Show me how to do it:
Other People's Money or OPM: One of the biggest benefits of real estate is you can buy it with other people's money(OPM)- While OPM can be any ones I will discuss the most standard ones that we get from banks and other financial institutions. The money here lies in the idea which is to acquire more and more good debt (Good debt is debt undertaken to buy something that goes up in value). This is the single most important benefit of investing in real estate. With time your debt amount either remains the same as all you pay is the interest or becomes less if you pay back principle as well as interest. Even if you pay interest only the rate by which your property goes up over a long period beats the interest paid hands down.It is almost like borrowing money to gamble in a casino, winning lots of money , and then handing over the the initial amount borrowed by the source such as a friend only herein real estate you are not gambling but is sure and certain and also the amounts we are talking about is much larger as well.
Wealth Basics Rule # 3: Always use debt to buy real estate even if you can pay cash down.
The amount of money you have can be used as an initial deposit in buying a few properties instead of one. With time when each of them grows in value you loan will remain the same and you'll be making money from Inflation and value rises.
Important Lesson: Debts are of two types Good and Bad
Good Debt: Debt undertaken to buy something that goes up in value such as home loan....it helps you move ahead financially.
Bad Debt:Debt undertaken to buy things that drop in value some times immediately after purchase. Credit card, car loan etc.
2 comments:
Pretty good article.. But just an opinion that when interest rate goes up I will have to sell out the property which i bought as an investment as my emi also goes up. Any idea to tacle this??
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For advanced investors my suggestion would be to refinance the property and let the bank deduct the interest from the refiannce itself. For a person with just a few investment properties who is investing to retire comfortably it is advisable to forecast the outgoings accuratley. One step can be to have a fixed loan for a period that you are comfortable with. While in the fixed loan repayment period, you can try to increase your repayment to a level which does not attract penalty bt y the lender and goes toward the principle.
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