Transaction Tips With That Large Asset in Your Portfolio

As I’ve mentioned in prior articles, real estate is an under-appreciated but critical piece to the comprehensive view of a family’s investments.  Often, this substantial asset (or assets) is not considered by traditional asset managers because it’s not something on which they can be paid.  However, I believe all forms of real estate, from a personal residence, to rental properties or an ownership interest in a commercial property, need to be factored to the broader financial picture.  Why?  First, because equity in real estate can comprise a large percentage of a family’s net worth.  Second, because this asset reacts differently than the stocks and bonds, which sadly are very often the only assets considered in an “investment portfolio”.  Third, most of the time leverage (a.k.a. debt) is employed to purchase these assets which introduces many other inter-related considerations such as taxes, cash flow optimization, insurance issues… get the picture.

Realizing the critical nature of this asset in portfolios and recognizing the need for specialized industry knowledge, I recently sat down with Michael Zinicola the Team Leader of the EZ Sales Team (a team of 40 real estate agents) of Keller Williams Realty out of Westlake, Ohio.  His team is one of the largest dealers in the State of Ohio.  Michael is a 14 year industry pro and former real estate attorney and I believe he really knows his stuff.  In fact, I personally completed two real estate transactions through Michael over the last 12 years and can attest to his knowledge and acumen. (Please note:  I receive no referral fees, commissions or compensation of any kind for including Michael in this article or for any sale of real estate or any other products.)

The reason for my discussion with Michael was to not only gain a better understand of the current trends in the local market but also pick his brain on some of the most common mistakes, misconceptions and best practices he’s witnessed over the years.

Michael is the second in what will be a periodic spotlight of industry specialists in my blog articles, which are intended to provide a deeper dive into specialized topics.  As a financial advisor who provides integrated advice families (full retainer clients), I believe it’s best to engage specialists for some aspects of my clients’ financial lives.  I then coordinate the specialists’ knowledge into my clients’ broader financial strategy with an objective and conflict-free perspective along the way.

So let’s dive into it:

Current Market Conditions: Despite the successful growth of his team, Michael’s gauge of the broader demand trends is that the local market (Northeastern Ohio) is probably down slightly over the past 12 months.  While it has certainly rebounded from the depths of the real estate crash in 2008 and 2009, the recovery has been un-even and spotty.  Some markets, like downtown, are doing very well but other markets like lower priced urban markets are still struggling.  From a financing perspective, Michael thinks banks are still pretty stringent with their lending standards since the financial crises.  In addition, regulatory changes have made the appraisal market much more difficult and less flexible.

Biggest Mistakes When Buying a Home:

  • The Price Perception Problem: Very often, buyers judge the success of a purchase negotiation based on how much they were able to get the seller to concede on price. This is a mistake because real estate is NOT a liquid market where “price discovery” can happen millions of time per day, like with an actively traded stock.  For this reason, buyers must realize that the listing price is arbitrary and could be inaccurate, either too high or maybe even too low.  What people should be looking to achieve is the right price relative to the market.  Knowing this, it’s very important to consider all the factors of a house that may or may not show up as “comps” in the neighborhood.  These factors include would be lot type, décor, finished space, etc.  Buying close to the value is what matters, not how it compares to the original listing.
  • Buying to Impress: Unfortunately, all too often Michael sees folks buying a home to impress others rather than to serve functionally as a residence.  As he succinctly put it, “a home is an investment AND a consumable – it’s not a stock” and people often buy a home as one or the other.   The best thing to do is balance the reality of your financial situation with the desire for all the trappings of a “dream home”.
  • Using All Your Lender’s “Rope”: Asking your lender how much home you can afford to buy is like asking your credit card company if you should splurge on Christmas gifts this year. In short- their answer would be, “You have the credit- use it all!”  Unfortunately, lenders typically use your credit score combined with back-of-the-envelope metrics (income based or loan-to-value) to come up with how big of a loan you qualify for or how much “rope” to give you.  Of course, you need to consider your own financial situation (cash flow, goals, other debt) to assess how much you should be borrowing.
  • Buying that “Unique Property”: People sometimes fall in love with a quirky or unique property that is unlike most on the market. It could be the Roman Emperor themed backyard or the serene view of the cemetery. While it may be a fit for you, the buyer, people need to think about how they would sell the property before they buy it.  If they’ll live in the property for 20 years, it’s probably not as much of a consideration because usually, substantial equity is built up in that time.  But, if they are likely to sell in three to five years, they may not want to limit their addressable market with their “unique property”.

Biggest Mistakes When Selling a Home

  • The HGTV Effect: With the multitude of home improvement shows on HGTV, it’s easy to get stars in our eyes on those remodeling projects.  But in the Cleveland area market, Michael believes a $40,000 kitchen remodel project may only get you $35,000 or so on re-sale ROI (return on investment) should not be considered as the main motivation for home improvement.  What should be considered is improvements is of course to enjoy the improvement.  Additionally, an improvement could offset a negative, like old, tattered carpet or other damage that should be repaired or most buyers won’t even consider the listing.
  • Rose Colored Glasses: Because people have lived, loved and improved a home over 20, 30 or even 40 years, they very often value it much more than an objective buyer.  Among other value-adds, this is where a realtor can provide perspective which in some cases, could be sobering.  People need to take a step back and honestly consider a realistic selling price.  There is no way a buyer will pay for all the memories in a home so people should not be offended by a cold, calculating assessment which is probably necessary to actually sell the home.
  • Not Factoring in Opportunity Cost: Directly related to the rose-colored glasses effect is the idea that sellers aren’t factoring in the lost opportunity of the cash that is tied up in a home (in equity) and the cash drain from the ongoing expenses. With the equity, the seller could be reinvesting the sale proceeds in other assets or another home.  In addition, people need to remember the cash drain comes with the taxes, insurance, utilities and even homeowners’ association dues that don’t stop just because you’re not living there anymore.

Bottom Line:

A home is a unique asset in your portfolio.  First, it can’t be traded during the day like an ETF or a stock.  Buying and selling a home is a labor-intensive and expensive process.  Second, it’s very difficult to know with certainty the true value.  Third, real estate reacts differently to different market conditions (interest rate trends, inflation, deflation, etc.).  Finally and most importantly, a home holds sentimental value and emotional ties with all the memories, personalized touches and hard work which are all poured into it over the years.  For these reasons, it’s beneficial to take extra care when buying and / or selling this asset and given its impact on a family’s net worth, a home must always be factored in to the broader financial portfolio.

Michael Zinicola contributed to this article and can be contacted at or 440-465-4444

The Reality of Real Estate (Part Two)

As noted in my blog from two weeks ago, ( I am under the impression people tend to ignore real estate when thinking about their investment portfolio.  My prior article focused on the factors to consider in the case of a family’s residence. In this article I’ll discuss the starkly different world of investing in rental real estate.  I will detail what I think are the main points for consideration but the bottom line is this:  I believe people need to think about investing in rental real estate as a small business.  And as the Wall Street analyst in me will tell you, with a business you need to start with a focus on cash flow.  After nailing down a solid cash flow model, we then need to consider the more abstract but maybe equally important issues that folks should consider- those being your “hourly rate” and liquidity.  In short, I think there are advantages and disadvantages to the rental real estate investment model.  However, after netting these factors all together, I believe it is usually not in the best interest of families to use tangible, rental real estate in a significant portion of their portfolio unless they are will to put forth substantial amounts of time & effort to run what is at the end of the day, a small business.

Part 2: Rental Property

As noted in the first installment of this two-part series on real estate, when most people think of investing or their financial plan it is usually within the construct of the “portfolio”.  By most accounts, the concept of “the portfolio” usually pre-supposes some mix of stocks, bonds, mutual funds and other securities currently housed in various accounts.  But what must be considered in a family’s “portfolio” is the relative balance of real estate, not only on the family’s “income statement” (or more importantly, cash flow statement) but also their balance sheet.

While rental real estate is different than residential real estate, one thing in common is its ability to hedge inflation.  To summarize from my last blog, leveraged real estate usually acts as an effective hedge against rapidly rising inflation.  This is critical to balancing the total portfolio as I believe real estate acts as a decent buffer and offset to elevated inflation which typically has a negative impact on fixed income and sometimes equities.  We can certainly put this in the “advantage” column but only if a family is not already properly hedged with their residential real estate exposure, which serves the same inflation hedge purpose.

With that commonality aside, let’s dig into the issues with rental real estate:

Cash Flow Model:  When considering a future investment or analyzing the viability of an existing investment, I believe the clarity derived from a simple cash flow model usually helps make this a truly “bottom line” decision.  This can be done with a simple pencil and paper and does not require a fancy spreadsheet.  Basically, we are trying to reconcile cash flowing in versus cash flowing out.  We can first start with the positive side of the ledger – the cash coming in from our monthly rent checks.  We then subtract all the expenses.  In its simplest form, the equation would look something like this:

+ Rental Income

– Mortgage (principal & interest)

– Insurance

– Property Taxes

– Utilities (not paid by renter)

– Maintenance costs (landscaping, snow removal, manager costs if applicable)


Of course there are tax implications to think about here also, including the deductibility of these expenses and depreciation expense but for now, I prefer to focus the discussion on what impacts a family’s checking account every month: cash flow.  So to put this in context on a rental property with a value of $300,000:  Let’s say the rental income for this property is $2,000 per month or $24,000 per year and expenses total $1,500 per month or $18,000 per year. That means this property is yielding a net of about $6,000 in cash value on an asset value of $300,000.  Said differently, the property is yielding about 2% in cash per year.  If we add in another 2% of property value growth, we could argue the “total return” is about 4% but again, that 2% return from property appreciation is not cash flow it is simply an estimate of the property value and as we all know, property value estimates can vary widely.  How do you feel about owning this versus a high quality equity fund yielding the same cash flow, with better liquidity and no day-to-day management?

An alternative method to derive yield is to use the denominator as the equity value (i.e. $300,000 property – $200,000 mortgage = $100,000 equity) but I prefer the more conservative method as the asset backing the loan has an uncertain value.  Finally, I would suggest an annual contribution to a separate rainy-day fund for large improvement projects (i.e. new roof, new furnace, etc.) but using the most simplistic model, we will set that aside for now.

Small Business:   As stated in the opening of this post, I believe a rental property should be viewed as a small business given the potential time & effort involved.  First, we need to consider the administrative work involved with the accounting and bookkeeping as described in the section on cash flow.  In addition, families need to consider how much time they will need to spend keeping the property in working order.  This includes commuting time, cutting grass, painting, repairing the proverbial “leaky toilet”, etc.  Keeping track of this time and dividing by the cash flow yield may lead to the conclusion that the $6,000 in annual cash flow (to use the above example) isn’t worth the 2 hours per weekend of work (for example) as this essentially means you are “working” for an hourly rate of $60 per hour.   Is your free time worth more or less than that?  Alternatively, you could decide to “outsource” these functions to a management company, but of course that expense cuts into your cash-flow yield.

In addition, one needs to consider the risks associated with finding and keeping good credit-quality renters.  This is no small feat.  Not only is there a credit risk from having to collect every month, one also must be concerned with a business relationship gone wrong and the permanent damage a disgruntled renter could do to a property before fleeing.  There’s also the legal entanglements of evictions, not to mention the stomach-churning decision to “throw out” a family with young children, which almost no one wants to do.

Liquidity:  Putting the financial hat back on, one must also consider liquidity of this asset in the portfolio.  Rental properties cannot be sold simply with a click of a mouse, like a high volume stock with sub-$10 commissions on the trade. As with a residential property, selling a rental property can take months.  If the owner were facing an immediate need for a financial emergency, this would mean either selling the property well below fair market value, having to sell other assets at less-than-desirable levels or having to tap into retirement accounts, with tax and penalty implications.  Again, if a family owned a $200,000 of equity in rental property with a $1,000,000 net worth, this means that 20% of their net worth is essentially illiquid.

Raw land = Speculation:  The last “financial” consideration deals with some people’s desire to own raw, undeveloped land.  I believe this is merely speculative bet and should not be employed unless a family has substantial liquid assets outside the property.  The reason is that raw land yields nothing except negative cash flow and an investor is essentially betting that the property appreciation portion of the asset will “someday” over-ride the annual cash flow burn (taxes, insurance, etc.) associated with owning this property as by definition, it has no rental income.  This is equivalent to owning a commodity like gold or copper (which yield no dividend or interest income) with two notable differences.  First, much like the comparison to owning a stock, there are no taxes and insurance to pay on that ETF (unless it is sold for a gain).  Second, it’s much easier to sell a gold ETF on-line than it is to pay a real estate broker a substantial commission and wait months for the property to sell.

So to wrap up- am I completely against owning real estate outside the residence?  No- I just think there are many other financial building blocks a family needs to have in place before pursuing this path.  In addition, folks need to enter this endeavor with their eyes wide open as owning rental real estate usually requires time & effort outside of the “day job”.  My “day job” is to ask those thought provoking questions and provide the proper context for where rental property falls in a family’s broader portfolio.  Again, this goes way beyond standard asset allocation as real estate investing can have a substantial impact on a family’s net worth.

The Reality of Real Estate (Two Part Series)

Judging by the number of TV shows related to homes these days, it’s a logical to conclude just how interested people are in real estate.  Do some channel surfing at night and you’ll find any number of programs dedicated to the process of evaluating and “investing” in real estate.  Off the top of my head I can name “Rehab Addict”, “Property Brothers”, “Love it or List It”, “This Old House” (old school- on PBS) and I’m sure there are many others that I haven’t come across.  I’m a believer in the old-fashioned concept of supply and demand so I think the reason these shows are broadcast is because there’s a demand for them- people like them.  Some shows take the approach of “investing” in one’s own home while others focus on buying a downtrodden property with the intention of improving it, then “flipping it” for a higher price.  But what I have never heard on any of these shows is just how the relationship of this substantial asset (usually leveraged) integrates to the rest of a family’s financial portfolio.  This is a big oversight.  In short, I believe it is critical to incorporate real estate, be it a personal residence, rental property or both, into any financial planning process given the substantial impact it can have on a family’s cash flow and balance sheet.

In Part 1 of my thoughts on real estate (see below), I will detail considerations around a family’s personal residence and the relationship to other financial assets.  In part 2 (in the weeks to follow) I convey my thoughts on investing in rental real estate and some important implications.  So on to Part 1…….

 Part 1: Your Home is More Than Your Castle

As noted above, when most people think of investing or their financial plan it is usually within the construct of the “portfolio”.  By most accounts, the concept of “the portfolio” usually pre-supposes some mix of stocks, bonds, mutual funds and other securities currently housed in various accounts.  But the most underappreciated portion of a families “portfolio” doesn’t live in any of these accounts.  The most underappreciated asset is usually the family residence.  To me, a residence is yet another portion of families’ financial lives that needs to be factored into my holistic approach to financial planning, which my faithful readers (and clients) know goes way beyond stocks and bonds.

Before detailing some of the financial advantages and considerations on owning a home, let me preface my comments with a few qualifiers.  First, owning a home is not for everyone.  It must be properly sized to a family’s financial situation and a family must have the time and resources (i.e. cash flow) to dedicate to upkeep, improvements or even emergency expenses.  Second, I don’t believe in speculating on a home to turn a quick buck- especially your residence.  I think it’s fair to factor in a few percentage points of property value appreciation over a long period of time (especially after the massive bubble collapse) but as all realtors will tell you, all real estate is local so speculation is not my style.  So I will not advise looking at a residence to make a bunch of money from flipping or speculating on real estate.  The context of my thoughts are predicated on a family buying a home reasonably priced to their financial situation, with around 20% down payment and with the intention of occupying the home for the foreseeable future (at least 5 – 7 years).

In that context – the big advantages to owning a home are:

Taxes:  Looking at tax policy as a proxy for how Uncle Sam tries to shape our behavior, it seems our federal government really wants us to own versus rent.  The two main tax advantages are the deductions against income for and the (usually) tax free gain on the sale.

    • Deductions to Income:  As most people know, mortgage interest on all but the highest mortgages is fully deductible and has no phase-out for high earners.  For a high-income family, this could be one of the few tax deductions actually available to them if they itemize their deductions. Unfortunately however, it is subject to the constraints of the onerous AMT (Alternative Minimum Tax).  In addition, most taxpayers can also deduct the full amount of their real estate tax.  Even outside the AMT, both these deductions could lose their effectiveness for high earners for other reasons.  First, high earners are getting phased out of itemizing deductions in 2013 and beyond, assuming current tax code.  Second, this deduction could be on the chopping block if broader tax reform seeks to “flatten rates” and “close loopholes”.  Certainly, this is something I am keeping my eye on but for now, it is usually an advantage.
    • Exclusion of Gain on Sale: When people sell their primary residence for a gain, a substantial exemption ceiling is in place that should make the gain tax free for most people.  Married couples can exclude up to $500,000 of gain and individuals can exclude $250,000 of gain.  What other asset can you purchase affords you that advantage?  None that I can think of.  Of course this does have some restrictions that must be adhered to (home was owned two of the last five years, home must have been personal residence for two of the last 5 years, etc.) but most families fit into these restrictions.  Unfortunately it’s not all good news- a loss on a sale of a residence cannot be deducted for tax purposes.

In addition, the Fed continues to buy about $40 billion in mortgage backed securities per month, which again, being a believer in supply and demand tells me that demand for could be artificially high, effectively suppressing mortgage rates to our advantage (less so lately).  Policies like these can get out of hand as one could argue that Fed policy and Federal lending regulations contributed to the real estate bubble of 5 years ago but that’s a topic for another discussion.

Inflation Hedge: (adapted from my prior blog: To Pay or Not to Pay? The Drama Around Paying Off a Mortgage): Leveraged real estate usually acts as an effective hedge against rapidly rising inflation.  This is critical to balancing the total portfolio as I believe real estate acts as a decent buffer and offset to elevated inflation which typically has a negative impact on fixed income and sometimes equities.  Again- this is why I consider real estate in the big picture of a family’s total portfolio (does the name “Net Worth Management” ring a bell?)  So if a family has $50,000 of equity (20%) on a $250,000 house will usually see that house value increase with inflation on the $250,000 amount, not on the $50,000 amount.  This means if inflation spikes to 7% per year, real estate as an asset class would theoretically move similarly.  Assuming a home value would keep pace with inflation, this would mean:

 $250,000 Home Value + 7% inflation / home value = $267,500 home value

Home Equity WAS:  $250,000 Home Value – $200,000 Mortgage = $50,000 equity

Home Equity NOW:  $267,500 Home Value – $200,000 Mortgage = $67,500 equity

Theoretical “gain” in equity = 35% (($67,500 – $50,000) / $50,000)

Of course “leverage” cuts both ways, as many people found out when they assumed home values would always go up before the real estate bubble burst in 2008 and 2009.  So I caution families not to go all-in to real estate but the point is that your home needs to be factored into the inflation hedging portion of a portfolio (assuming no bubbles) as it can be effective in helping to offset a decline in bond and maybe stock values in a portfolio should high inflation rear its ugly head.

Personal Enjoyment: Finally, there are some value judgments that just don’t fit neatly into an Excel spreadsheet and I believe enjoyment of the family home is one of them.  First and foremost, it’s tangible.  I don’t know about you but to me, a new wood floor or landscaping or a new kitchen seems much more tangible than the bar graph in my monthly statement from Charles Schwab.  Likewise, doing an ROI or IRR on adding a new deck for instance, usually won’t yield the practical return in dollars that we seek when we invest in a particular mix of securities.  However, we CAN sit out on our deck and sip an adult beverage with our family and friends, which is tough to replicate with the Vanguard Total Market Index fund, despite all its merits.  Said differently, I will not advise folks to view a home improvement as an “investment” that will be yield more dollars than the expense when it comes time to sell.  This investment is almost never recouped and I caution families not to over-extend themselves with an upgraded home or a big home improvement project.  Again, we need to be balanced across the entire portfolio of assets.  That said, I think it is important to consider a home is one of the few asset classes that warrants consideration on the “non-financial” value that will be derived from the expense.

To Pay or Not to Pay? The Drama Around Paying Off a Mortgage

In working with clients who have achieved a fairly high level of financial security, often times it is assumed that paying off the mortgage is a “badge of honor” as it relates to personal finance. More specifically, not having to write a check to the bank every month sounds very enticing and may even engender a feeling of security.  However, if we ignore the mental satisfaction of not having a mortgage payment for a moment and look only at the financial nuts-and-bolts, I believe paying off the mortgage could actually cost families money and may not in their best interest.   Why?  Because in my opinion, that feeling of satisfaction or security can be expensive and is more than offset by the advantages for income taxes, liquidity, growth opportunities and interest rate / inflation protection.  This especially applies in today’s environment of historically low interest rates.

Let’s consider an example to illustrate.  Let’s say the Smiths are a married couple of about 45 years old earning a nice income of about $150,000 and have saved diligently over the years amassing $250,000 in a taxable account (i.e. not in retirement accounts).  In addition, let us suppose the Smiths have a $200,000 mortgage balance and they are trying to decide between paying off their mortgage or refinancing the balance with a 20-year fixed-rate mortgage at 3.625% (a real-world rate on a bank website this week).  The 20-year mortgage was chosen by the Smiths because they do not want to have a mortgage at their targeted retirement age of 65.

Doing the math on the principal and interest of the mortgage results in a monthly payment of about $1,173, which excludes homeowners’ insurance and real estate taxes.   Writing the check to the bank every month for the next 20 years certainly puts a dent in the monthly budget and it seems to make perfect sense to just pay off the balance of that mortgage with the available funds then invest the amount of the payment each month.  In addition, the supposition is a home-owner would save substantial amounts of interest expense by not having a mortgage and in a personal-finance-vacuum, not paying interest to the bank is an open-and-shut case:  No mortgage = no interest expense.  (Note: I estimate that over 20 years, the couple will pay the bank total interest expense of about $81,500, certainly a large sum).  However, nobody I know lives in this personal-finance-vacuum, which is why we need to consider a family’s financial lives in a holistic manner.

So we have a captured the advantage of not having to pay the monthly bill and not having to pay the mortgage interest – but how does that stack up against what I think are advantages?  Let’s take it one-by-one.

1)      Not all interest expense is created equal:  As most people know, mortgage interest on all but the highest mortgages is fully deductible and has no phase-out for high earners.  For a high-income family, this could be one of the few tax deductions actually available to them if they itemize their deductions.  Assuming the 28% marginal income tax rate (at $150,000 of taxable income) this deductibility of the mortgage interest effectively lowers the annual interest rate on the mortgage from 3.625% to 2.610% (3.625% x (1 – 0.28)).  So now we’re really paying 2.610% to borrow this money.  Back out 1.1% of annual inflation (as measured by the Personal Consumption Expenditure index average for 2013) and in “real” terms, we’re borrowing this money at 1.51% (2.610% – 1.10%).  Relative to historic rates, that is very, very cheap money for a fixed, 20 year period.  And if inflation were to revert to around 3% or higher, we would be talking “free money” in inflation adjusted terms.

 2)      Liquidity:  Using the example above, if the Smiths chose to pay off their mortgage balance they would effectively take $200,000 of funds and “trap it” as equity in their home and would need to borrow for cash if there was an immediate need for several big-ticket items such as buying a car, funding an emergency medical procedure or handling a large home-repair expense.  Sure they could always have a home-equity line of credit to tap but most banks only offer variable rate loans (usually tied to the prime rate, presently 3.25%) which exposes the borrower to the specter rising interest rates.

 3)      Opportunity Cost: Instead of using that money to pay down the mortgage, the couple could take a conservative investing approach for the long term and invest in a low-cost mix of index funds which could average ~6% per year over 20 years (5% after backing out inflation). Of course, there is no guarantee of this type of performance and it will fluctuate so there is an element of risk here.  However, in this case, I estimate this investment would result in the Smiths having around $71,000 more after-tax (even assuming 20% capital gains tax rate) in their investment accounts after 20 years if they prudently invested that sum, rather than paying the loan balance back to the bank all at once. To clarify, this is $71,000 MORE for a family’s net worth and assumes the interest expense is paid for the 20 year term.

 4)      Interest Rate and Inflation hedge: Finally, the best part about the fixed-rate mortgage in such a low rate environment means that even if interest rates double or trip from here, your mortgage payment stays the same for the term of the loan.  Again- this assumes a fixed-rate mortgage.  This means the bank cannot “call” your loan and charge you a higher interest rate going forward.  Conversely, if for some reason interest rates decline, a family can simply re-finance their loan at the lower rate assuming they do there is NO pre-payment penalty clause in their loan, which for most loans is pretty standard.  On a more esoteric note, leveraged real estate also acts as an effective hedge against rapidly rising inflation as someone who has $50,000 of equity on a $250,000 house will usually see that house value increase with inflation on the $250,000 amount, not on the $50,000 amount.  This means if inflation spikes to 7% per year, real estate as an asset class would theoretically move in a similar direction.  So a family’s “balance sheet” would benefit from exposure to leveraged real estate in this scenario, which is why I factor in people’s homes when evaluating their complete financial picture.

To wrap up, I wouldn’t be surprised if I get a lot of push back on this from those that continue to value the “security” of paying off their home.  That’s a personal decision and if a client did want to move forward with that strategy due to the value they place on that piece of mind, I can’t argue against that or make that value call.  However, it’s my job as a holistic financial planner to analyze and diagnose all the angles then make a recommendation so that my clients can make a fully informed decision and they know the effective “price” of their decision.   It’s also another reason for taking situations such as home mortgages into consideration is why I believe the best way to help families plan their financial lives goes well beyond recommending stock and bond funds.