Compound interest.
The “miracle” of modern financing is how over three-quarters of all homeowners in the United States are able to be in their homes at all.
I’m going to hit you with a couple of statistical facts, to illustrate a point as quickly as possible.
Okay?
A 2022 OECD (Organization for Economic Co-operation and Development) study of 28 countries found the U.S. had a rate of outright ownership of their homes (with no mortgage) of 23%, or less than one-fourth. (Source: https://www.forbes.com/sites/johnwake/2023/03/31/us-has-3rd-lowest-percentage-of-households-that-own-their-homes-without-mortgages/)
That means 77% of all U.S. homes are carrying some level of debt.
We figure loosely, based on single vs. married homeownership statistics acquired from the U.S. Census Bureau website, Statista, and Bank rate that there are around 98,000,000 single family homes in this country, so yes sir and yes ma’am, you’re looking at around 76,000,000 mortgages.
Compound interest is huge, in other words.
Without lending I’m certain the vast majority of these borrowers would not be able to enjoy home ownership, with a small minority leveraging debt as a financial strategy, but we all have one thing in common.
We had to get a loan. God knows my wife and I had to!
The dichotomy to which I refer with the title of this article (some may say rant by the end) is the wonder and beauty of being able to live in something worth a half-million bucks without actually having the money, or the magic of high-level borrowing on the one hand…
Who’s opposite or yang side is of course the tremendous long-term cost associated with this magic.
But wait! There is yet another dichotomy lurking within the larger scope.
That of being given to believe that we are privileged and righteous enough, through our efforts at maximizing our credit ratings and minimizing our late payments and excess spending to be worthy of such largesse.
In diametric opposition to the wealth-sapping beating we take with each payment in the form of compound interest.
In other words, folks, we are treated like absolute dog crap, victims of a Spanish inquisition-like process to obtain the magical principal amount necessary to live the American Dream just to turn around and get fleeced out of our wealth by the very people that had the nerve to question us.
Does this sound like excessive overreaction or conspiracy theory rage over something that we should after all be complacently used to by now?
I’m sorry if you feel that way.
I don’t.
I’m going to tell you a couple of little stories this week to explain myself, and my perceived need to rally the cry against the status quo of the modern lenders.
Then, I’ll conclude this week by resolving my points into a neat little package, and an invitation to join me next week as we explore all the ways possible to persevere over the inevitability of the greed machine.
A Professional Accountant Buys a House
My wife and I reached a decision in 2019. We decided to move “down the hill” from a quiet rural area 30 minutes outside of the nearest city, Colorado Springs, to the city itself.
We were feeling disconnected from culture, as well as easier access to shopping, but there was more to this attraction.
I began distance running around 2013, and I found myself driving 30 miles and 40 minutes at least once a week to get to better running trails.
We found a place with the help of good friends, a couple that are both Realtors, and the process of obtaining financing began.
It seemed like every 48 hours we were contacted with a new fresh demand for more information, something new the damned underwriters wanted, and at the point of the tale I’m about to tell our patience was already thin.
We both enjoy excellent credit scores, pay our bills on time or early, and hell, I’m even a small business and tax accountant that qualifies for VA financing because of the four years I gave Uncle Sam back in the 80’s.
This should be easy. It most definitely should have been a lot easier than it was.
Over a month into this process, I was asked for a profit and loss statement for our company, the same company upon whose website this blog appears.
A couple of days elapse, and I was asked for an independent audit of the P&L.
I said, “huh?”
And they quite clearly with no shame requested that I obtain an outside CPA, get a certified audit performed of my P&L, and provide that to them for their underwriters.
The same P&L with which I prepare the business tax return for, signed by me as a true and accurate representation of the revenue and expense activity of my company.
As if they can’t trust my numbers unless another accountant verifies them.
For the “privilege” of providing me six figures of financing and charging us many thousands of dollars of interest.
My initial reaction is best left to the imagination. It was profane, colorful, and I humbly submit fairly creative in nature.
Then, once I had my “little nutty” in private with just my wife I composed an email reply to the effect that I am a Circular 230 accountant, enrolled to represent others before the IRS, and if they persist with this terrible overreach the loan process ends here, and I’ll start over with a new mortgage agent.
The foot came down, hard.
And guess what? With a bunch of “we are conferring a special favor upon you” language they relented, and the deal went forward.
This anecdote, now four years in the past, has permanently cemented my overall distaste for underwriters in general.
Good news for my clients, though, because whenever anyone I work for or with hits this kind of ridiculous resistance, I do my absolute 110% best to help them resolve it.
It shouldn’t have to be “us against them” when they’re vying for our compound interest dollars, but sadly, it is.
Exploring Debt Leverage for an RV Investment
Now, here’s my motivation for hitting this topic again recently because this happened just in the last week or so.
My wife and I love the road life. Being just the two of us, we found comfort and a lot of enjoyment with a used campervan, also known as a Class B camper.
That’s basically a big van, like a Mercedes Sprinter or in our case a Dodge Ram B350, that’s modified for a person to be able to stand up inside of, with a small toilet and shower, refrigerator, kitchen sink and microwave plus a couple of twin beds in the back.
You can (almost) fit it in a regular parking spot; they’re just a couple of feet longer than an SUV, and it drives like a heavy car, too.
Fun. But we’re thinking about upgrading to something a little more modern, with more room to adapt to office uses so we can travel further at once, keep our food nice and our power charged up more easily, and also have the flexibility to pull over and work a couple or a few hours a day.
I decided to try to obtain accurate information in terms of financing about half of the purchase price of something sweet, and I made an awful mistake.
I put my phone number into the squeeze page of a Lending Tree website.
Note to self: don’t do that again.
My phone would not stop ringing for two days.
I got so frustrated with the avalanche of so-called “concern” for our needs that I spent the next several days unsubscribing and de-listing ourselves, and I never really did have the time to get the information I was looking for in the first place.
I am reminded of dropping a pork shank into the Amazon River and watching the surface churn with piranha activity.
It was brutal, and relentless, and what for?
To ask me a voluminous and insulting battery of questions to determine my suitability to be screwed out of thousands of my own dollars.
To Sum Up, for Now…
If you follow me, you know I rant and rail against the system of American taxation pretty frequently.
I think it’s safe to say that the phenomenon of modern financing and debt leverage makes me at least as wrathful.
So much so, that I believe I owe it to myself as well as you, faithful reader, to offer some value in the way of potential solutions.
I will do so, I promise, if you will but indulge me in a little cliffhanger mentality here.
I’ve gone pretty long this week, but I’m DYING to get back to this subject, and especially what you can do about it.
In the meantime, if you want, reach out now through the social media you may be reading this on, or just click here and book a Work With Me conversation now, if you have any questions about anything profit, cash flow, or tax related.
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