Real Estate Ownership

For years, the financial industry and media pundits have told us that the way to wealth is through real estate. So what do we really own when we buy a house?

Many people feel that once they buy a house they own it; but, if you have a mortgage, its the bank that owns the house not you. Forget to pay your property taxes? The tax man will take your house regardless of who “owns it.”

real-estate-businessThe real estate industry has an entire machine that promulgates the benefits of home ownership. From the ads on TV to radio commercials… the average consumer is inundated with messages assuring that real estate is the way to achieve financial success. Yet, when the real estate market crashed in 2008, many people were wiped out.

What happened?

Real estate prices had become so over-inflated that it was no longer economical to buy.  Without any more buyers entering the market, prices collapsed. It got so bad in some cities such as Detroit that houses could be bought for one hundred dollars!

In fact, business colleagues of mine started a company to capitalize on the rock bottom prices in Detroit.  Because of the huge downturn, the city was literally giving houses away. The municipality was going so far as to raze certain neighborhoods because there was just too many vacant houses. In fact, wilderness began reclaiming parts of the city with deer actually showing up in Detroit!

It wasn’t only houses that were on sale. Skyscrapers in parts of downtown Detroit were selling for under five million dollars. This was crazy when you realize that prime apartments in major cities such as Miami were being valued at the same amount as skyscrapers in Detroit.

The funny thing was that even at rock bottom prices, Detroit had a hard time finding buyers.  If you think about it, it makes no sense that a house could sell for so little.  But, if you truly understand how housing works and the role government plays in that equation, it makes perfect sense.

The $100 price was an only an illusion of the true price of the home. If you bought the home, there were bills that had to be paid; mainly the ongoing tax bill levied by the government that ran north of $5,000 dollars per year. So what my colleagues were really buying was a $5,000 annual liability that they would have to pay.  In addition, in order to buy the house, the old tax bills (tax liens) had to be paid off to make the house current.

This is why Detroit had such a hard time selling its houses for rock bottom prices. Nobody likes to buy a liability, particularly one that would likely increase if more people continued to leave Detroit.  The people who remained would have to pick up the shortfall in property tax revenue created by everybody else who moved.

Detroit became the epicenter of the lie of real estate. There is no such thing as home ownership in the U.S.  We are all tenants. Our landlord? The government. And their claim on your land has first priority as a lien over all other creditors.

Tax liens are all the proof you need to know to prove that the real owner of your house is the government. If you fall behind on your mortgage, the taxes on your property don’t get paid. When that happens, the local tax office will auction off the unpaid taxes that you owe to investors for double digit returns. If your tax bill remains unpaid for a long enough period of time, the tax lien holder owns your house. In terms of debt structure, tax lien holders are senior to mortgage debt.

So for example, if you fall behind on a $300,000 mortgage and a tax lien holder buys a $3,000 tax lien on your property, that tax lien holder now has a lien senior to the mortgage holder. If, by chance, you default and the bank cannot/will not pay off the lien holder, the tax lien holder can be awarded the house. So, even though the mortgage company took the biggest risk and lent most of the money, by law, they are junior to the tax man.

I give credit to the millennials. They see first hand the dangers of owning too much real estate and the stresses it can cause. They have shunned home ownership and seem less concerned about material goods. Out of the crisis in 2008 came the movement to own your own home; but, without having the government as your landlord.

Tiny houses are the solution to owning your house free and clear. The way that that they get around this law is by building small houses and placing them on a trailer. Because the house can be moved by vehicle and house never touches the ground, the government can not tax it. Although the houses are small, they are fully functional and can be bought for as little as $35,000 dollars.

tinyliving

Life in the U.S over the last fifty years has revolved around living in a communities. Home ownership has been a way for politicians (and municipalities) to tax homeowners to achieve their objectives. Public education has been the main selling point for living in these communities and the means by which politicians sold their plans. But look at what happened in Detroit. Citizens rejected the notion that it was worthwhile to stick around for a public education…one that was sub-par at best. Having lived in New Jersey for many years, I know first hand how run down many of these public schools have become.

The tiny house movement, home schooling and the move to online education courses have all become threats to the notion that we need to live in one community and have our tax dollars used for public education.

Man’s natural inclination is to be free… especially from the tyranny of government. Because government uses tax payer monies to pay for local, state and federal employees its fair to conclude that government employees’ lives and their income are more important than us non-government employed citizens. The fact that the government can take away our houses because of a tax bill,in order to keep funding its own sustenance and growth,  just goes to show you what governments’ and politicians’ priorities are.

The tiny house movement might just be the first step toward a nation of true home ownership. Bravo to the millennials on this one! They looked around and saw that more is never enough so they’ve concluded that…less is more.

Steve

sleeclark@gmail.com