Spring Scam Alert!

Ah Spring!  When thoughts turn to vacation planning, home improvement and even spring cleaning.  Unfortunately, it’s also time for scammers to take advantage of those thoughts.  You think you won’t be a victim, but you’d be surprised how many people get caught off guard by these seasonal scams:

“You’re eligible for a free vacation.”  You get a letter saying you could have a free vacation if you give a credit card number to pay for a deposit. It may look authentic (scammers copy company logos) but it may be a come-on for a bogus vacation club. Here’s a tipoff:  you’re told to call a number that starts with 876, 868, 809, 758, 784, 664, 473, 441, 284 or 246.  These are for Caribbean countries and Bermuda; chances are you’ll be on hold a long time. 

“This rental could be yours.”  Scammers write phony ads (using real pictures they’ve copied from other sites) to get you to sign up for luxurious rental properties. Don’t do the wire transfer they ask for.  Instead, contact a travel agent or local real estate agent or use a web site that you have verified is legitimate (try one like www.homeaway.com). 

“We were in the neighborhood.”  You know those people who knock at your door and say they noticed your gutters need cleaning or your yard needs work?  While that may be true, these people may not do the job properly. Check with the Better Business Bureau, go to a site like Angie’s List or ask friends for references before you sign up for home improvement work.

“We’re from the power company.” These scammers may ask if you want a free energy audit. They may even have IDs (anyone can print their own now).  Beware of pairs – one diverts your attention while the other steals your stuff. Utility companies usually tell you in advance; call them immediately.

“Your grandson needs help.”  AARP warns seniors about that call that says your grandchild has been arrested or hospitalized while on Spring break and needs money.  Scammers get the names from social networking sites.  The caller may claim to be a lawyer or police officer.  Take the number and do an internet search.  Better yet, call your grandchild directly.

Why I Am Never Going to Own a Home Again?

I hate to be on a soap box two months in a row, and I didn’t plan to be until yesterday, which is when I saw “Why I Am Never Going to Own a Home Again” plastered over yahoo.com, msn.com and some money website I’d never heard of.

The article was written by James Altucher and I invite you to refer to his namesake blog. I know everyone didn’t see this blip on the screen, but his 14 reasons against homeownership are somehow burned into our cultural psyche. I’m going to briefly address his most important 5 reasons against homeownership.

1)      He says buying a home means you’ll never see the cash you pay for the 20% down payment again, as if it vanished. Incorrect. You may not be able to physically touch the money again, but it still exists as equity. A 20% down payment is only required to avoid mortgage insurance. Believe it or not, there are loans out there to cover 95%, 100% and even 103% of the home’s purchase price. You could even use a second mortgage in a combo loan or use gift funds from relatives to drop the cash out of pocket even further.

2)      Closing costs. Yes, they exist and are mostly dependent on the cost of the mortgage loan, but as a buyer you don’t necessarily have to pay 100% of them. Ask your agent to make the seller pay your closing costs so that less of your cash is needed to buy the home upfront.

3)      Maintenance costs. Altucher posits that these costs will impoverish a homeowner for life, whereas a renter avoids these costs. What he misses is that scheduled rent increases are due to 1) market rates and 2) maintenance. Even though someone else fixes your fridge, you still pay for it- only a little each month. Homeowners, however, can decrease maintenance costs by purchasing a home warranty.

4)      Taxes don’t mean financial ruin for a homeowner. If they did, no one would own a home. Altucher again misses the mark because renting isn’t tax free- renters pay for it every month a little at a time. Landlords don’t just sit back and absorb this expense- they pass it along to the renter. Homeowners at least have a mortgage interest deduction (for now, anyway).

5)      His last point against homeownership is interesting- he claims it is a bad investment due to illiquidity, high leverage and poor diversification. I would refer him to the point I made earlier- the money doesn’t disappear- it is available as equity. It is true that you have to borrow money as leverage to buy a house- no argument there. But how many businesses or governments would exist if they didn’t borrow money to accomplish a goal? Every person is in business for himself or herself. If a large loan to meet your strategic life goals is right for you, why shy away from it if it makes financial sense? Now, lastly, I’m not a financial planner, but I have yet to meet someone who only invested in her home and nothing else. Homeownership should be piece of your financial whole.

 I am not against renting- so just hold off on those emails. I personally am floating my assets by renting an apartment. Altucher claims he will rent for the rest of his life. So when should a person rent? You should rent when the cost of home ownership has risen far beyond what a home can generate in rent. Renters can financially come out ahead of buyers if they are disciplined and invest what they save and wait for the right opportunity. And with homes prices down and interest rates at historic lows- the right opportunity may be just around the corner.