Why You Should Never Pay Off Your House

Been busting hump to save up an extra thousand dollars. And here's the big question. What should I do with it? If you're like most people, you've been told that if you have a mortgage, you should get it paid off. You should take this money, ship it into the bank and say, hey, lower my mortgage. Because someday, I would love to have my house paid off. Well, my question for today in our new world, is that really that important of a goal? Should you be striving to pay off your mortgage? Or is it possible that there's something different that you should be doing with your money? Check it out. What if I told you that paying off your house was like a bomb just waiting to go off? Which is why we're going to be answering this question. Should I pay off my house? What is it that I learned about people trying to pay off their houses in their 40s, their 50s, their 60s and their 70s? And why in the end did it actually not matter? Where does this idea come from that you should pay off your house? And is it really good advice today? Well, I think that if there was a mascot in today's world for you should get out of debt and pay things off, it would be none other than Dave Ramsey. Stupid! And this is Dave Ramsey's advice. He says, don't buy a house unless you're out of debt. And if you're out of debt, then you should get a 15-year mortgage. Which means instead of a 30-year or 40-year, you should have a really high payment so that you can pay it off sooner, right? Next, if you can, you should put a hundred percent down. So, if you can avoid getting a loan, you should do that. And then finally, the monthly payment should be no more than a quarter of your take-home pay. So, Dave is leading the charge essentially saying, yo, debt is the worst thing that could ever happen to you. And guess what? You should do everything in your power to stay out of debt. If you are going to have to go to a bank and take out a loan, then only do it under these parameters. Make sure it's the shortest loan possible 15 years. Make sure it's the highest payment. And you do everything in your power to get that thing paid off. So, whose advice is this really for? Well, Dave Ramsey's advice is good for people who are bad with money. Or they're just like truly financially conservative. And at the end of the day, they're scared of the notion of debt. But can I tell you something? I've learned that debt can be used as a tool for generating and creating wealth. I play by a very different set of rules. Rich people play the money game to win. Whereas poor people play the money game to not lose. I'm going to tell you right now that if you gear your entire life towards get out of debt, get out of debt, get out of debt, it will consume your most valuable asset time in the pursuit of having no debt. Today, I'm going to share with you some alternatives. Faster ways that if you wanted to pay off your house, I'm going to show you how you can do it a lot faster. In fact, right now in watching this video, if you own a house, chances are you've seen its value go up. Which means you have equity. It's worth more than what you owe. And technically, you could go in the opposite direction. You could go back to the bank and actually say, bank, give me more money. And you'd think, well Kris, that's counterintuitive. Aren't I trying to pay off the house? Why would I want to take some money out of it? Check it out. The word of the day is arbitrage. Most people have either not heard of this word or they just really don't understand its true meaning. Because if you did, this is how rich people get rich. Check it out. Investopedia says that arbitrage is the simultaneous purchase and sale of the same asset in different markets in order to profit from the tiny differences in the assets listed price. Blah, blah, blah, blah. Let me give you something far simpler than that. Let's just say that you can borrow money from a source at 7%. But you can invest it somewhere earning 11%. What is the difference? The difference is 4%. When you earn your 11%, you pay your 7% that you owe. And that means that there's 4% left over for you. In theory, this is what banks do, right? I mean, they get your money and they pay you a little bit for it. Like what are you getting on your savings account right now? You're getting like 0.1%. But what are they doing with the money? They're lending it out to someone else on a mortgage at 3 or 4 percent. Which is many times more than what they're actually giving you. But I'm not really interested in 4% because single digits don't make you rich. Let me show you what does. Kris, how is arbitrage going to make me money? Well, I need to give you a different list of assumptions and I'm going to show you how to do it. Here's my advice compared to days. Buy a home as soon as physically possible. Get a third of your mortgage or even a 40-year mortgage if they'll give you that. Not a 15 going the opposite direction. Put as little down as possible. And if the bank will give you the money, take it. Now, because that's what helped me become financially free by the age of 26, I'm going to show you how. Assume for a moment that your home that you already have that you are trying to pay off, you're going to do something a little bit different. Let's assume that you have a house. And let's just assume for a moment that what you owe on it is $200,000. You bought it several years ago. We all know though during this last pandemic, what happened? The price is shot through the roof. So, let's just assume for a moment that the current value on your property is $400,000. So, it's worth 400 but it's half paid off because you only owe $200,000. Did you know that you can go to the bank and you could request something called a home equity line of credit? A HELOC. And basically you say, bank, I would like a credit card that is attached to the available equity in the house. And the bank says, well, we'll go up to 80% of the value. 80% of the value of $400,000 is 320,000. And the difference between 320,000, the max the bank would allow you but what you owe 200. Basically, the bank says, here you go. Here's a hundred and twenty thousand dollars. If you don't use it, it's available. It's kind of like a credit card tied to the equity in your home. So, you get this home equity line of credit and you're like, wow! What if I went and I bought another house? Let's just say I bought a rental. Let's just say that that rental cost me $50,000 out of pocket. Now, where am I getting this $50,000 down payment? I'm getting it from a $120,000 line of credit that the bank set up for free for me. And when I borrow this 50,000, you're going to say, hold the phone, Kris. I can't even contemplate this. Don't you see my house is worth 400,000 and I owe 200? Like, I'm halfway to getting this thing paid off. You're asking me to literally pull $50,000 out of the house and go even deeper into debt? That looks like I'm moving the wrong direction. Hold the phone. Now, here's where arbitrage comes in. I can borrow this 50% let's say to keep it real simple at 3%. But I can put it into a property where I'm earning a 25% ROI. And a part of that is cash flow. And let's assume for just a moment that that cash flow is $450 a month. Now, I want you to think about that for just a little bit. I'm borrowing the money at 3 and I'm earning a total return of 25%. Remember you get to keep what's in the which is 22%. Does it make sense for you to borrow money at 3% and have it performing at 25% and leaving you 22% in the middle? And on top of that, giving you $450 a month of positive extra cash flow in your life. And on top of that, producing a tax benefit where that $450 has no tax consequence because it's written off against the depreciation. Watch another one of those videos. Subscribe to my channel. I'll teach all that stuff. And on top of that, there's leftover tax benefit that will reduce my normal job income so that I give less back to the government. Hello, does that sound like a good idea? This is how I became wealthy at the age of 26. So, we're talking about 2 very different philosophies. 2 very different approaches to debt. One considers debt really bad and one considers debt really good. Either you can pay off the home and keep working your 9 to 5 or you can use your home to buy more homes until you've replaced your income. And what we're talking about here are levels of financial freedom. You see, first of all, there's safety. And then we're going to compare safety to freedom. What is the difference between these 2 numbers? Well, let me show you. Let's just assume for a moment that you have bills every month, expenses in your life of $4,000 a month. And of the $4,000 a month, some of that is to go to your debts. Maybe it's student loans. Maybe it's going towards your mortgage. Maybe you've got some credit card debt. Maybe you've got, you know, every month a payment on a car. So, let's say that of this $4,000 a month, let's say that $2,500 a month is actually for servicing your debt. Well, if you want to become financially safe in life, then you'd make your entire purpose to eliminate your debt. And if it took you a decade or 2 decade or 3 decades or your entire working life, when you eliminate your debt, what you're really doing is you're eliminating $2,500 a month of expenses. However, your total expenses are actually $4,000 a month. So, you still have to keep a job to make sure that there's $1,500 a month coming in to pay for groceries or travel or gifts for the birthday or the whatever, right? Let's talk about how that is different from the game of freedom. In the same world, if my expenses are $4,000 a month and $2,500 of them are to service my debts, let's say that instead of applying all of my leftover money to pay off my mortgage and be on a 15-year mortgage, what if instead you went and bought 5 homes using that equity in your house. And you might start with one house or 2 houses. But these things multiply. Let's say over 10 years that you took 50 grand and turn it into one home. And within 10 years, you were able to multiply that into a total of 5 homes. These 5 homes might literally have 1 million dollars worth of debt. We're going in the total opposite direction. Kris, here my debts were only a couple hundred grand and my car and my credit card $2,500 a month. Now, you've gotten me into a million dollars worth of debt. But a day comes when I pay all of these houses off and guess what's left over? A million dollars. What can I do with that million dollars? I can pay off my debts, have enough money left over to buy houses paid off free and clear that are now paying me a 1,000, 1,500, 2,000 dollars every month. You see in one game, all I'm doing is creating safety by eliminating some of my expenses. But in the game of freedom, what if you could take this million dollars and turn it into $10,000 a month of reoccurring revenue? You have the choice. No debt or $10,000 a month. Which would you prefer? The $10,000 a month is enough to cover your $4,000 worth of expenses. Which a part of that is your debt expense of 2,500 a month. But guess what? If your total expenses are 4,000 and you're getting 10,000 a month, in this scenario, there's $6,000 left over every month. Now, what can you do with that? Well, most people would be able to say, hey, I can quit my job. I can get all my time back. I've got leftover money. And maybe you have debts, maybe you don't. But who cares if you have the money that affords you a better lifestyle? See, here's the problem. Debt is not bad. You need to understand that there are 2 kinds of debt. There's a good kind of debt and there's a bad kind of debt. Consumer debt, debts that cost you money, those aren't good. You should have a goal over time of eliminating them. However, rather than just trying to pay off those debts, if you'll take all your money and instead of trying to pay off your debts, it will use that money and invest it to get good debts. Like for example, real estate that produces a high ROI. Or maybe it's a business that produces a really high ROI. You might have to go into debt for that business. But if that debt makes you money, that's called a good debt. Not a bad debt, not a consumer debt, not it cost me money debt. This is a it makes me money debt. And you know what? That does not become a bomb that blows up in your face. That actually turns into just a money tree that keeps spinning off more and more and more money. Hence, that's how rich get rich. Man, Kris. It sounds like you're telling me that I should not focus on getting out of debt. The truth is there's a sequence of success. Because money is a game and if you understand the rules of it, you can create a lot of wealth. And you can also manage your debts. This is the question that I want to end with. When should I then actually pay off my house, Kris? Well, let me show you. Replace your income then pay off your debts. In other words, rather than saying I'm trying to eliminate this this debt like it's a monkey on my back. Instead, I want you to be thinking, if I can use good debts to make me enough money that I have a residual income that can pay off all of my expenses and plus some. Then I've managed all of my debt without giving my time to a job. That's the smart thing. That's what rich people do. And if you ever get to a point where someday you do want to pay off your debt, you know what you should do? Wait until you have the residual income of your dreams and then you can go and pay off your debts. Just make sure that you're not trading safety for freedom. Because financial freedom is something that we're all really after. So, ironically, this whole video about how do I get out of debt, I'm actually encouraging you to go into more debt. But to do it responsibly. It is by learning how to become an investor and learning how to get a positive arbitrage. That means I borrow money for cheap and I put it into something that gives me a lot. There is going to be some risk in that. You know what the real risk? Is paying off all your debts. All those years ago, when I talked to people in their 50s or 60s and 70s, most of them have gotten their houses half paid off or even full paid off. But because they didn't have a residual income to cover the rest of their expenses, guess what they had to do in their old age? They had to reverse mortgage, they had to sell their house, they had to get rid of this this whole thing that they thought would make them safe. And it evaporated. Most people when they retire will literally consume everything they've saved their nest egg within a few short years. Which means you're going to have to sell your house if you need more money. Or you got to go back to work. But today, I'm telling you that there's a smarter way. Listen, if you're new to my channel, make sure you subscribe. Because when I drop videos, they're designed to awaken your financial genius. And if you're a little bit curious how I did become financially free with this game of positive arbitrage, then I want you to click this video. I'm going to take you on a journey with my CEO as I traveled to my very first homes in style in a limousine. I'm going to show you how I became financially free at the age of 26. Well dude, listen. You have gotten in the game of real estate. The last couple of years, you went from owning nothing to now your own house. You got 3 rentals. Yes.