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A public relations firm offered to send me a copy of The Last Chance Millionaire: It’s Not Too Late to Become Wealthy (aff. link). I was happy to accept the offer and was looking forward to reading the book. Unfortunately, I’ve been super busy lately and haven’t had the chance to read it. The firm said it was fine if I gave it to one of you and they also offered an excerpt to share with all of you. Here’s the excerpt:
The following is an excerpt from the book The Last Chance Millionaire by Douglass R. Andrew / Published by Warner Business Books; June 2007;$24.99US/$31.99CAN; 978-0-446-58053-3 / Copyright C 2007 Douglas R. Andrew
The Pitcher of Water Versus the Empty Glass
When I give seminars, this is the moment that I introduce the most memorable visual aids I have ever used. Picture yourself holding an empty drinking glass in one hand and a pitcher containing water in the other. The glass represents your house. For simplicity’s sake, let’s say it is worth $100,000. It’s an asset. Let’s say you have $100,000 of cash in the bank (the pitcher) — that’s liquid wealth. The glass is empty because you have not put a penny into your house, but on paper, on a balance sheet, you would still list it as a $100,000 asset. Meanwhile the pitcher of water represents another asset — $100,000 in cash.
What’s the total amount of your assets? $200,000. What happens if you pour the water into the glass? You have reduced your assets by $100,000. You’ve combined $100,000 in cash to a glass already listed as an asset worth $100,000, and all you have to show for it is $100,000. You have cut your assets in half!
On the other hand, when you separate the liquid cash from the glass-sized house that is free and clear, you double your assets. That’s what happens when you separate equity from your house and put it in a liquid investment. But you’re not finished. Assume the empty glass-house appreciates at an average of 5 percent a year. After one year, what’s the value of the empty glass? $105,000. If you pay off the mortgage on the glass (pour the water — or money — back into the house) what is it worth? The same $105,000 — whether it is mortgaged or it is free and clear — because equity has no rate of return when it is trapped in a house.
Next, pour the water from the glass back into the big pitcher. You’ve just removed $100,000 from your house and put it into an investment earning — let’s say — 10 percent. At the end of the year, how much money will you have in that pitcher? Look at that! It’s grown to $110,000! In your other hand is your house, worth $105,000 at the end of the same year, thanks to appreciation.
Leave the water in the pitcher.
How much have you earned by separating your equity from your house in the course of just a single year? $15,000. How much would you have earned if you had left the water in the glass? Only $5,000 — one-third as much.
“But, but, but — the mortgage wasn’t free! I had to pay some interest.” That’s right, you did. Let’s say the mortgage was at 7.5 percent. That’s $7,500 subtracted from $15,000 for a net gain of $7,500, instead of just $5,000. You are still 50 percent ahead than if you had not removed the equity from your house. If the mortgage interest is deductible, then the net cost of the mortgage is really not $7,500, but $5,000 in a 33.3 percent marginal tax bracket. So the net profit is $10,000 ($15,000 minus a net, after-tax mortgage expense of $5,000) — or twice as much as you made if the house was paid off!
Here’s another quick analogy: Would you rather have one horse working for you or two? Can two horses work for you, even if you owe money on one of the horses?
The object of this demonstration is that no matter what else you do, when you separate your equity from your house, you increase your assets. Even though there is a charge for doing that — the simple interest you pay on a mortgage — it makes a whole lot of sense to take out a mortgage and use it to make your assets grow.
Do you recall the president of the bank I mentioned at the start of this chapter? What you’ve just done — taken out a mortgage and used the money to make more money — is what he did. You didn’t make billions, but you made a profit in the same exact manner. By separating equity from your house, you give it the ability to earn a rate of return. Employ this strategy each year, and the profits will compound.
Copyright C 2007 Douglas R. Andrew
Still with me? Good. Here’s the details on how you can have a chance to get the copy I received 
All you have to do is leave a comment on this post to say you’re interested by 11:00pm EST on Friday, July 20, 2007. I will use random.org to select one random commenter. I will announce the name here no later than Monday, July 23, 2007 as well as email the commenter. At that time the commenter will need to provide their address (US addresses only, please) so I can ship them their book free-of-charge. If I do not hear back from the commenter selected by midnight on Wednesday, July 25, 2007, I will randomly select another commenter. Your chances of having your comment selected will depend on the number of comments received, only one entry per person, and I promise to ship the items out but cannot guarantee their safe arrival. Please note that I do have a pet friendly home.
EDITED TO ADD:
I mentioned the bit about a pet friendly home because more than likely there will be pet dander on the book. I mention this in case you are allergic. Now, D was wondering if that meant that something would be included with the book. I do still have three kittens left and I’d love to find them a good home…but I won’t send them with the book 
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Posted: July 12th, 2007 at 11:12 pm
I am interested and we also have a pet friendly home!
Posted: July 13th, 2007 at 12:15 am
I also would be interested in receiving this book. Thanks!!
Posted: July 13th, 2007 at 12:17 am
I’m interested!!
Posted: July 13th, 2007 at 12:36 am
Count me in!
Posted: July 13th, 2007 at 1:28 am
Count me in too!
Posted: July 13th, 2007 at 1:48 am
Random number generator, love gambling
Count me in, if I win you can ship it to Canada, we’ll be there in September for a wedding. First one on my Wife’s side.
Posted: July 13th, 2007 at 1:58 am
in
Posted: July 13th, 2007 at 2:40 am
I am interested in reading this book. Thanks for adding my name to the list!
Posted: July 13th, 2007 at 3:11 am
I am interested in the book. Might take a week or two to get to me if you mail it, though!
Posted: July 13th, 2007 at 6:49 am
I’m interested.
If I win, I will read it and pass it along. 
Posted: July 13th, 2007 at 7:56 am
Please put my name in the mix!
Posted: July 13th, 2007 at 8:19 am
Please add me to the contest
Posted: July 13th, 2007 at 8:35 am
That was just a teaser. I’d love to get this.
Posted: July 13th, 2007 at 8:48 am
I’m interested, please count me in.
Posted: July 13th, 2007 at 8:52 am
Sounds like a great book. Count me in!
Posted: July 13th, 2007 at 8:55 am
I’m interested!
Posted: July 13th, 2007 at 8:58 am
I’m interested in the book! Looks like a good read!
Posted: July 13th, 2007 at 9:54 am
I’m interested!
Posted: July 13th, 2007 at 9:56 am
I’m interested, and would pass it along too.
Posted: July 13th, 2007 at 10:08 am
wow. I have absolutely no interest in reading this book. That’s absolutely horrible advice. This charlatan is suggesting that older people go into debt, mortgaging their paid for house in an attempt to possibly make a few percentage points? He completely ignores the obvious taxes on the invested earnings, let alone the increased risk of taking on payments for the homestead. Throw out this book. It’s not worth the time to read.
Posted: July 13th, 2007 at 10:12 am
Interested
Posted: July 13th, 2007 at 10:19 am
Put me down for two… ok one is enough.
Posted: July 13th, 2007 at 10:46 am
The other Mike nailed it.. this is horrible advice. Take the payment you would be making on a mortgage instead of getting a mortgage, put that into a savings vehicle. You accumulate return, with no risk of a debt. You are liquid while building wealth. This kind of myth-mongering is why banks have big buildings and you have a single story house. They trick you into playing with risk while they make money. BANKS ARE FOR PROFIT BUSINESSES! Same with the myth of tax savings. Why are you spending 12g’s a year in mortgage payments to take 15-25% of that off taxes. You could just pay the extra tax and pocket the other 75-85% of 12g’s. If you feel the need to spend the 12g’s for something - donate it to a local charity and take the same tax deduction while actually doing some good instead of padding the banks profit margin.
Posted: July 13th, 2007 at 11:10 am
Please count me in, although I’m already thinking it sounds like more bad advice along the lines of “Rich Dad, Poor Dad.”
Posted: July 13th, 2007 at 11:40 am
Count me in.
Thanks
Posted: July 13th, 2007 at 3:39 pm
I want it!!!
Posted: July 13th, 2007 at 3:44 pm
I love reading, please count me in!
=^..^=
Posted: July 13th, 2007 at 3:46 pm
There are three reasons you would use the strategies outlined in this book. A. Safety! B. Liquidity! C. Rate of return!
A. Safety! The equity you have in your home is NOT safe! The safest position for your home is fully mortgaged or free and clear. If you lose your job or have a medical crisis and have $100k of equity trapped in your home, you’re at risk of losing your home all together including the “equity” you built up. Think of the many Katrina victims.
B. Liquidity – “The ease with which an asset can be turned into cash.” If you pay off your house and start saving the money you were paying, the money you save is liquid, but what of the $100K still trapped in your house? If you had an emergency, is that equity readily available (liquid)? No! If you lose your job, will the bank loan you back your equity? Not likely, banks loan money based on your ability to repay the loan.
C. Rate of return. Those few previous comments completely ignore the power of compounding interest compared to a regular amortized loan. For example, if you took out a 30 year mortgage for $50K at 7.5% (NOT accounting for tax deductibility) you would end up paying $75,856 in interest alone. Sounds like a lot right? Now calculate the same $50K at the SAME 7.5% in a safe compounding interest investment (ie. not mutual funds) for 30 years. What’s it worth? $437,747.80 Those “few extra percentages points” or in this case NO extra percentages points, yields net gains of $312,747.80 And what about taxes? The book does not ignore “obvious taxes on invested earnings.” It actually explains how you can legally structure your investment so you can take your earnings tax free! Even if the scenario wasn’t tax free you still experience a very significant gain.
Don’t judge a book by its cover? How about don’t judge a book based on the comments of someone who has never read the book. I’m not interested in receiving the free book. I already have it. Thanks.
Posted: July 13th, 2007 at 4:18 pm
Interested, Very! Thanks for the opportunity!
Posted: July 13th, 2007 at 7:12 pm
I’m interested.
Posted: July 13th, 2007 at 8:33 pm
Pet friendly home???? I have a pet, but in this context, does it mean that there will be an addition to the book in the package. Shall we say a package in the package or what are you implying?
Oh, and I am in.
Posted: July 13th, 2007 at 10:41 pm
Ben — you miss the point, you don’t factor in risk. If you have a mortgage and lose your job, then you lose the house or you pull out your cash to pay if off and lose that. If you have it paid off, then insurance will replace it if it’s destroyed. If you need to you can always sell the house to get your money out. You are liquid with the money you are putting into the bank. If you are paying a 500$/month payment into an account @ 7.5% (and I don’t know where you will find that outside of a mutual fund 10-12% is more likely).. in 5 years you will have over 36K in the bank — and still have equity in the house. If you lose your job you can still survive and with 30K cash in the bank crisis doesn’t happen because you can write a check to make it go away. In 360 months (30 years) you will have 600K+ in the bank(after taxes), instead of 471K and with no risk and the same tax load. You 471K figure is wrong too since you will have to pay taxes every year on the interest of the 50k deposit and that will reduce you down to around 420K or so.. after 360 months. At a more realistic 5% you only have 190K or so.. after 30 years.
You just have to factor risk into your calcs, that is where it’s missing. No one during Katrina, that had 30-40k+ in the bank and a paid off house, was standing on their roof looking for helicopter to save them. They also didn’t lose all their assets since the house was covered by insurance and their money was safely invested. Living elsewhere was easy since they didn’t have to worry about mortgages and had cash to live on. DEBT IS JUST PLAIN STUPID.
Posted: July 14th, 2007 at 1:45 am
I want the first chance to be a millionaire.
Count me in!
Posted: July 14th, 2007 at 10:17 am
no thanks. you lost me at ‘hello.
sounds like mumble, jumble.
i’ve got three glasses at home and they’re all full.
Posted: July 14th, 2007 at 9:07 pm
Count me in for the book drawing, no kittens please….my pooch would not be happy about that!
Posted: July 15th, 2007 at 2:28 pm
I’m interested. Thanks
Posted: July 15th, 2007 at 11:12 pm
Your blog inspires me. Thanks so much for the book!
Posted: July 16th, 2007 at 1:28 pm
Tricia,
Sounds like you need to read the book so you can join in on the debate. Let me know when you have time to read the book and I will make sure you get another copy if you will blog about it later.
Nathan
Posted: July 16th, 2007 at 5:19 pm
i’m interested in the book. thanks.
Posted: July 17th, 2007 at 4:41 pm
I want to use tools like this to help as many other people as I can who need help and are open and interested in being helped.
Posted: July 17th, 2007 at 4:44 pm
I am always interested in helping people. Thank you for the book opportunity.
Posted: July 17th, 2007 at 4:46 pm
Give me a fish I’ll be back tomorrow. Teach me to fish and I’ll feed a world.
Posted: July 17th, 2007 at 4:52 pm
I’m open to receiving a copy of this book and I’ll use it for good. Thanks!
Posted: July 22nd, 2007 at 12:23 am
I have his other book… one day late to go for this one… but perhaps I’ll get lucky.
Want to hear him go speak… the idea sounds interesting. Money in a liquid place with no taxes sounds good to me.
Open to learn
Posted: July 22nd, 2007 at 8:13 pm
Ellen -
Here is a link to the upcoming dates and times that Doug will be out speaking - http://www.regonline.com/CalendarNET/EventCalendar.aspx?EventID=118708&view=Month
Feel free to drop me an email nate@missedfortune.com if these dates and times don’t fit your schedule and I can let you know of other cities that Doug will be speaking in.
Nathan
Posted: September 18th, 2007 at 4:34 pm
The Mike’s above are part of the Suzi Orteman crowd that “just don’t get it”. Those that don’t know what they don’t know.
First, THOUSANDS of those in Katrina who THOUGHT they were covered received nothing but noise, headaches, and frustration from their insurance companies! Come on dude, didn’t you hear about the whole “wind vs. flood” debate?? Where were you??
Just do a simple Google search on “katrina insurance not paying” and you’ll see:
NY Times 9.3.2007: Insurers Bear Brunt of Anger In New Orleans
From an ABCNEWS.com article in 2005 it recounts how one investor owned 15 homes that were destroyed or damaged. “The insurance industry — facing $40 billion to $60 billion dollars in losses — isn’t budging, saying state-approved homeowner policy language is very specific and doesn’t include flood coverage.” …SO, last time I checked, REAL ESTATE was supposed to be one of those “safe” investments! Let me ask you, do you think this individual would’ve rather had ALL his homes paid off (seems logical to most, greater cash flow from the rents that way, right?)
OR would he have been better keeping them mortgaged to a point where:
1) he could handle the payments
2) the equity proceeds were positioned into safe, diversified investments (such DO exist)
3) the investments were liquid
4) the investments earned a rate of return greater than the after tax cost of the mortgages
The answer is OBVIOUS in hindsight, isn’t it!?
“If you have a mortgage and lose your job, then you lose the house or you pull out your cash to pay if off and lose that.”
Who says (1) you’ll EVEN be able to qualify for a loan (fat chance in today’s credit market – the No Doc loan doesn’t even exist anymore!) or (2) that one NEEDS to pay it all off anyway!? Assuming one had a Home Equity Line of Credit in place (and could still use it! Banks cut the strings of Katrina/Rita victims and will cut yours too in the event of a natural catastrophe – they can even take it away for other reasons too) or better yet, the equity already separated in a safe, liquid environment, they could just draw on it in small amounts to make their mortgage! No need to pay the whole thing off! That’d be like your mom telling you to finish your spinach on your plate and you begrudgingly eat it all PLUS what’s still left in the serving bowl!
“If you need to you can always sell the house to get your money out.”
As if the house was liquid! How long would it take you to sell your home in the current down market!? 3 months? 6? How about 18-24 in some markets across the midwest! But, if you “need” it, then I guess it’ll wait for you! :o) Oh yeah, what about when you don’t have your house to sell anymore, only the land beneath it and the refuge from the hurricane on top of it? SURE, you COULD sell it, but not for as much or as quickly as you’d like to!
“If you are paying a 500$/month payment into an account @ 7.5% ..…in 5 years you will have over 36K in the bank — and still have equity in the house. If you lose your job you can still survive and with 30K cash”
First, where’s the $500 p/mo coming from? After the home is paid off? Good luck! I just hope you won’t need the cash in the event that life happens (i.e. some major issue occurs – divorce, medical issues, lawsuit, car accident, disability, prolonged job loss, etc) before you have your mortgage paid off! If while you still have a mortgage (1) most have difficulty saving period (2) of those who do have extra cash after the bills are paid they usually pay down that “evil mortgage” (3) and due to the way compound interest works, the one who separates $500 p/month of equity and invests the chunk will come out ahead ROI wise compared to the one who sends in small incremental payments.
The math: Take two investments over 10 & 20 years.
10% ROI
$500 monthly will produce: $103,276 in 10 yrs / $382,848 in 20 years
Taking out a loan for $500 p/mo at 7% (ignoring tax benefits) will yield $85,714 lump sum to invest which will produce:
$242,094 - $60K in loan payments = $182,094
$690,206 - $120K = $570,206 in 20 years
“DEBT IS JUST PLAIN STUPID.”
Mike — you miss the point, you don’t factor in LIQUIDITY! (let alone Rate of Return and furthermore – tax benefits). Debt properly structured and utilized is the tool of the wealthy. Douglas Andrew teaches how YOU can do what the banks do (take money given to them and invest to yield higher results than what they pay out). It is rather contrarian to the average Joe and IS RISKY to those who DON’T manage money well and couldn’t trust themselves with tens to hundreds of thousands of their own money (i.e. their equity) in a liquid investment. To those who fit this category – and let’s face it, based upon the “me too” gotta keep up with the Jones consumerism displayed by the majority of Americans, that’s probably many of those reading this blog – then don’t touch your home equity; unless you change your ways by starting to spend less than you make, start saving, and letting a professional help guide you with your investments, your home equity is all you’ll have left when you retire! (IF you can retire, which will also be doubtful given Uncle Sam’s unlikely to help out much)
For those that are starting to see that light – that paying down the mortgage will actually put give you less liquidity, less money to invest and let compound interest work it’s magic, and less of a tax write off every year – then go ahead, read one of Douglas Andrew’s books. Check out Ric Edelman’s “The Truth About Money” or “Ordinary People, Extraordinary Wealth” or check out the blog by Kendall Todd, author of Borrow Smart, Retire Rich at http://toddballenger.typepad.com/
As a mortgage planner I see far too many people headed toward retirement years with far too little saved and without drastic change, they’ll sadly be unable to even maintain their lifestyle much less enjoy retirement perks such as traveling, golfing, or living in a retirement community. I’ve posted a paper on Equity Management discussing more of the pros and cons at http://www.yourpersonalmortgageplanner.com/EquityManagement
As a Certifide Mortgage Planning Specialist – the only designation officially recognized by the Financial Planning Association – I analyze my clients’ unique situation and life goals to create a plan for them which provides the clarity and road map necessary to achieve true financial independence.
I welcome your questions. Furthermore, I know several other mortgage planners all across the country who could serve you locally if you’d like a qualified referral.
Lastly, if you’d like to understand more about the current credit crunch and liquidity crisis which has plagued the US mortgage industry and affected the financial markets, I’ve posted a great paper at my blog http://www.MortgageMarketMeltdown.com and will be posting more material and podcasts there in the future.
Sincerely,
Sean Rafferty, CMPS
sean@yourpersonalmortgageplanner.com
Want to know more about CMPS mortgage planners, go to: http://www.cmpsinstitute.org/public/why_you_need