Editor’s note: Robert Bruss is temporarily away. The following column from Bruss’ “Best of” collection first appeared Sunday, April 2, 2006.
If you only read one real estate book this year, “The Automatic Millionaire Homeowner,” by David Bach, should be that book. Whether you are a renter considering purchase of your first house or condo, a current homeowner, or a seasoned realty investor, this common-sense book will reinforce what you probably already know even if you resist facing the facts.
The book has two themes: 1) ordinary renters can become millionaires by investing in their first home, and 2) that home can become the foundation for buying a better home and/or investment property in future years.
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As the book’s introduction says, “Homeowners get rich and renters stay poor.” Bach then proceeds to build on that simple statement, backing it up with facts and many real-life examples to make the book easy reading, enjoyable, and profitable.
“Nothing you will ever do in your lifetime is likely to make you as much money as buying a home and living in it,” the author emphasizes. In the first chapter, Bach relates the powerful true story of John and Lucy Martin, now retired in Phoenix, who bought their first home and used it to pyramid their way to a better home and even rental property.
After explaining why smart home buyers finish rich, the author then proceeds to explain how to automatically save for a home down payment. He emphasizes the key is depositing your paycheck directly into your checking account and then automatically having the bank take out a specified monthly amount and putting it into a separate home down-payment account.
Bach calls this method the “latte factor” and the “double-latte factor” to determine the minimum amount to be saved each day and each month.
To illustrate, he says if you spend $7 a day on a morning latte and nonfat muffin at Starbucks, that’s $210 a month minimum, which can be automatically saved.
“If you’re looking for a fast way to save for a home, the bottom line is that it’s all about the small stuff,” Bach advises.
Next, while you’re saving for the down payment, Bach suggests looking for a mortgage adviser you can trust. He explains the differences between a direct lender mortgage banker and an independent mortgage broker, who can shop among many lenders to find the best mortgage for your situation. Most important, Bach advises to never pay up-front loan fees and junk lending charges.
The author heavily emphasizes the different types of mortgages available, such as fixed and adjustable, and when each is best. He goes into considerable detail about the pitfalls of adjustable rate mortgages and why they can be dangerous for homeowners. Then he launches into discussing the pros and cons of “interest-only” and “option” mortgages.
Bach says, “The Automatic Millionaire Homeowner is a long-term buyer who plans to live in his house for many years like the Martins did and weather the cycles of a real estate market that goes up and down. This means getting yourself a mortgage that makes sense for the long term.” In other words, this is not a book for “fast-flip” speculators.
Almost half the book is devoted to obtaining a lender’s written pre-approval letter before beginning to shop for a house or condo. The reason, Bach explains, is your home is your best route to becoming a millionaire and financing is ultra-important.
The author is not opposed to buying a home for nothing down if you qualify. But he explains how to avoid the dreaded PMI (private mortgage insurance) premium by using several finance alternatives.
One topic that Bach unnecessarily complicates is his explanation of how a biweekly mortgage can cut five to seven years off a 30-year mortgage’s life, thus saving thousands of interest dollars. He says it is all right to pay the lender a $200 to $400 set-up fee, plus a monthly fee up to $6.95 to create a biweekly mortgage payment plan.
But he neglects to even mention the same result can be accomplished at zero extra cost by dividing the monthly principal and interest mortgage payment (excluding taxes and insurance) by 12 and adding that amount to each monthly payment to pay down the principal just as fast as a bi-weekly mortgage.
Chapter topics include: “Meeting the Automatic Millionaire Homeowner”; “Why Smart Homeowners Finish Rich”; “The Automatic Down Payment Solution”; “How to Find a Mortgage Advisor You Can Trust”; “How to Get the Best Deal on Your Mortgage”; “Find Yourself a Home the Smart Way”; “How to Hire a Great Real Estate Coach”; “Make Your Mortgage Automatic and Save $106,000 on Your Home”; “From Ordinary Homeowner to Automatic Millionaire Homeowner”; and “How to Bubble-Proof Your Real Estate Plan and Survive a Downturn.”
This is one of the few real estate books that cannot be recommended too highly for both beginner and experienced homeowners. It simplifies what can seem complicated. On my scale of one to 10, it rates an off-the-chart 12.
“The Automatic Millionaire Homeowner,” by David Bach (Broadway Books, New York), 2006, $19.95, 244 pages; available in stock or by special order at local bookstores, public libraries and www.amazon.com.
(For more information on Bob Bruss publications, visit his
Real Estate Center).