Okay, so you have $200,000 sitting around and you feel like investing it in a home or two. Sounds like a wise investment, only if you plan on flipping the home.
Kent Simpson talks about the abundance of cash buyers in some areas. Read this for more info : If There's A Recession On---Why Are There So Many Cash Buyers Right Now?
Personally, this is great for a realtor because they don't have to go through the headaches of waiting for the borrower to be approved for a mortgage. But is this the right decision for the person buying the property?
Let's take a quick look into fundamentals of basic financing. In my opinion, it would be common sense to pay for a property in cash if I was going to flip it within 1, 3, or 6 months. It does depend on where you have this money and what kind of interest that you are receiving on this money. Meaning, are you making more on where the money is located? Can you keep a higher rate of return where it's at and get a lower interest rate? Is it costing you some sort of penalty to withdraw this money?
Now, let's look into your investment without using your cash. If you were to keep the property for over year, it would be best to actually think of more long term than sort term. In my opinion, saying that you are going to sell the property in 6 months to a year is a huge risk, because you could be caught in the middle. Look at the foreclosure market in Florida. Many of these homes were bought as a flip home, but also by having a mortgage on the property with little money down. These types of investors didn't have a cash flow. This is a whole different subject in regards to investing, which can be talked about later.
There are really only two types of investors. Your short term investor or long term investor. And we can even define investor as someone buying a home as their primary residence or as their second home. All of these types of purchases have to be broken down, making sure that you get the best bang for your buck. You basically want to maximize your leverage.
Maximizing your leverage..... What do I mean about this? You want to make your money work for you. You want to make your home work for you and not work for your home. This doesn't always mean by paying cash, putting down large down payments, or paying down your mortgage as soon so possible. By doing that, it just becomes a security blanket. Our parents parents were taught to either pay cash for things or to make sure things were paid off quickly. This could be true for some things, but you really need to break it down.
Overall, it's very easy to say that you want your house paid off as soon as possible. Again, this is just security and ease of mind for you and your future. But are you maximizing your money at it's fullest potential? Probably not. There are so many different types of income vehicles out there that you need to learn about. Some of the cheapest mortgage vehicles would be the FHA mortgage, your pay option arms, and some different types of money merge accounts. Hence why you need to surround yourself with a mortgage professional, a good accountant/CPA, and a financial planner. You need to have a game plan and a business plan. Don't jump into buying a home blindly, no matter if it is going to be your primary home or an investment property.
IMPORTANT TIP : Word for the wise, be very careful and leery of those trying to sell you those programs that are promised to pay down your mortgage in 12 to 20 years. These are called Money Merge Accounts, by such companies as CMG and UFirst Financial. They aren't for everyone. These are labeled as mortgage accelerator programs. And you even have people outside the mortgage industry selling these programs. Not saying that these programs are very bad for you, but they aren't the best of the best as advertised either. You need to speak to a mortgage professional that will show you all options. When someone sells you just one option and only one option, that is usually not a good sign.
ONE KEY THOUGHT : The money invested in your house, especially if you paid it off, is not working for you. And it becomes even more crucial in what you are doing with your money, if not making a mortgage payment. Please read this comment by Adam Waldman : 02/24/2008 08:09 PM The ending is right on.
Disclaimer : Keep in mind, everything that I just mentioned above is solely my opinion, but based on 15 1/2 years of experience and knowledge in the mortgage industry.
For more information on FHA loans, please go to this link. The FHA Expert
For more information on how you can obtain your dream home, please click here : Mortgage Financing Options
For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags !!!!!
Copyright © 2008 by Jeff Belonger