of the loan, his monthly payment was in the range of $98 and he liked to brag about it!

The faster you pay off the balance, the more liquid the bank is and the less liquid you are. You are pouring lots of equity into the walls of your house, which you can’t eat or generate cash flow. But the bank CAN generate cash flow by using your payoffs to lend other people money.

Math vs. Psychology

There is another dimension to this analysis. You can crunch numbers all day, but many people flat out don’t want debt. They detest 30 year mortgages, and thanks to the huge upswing from the anti-debt crusaders, they feel strengthened to take out a 15 year mortgage. They are happy to be ten years in, with only five years left to go, and celebrate the fact. They want to enter retirement with no debt. In fact, they are happy to point out how they “must have done something wrong” in a jesting style when they approach the time frame and having paid off their mortgage.

I would like to enter retirement with no debt either, but I would prefer to carry debt if it meant I had more cash flowing wealth. After all, true financial freedom isn’t being debt free. It’s when you have enough solid cash flowing assets such that you can pay off all your debts if you had to, but you simply choose not to. Being house rich and cash poor is not a good way to live your retirement. People that enter retirement with little income tend to end up working at Walmart or taking out expensive reverse mortgages.

I think I’ll stick with my 30 year 3.625% mortgage and let it ride.

To pay off debts or not?

I recently received an email through my contact page asking me for my opinion on taking things to the next level. One of the key questions was whether or not to pay off a super low interest auto loan or pipe that money into accumulating more rental properties.

I essentially expressed said we might be splitting hairs. A basic concept of wealth building is arbitrage and involves borrowing money at one rate and investing in something that yields at a higher rate. If you borrowed money for a car at 1% and could invest it at 5%, you would pocket the 4% profit while the passive income could be used to pay off the auto loan.

Or think of it like this: if you can afford to pay off the auto loan with your existing salary, then routing extra cash you would have used to target that auto loan into rental property can possibly yield more cash.

BUT…sometimes it feels good to eliminate consumer debts. I admit that I sold a small piece of company stock earlier this year in order to pay off a new sofa set my wife and I bought for our anniversary. I didn’t like that debt hanging over my head. I admit that it was a purely emotional decision.

Borrowing money to buy rentals and using the rental income to pay off the loans is a pretty simple basis for building wealth. But its another story to take extra capital and deliberately NOT pay off your residential mortgage at an accelerated rate. The idea there is that mortgages are one of the cheapest forms of money you can get. Leveraging home equity to invest in other opportunities, when managed suitably, can help grow your net worth.

At one time, before I bought rental property and invested in stocks, I loathed all debt and had plans to nuke our mortgage as fast as possible. But that was before I read Dr. Dave’s e-book where he made a profound point:

Mortgages have created more wealth for the middle class than any other financial instrument, more than stocks, mutual funds, bonds, savings accounts, 401K plans, and IRA’s. It is a fact. Yet, most people think of mortgages as a necessary evil at best or more commonly a “rip-off.” In reality, you should wake up every morning trying to figure out how to have more mortgages, or at least a bigger mortgage. –Dr. Dave’s e-book

This point shattered one of my core opinions on debt and building wealth. The evidence presented in his e-book was incontrovertible. After realizing the truth in this, it took me another six months to actually consider applying these concepts in reality. So, through this lens, an super low rate auto loan could be considered another source of capital. Paying it off early could eat up potential investment capital.

It’s basically a comfort question. I draw the line at furniture, auto loans, and home appliances, things I have dealt with paying for over the past three years. I prefer to get them off the books quickly. But like I said, we could be splitting hairs. You don’t have to do it that way.

Whether you can route an extra $500/month into a mortgage, your stock holdings, or simply paying off some debts, I don’t think there is a fundamental right or wrong approach. Just be sure you are paying off the debts on schedule to avoid fees, unnecessary interest, and other risks. Same goes for paying off a HELOC with dividend payments.

Equity harvesting

There’s a phenomenon that I have seen mentioned in more than one place: equity harvesting.

The fundamental concept is the get your hands on the equity in your home and put it to good use. Certain articles seem to restrict the application to buying cash value life insurance. But for me, I prefer to look at everything in terms of capital and cash flows. When you get a one-time burst of money, that is extra capital. When you purchase a dividend paying stock, a renal property, or another device that pays monthly, quarterly, or annual money, that’s a cash flow.

Basically, fetching the equity from your home (which is paying you nothing in monthly cash flows) and using it buy a cash flowing stock can definitely grow your net worth. There is risk involved. This usually involves some type of mortgage such as a HELOC or a home equity loan (haven’t seen any other way to access home equity). Then the money is invested elsewhere and you must now pay off the debt you incurred.

The risk is whether or not you can pay off the debt. The risk is whether your investment will make money. If you bought stocks for dividends, there is risk in whether or not your stocks will stop paying dividends. I put the balance of my HELOC into Vanguard Natural Resources. Essentially, my stock pays me 9% in dividends and I turn around and use it to pay off my 4% HELOC. I pocket the 5% difference, and over the long term, when the debt is paid off, I will then pocket the entire 9%.

What are some other risks? If prime interest rises, then my carrying costs for the debt will go up. Right now it’s pegged at PRIME-0.25% with a minimum of 4%. Prime would have to go up to 4.5% before I would see a change. NOTE: This has nothing to do with the secondary mortgage market. Lending rates have gone up, but PRIME has not.

What have I done to mitigate the risk? Surprisingly, I bought even more Vanguard stock. I am actually earning dividends above and beyond what the balance of the HELOC would earn, which means I am paying off the debt faster. If PRIME rises enough that I can no longer pay off the debt (which would have to be pretty big), I can always sell part of the position and simply pay off the remaining debt.

The other risk is the chance that Vanguard Natural Resources stops paying a dividend or cuts it. To impact my strategy, they would have to make a significant cut. If that happens, I can still sell the stock and pay off the debt. Of course, such a move would probably have catastrophic impact to the stock price, but since I own a considerably bigger position than the debt, I could still make it out alright. But I don’t really expect this. Vanguard has done a great job at actually growing their holdings, acquiring new oil and natural gas reserves, and increasing their dividend payouts since its inception. You can say “past performance is no guarantee of future returns”, but past performance of this company shows that management is doing a good job.

When I read articles about equity harvesting, they aren’t lukewarm. Many tend to drip with derision, accusing insurance agents of ripping people off. I’m not doing anything like that. I wasn’t sold this idea by some shady agent. Instead, I learned about the value of arbitrage, dividend investing, and viewing everything through a lens of capital and cash flows. It allowed me to break out of the conventional investing molds many people find themselves in, and to apply this tactic to grow a new cash flow that will certainly be useful in the years to come.

And guess what I plan to do when my HELOC expires in ten years? I will most certainly investigate the rates and options, and look into doing it again!