DLS Consulting

Build your house on the Rock!

Ron Blue was answering questions from members of Kingdom Advisors about how he viewed a variety of topics on a recent teleconference. Several questions dealt with the need for addressing difficult issues with clients as it relates to current market conditions. One of these issues is the excessive leverage that exists in the housing market and the record foreclosure rates that keep mounting every month. It was not very long ago that I remember seeing sales and marketing materials that displayed the results of MAXIMUM leverage on borrowing as much as possible on your home and investing the difference. Some of the discount brokerage firms even pushed that envelope by encouraging every account that is opened to be a margin account so that even the investment portion is leveraged as well. So here is the "American Dream":

Buy a $500,000 home with no money down and a floating rate mortgage that starts out at 5% fixed for three years and then floats with some appropriate index. At the end of 3 years, you will have paid $75,000 in interest and the value of the home may be worth as little as $400,000 or as much as $500,000 if you are very lucky and live in an area that is not showing declines. In year 4, your interest rate will likely cost at least $30,000 to $35,000 if you stay in this house.

Traditionally, an advisor would have suggested building a significant down payment of 20 to 25% so that during a downturn of "normal" proportions, a client would rarely be in jeopardy of losing their home to foreclosure. Granted, many of the people who are in trouble today did not consult a Christian Financial Advisor before making their purchase or we would not have the problems that exist today. The wisdom of sound planning from a believer who also provides financial advice has never been more valuable.

It is interesting that the brief parable about building your house on the Rock was picked up by both Matthew (our tax man) and Luke (our doctor). They heard Jesus explain that people will hear good advice and often still go ahead and do things the way they want to instead of listening and acting on the advice. Consequently, when the rains of life come whether in the form of a storm or a liquidity crisis, the results are still the same. the house will come tumbling down if it was built without a proper foundation. What is the moral of the story? Borrow as little as possible; pay it off as soon as possible; and plan for the day that you will be debt free! Matthew 6:26-27; Luke 6:46-49.

Monday Morning Message Sent 5/19/08


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