You might have had a science teacher who explained to the class why perpetual motion
machines aren’t possible. He would have had some common sense to back up his point
(everybody knows nothing lasts forever). But the actual scientific explanation had to do with
physics and Newton’s Laws: in the end, perpetual motion just isn’t in the cards.
When it comes to real estate, however, for a lot of happy residents, their Lake Forest home
equity comes awfully close to being a kind of perpetual income machine.
There may not be a Newton’s Law of Retirement Motion, but for anybody planning their
long-term future security, there should be. It would be straightforward:
For every mortgage principal payment, there is an
equal and opposite addition to your home equity.
This simple Law has a profound effect in the real world. The PEW Research Center tells us
that the typical median family’s expenditure for housing = 23% of after-tax income. That figure is
for households with two earners and two children. If retirement will mean a reduction in those two
earners’ income (as is usually the case), unless they reduce the size or quality of their housing, the
percentage of income it claims will have to rise further. Not a very desirable outcome.
But apparently the majority of Americans have already taken our fanciful Law of Retirement
Motion into account. According to the U.S. Census Bureau, among American homeowners who
are 65 and older, a whopping 65.3% have no mortgages payments to make. They own their
residences free and clear. For them, the home equity effect is, as financial adviser Robert
Christman describes, “...almost as if you had saved enough extra to provide a monthly income
equal to your mortgage.” It’s like a Newton’s Law of Perpetual Income.
The practical effect of owning your Lake Forest home outright isn’t as fanciful as are the
non-existent Newton’s Laws—it’s darned real! Which is one reason my job helping clients land
the right home at the right price ends up being so satisfying.
Do give me a call!
Realtor BRE # 01880463, The Associates Realty Group