Real Estate and Financial CouncilHelping you succeed in 2017 and beyond!
January-Tools to change your financial future
What’s the one thing that would benefit almost every average household? More money at the end of the month, instead of too much month left at the end of the money! That’s what we call Cash Flow, and it is, of course, very important. Cash flow is basically what you have left at the end of the month after you are done paying the necessary expenses. So, now that we know what cash flow is, how do we improve it without breaking our backs working too much overtime? How do we turn our cash flow into passive income, so we no longer have to work nine to five every day just to make ends meet? Life is too short to waste it all on a job that may not satisfy everything you desire in life. Gaining this sort of knowledge is not only investing in yourself, but also in your family and their future.
Improving cash flow doesn’t mean that you call up your boss and ask to receive as much overtime as he will send your way, it simply means that you need to consolidate your debt as much as possible so that, even though you are still making the same amount of money, there will be more left at the end of the month because your expenses have gone down. Sounds simple, right? Well, it can be simple if you find the right people with the right knowledge to help you. If you go to a bank to see about getting a lower payment on your mortgage, they will simply tell you to refinance. That strategy may work for the short term with smaller payments, but in reality it is benefiting the bank far more than it is benefiting you. The banks fund themselves off interest, and the more you refinance a mortgage, the longer you pay interest! Same goes for most loans. Banks will always tell you to refinance because it is the best thing for them. What they don’t tell you is that if a loan is amortized, the actual interest rate is roughly twenty times what they say it is. It is not simple interest, it is on an amortization schedule. So, instead of using typical bank refinancing options, perhaps try a line of credit. There are multiple types of these credit lines, which I won’t delve into at the present. The difference between a line of credit and a typical refinance is this; a line of credit is simple interest. A line of credit is not on an amortized schedule, meaning that they don’t have a predetermined time frame to pay it off, so long as you make payments. On average the normal line of credit is smaller payments than an amortized loan, and more of that is going to principle than on an amortized loan. Some lines of credit require a balloon type payment if not paid off in the allotted loan time.
That is one way of consolidating your debt, and a powerful tool if used correctly. You can start using that tool immediately to help you and your family breathe a little easier each month! Now that we know about a line of credit, and hopefully have learned to use this wonderful tool to our advantage, how do we put it too work for us? This question is probably one of the best to ask ourselves, because if we don’t, we will be in danger of spending it on things that don’t make us any money in the long run. Even if you only have a few hundred dollars extra each month, you can still invest your money into real estate. Some people may say that that is not enough money to do anything in real estate, but that is simply not true. The key is to use any leverage you may have with money, tools such as a line of credit, or possibly partner with someone who already has money. The point here is to learn creative ways of acquiring control over properties, so that you can start gathering rent, flipping houses, doing wholesales, or just a buy and hold strategy.
The bottom line is to understand that it’s “not how much money you have left over” that’s really important, but “having the proper knowledge of how to utilize that money and make it work for you!” This is what we’re all about, and will be more than happy to review your situation and help guide as needed.
January- Tools to help you succeed in 2017
Last week we talked about the use of a line of credit, and this week we want to go further in depth of the lines of credit that are available, and share more on how they could benefit you personally, or as a business. There are two main types of lines of credit available, secured and unsecured. Both have the potential to benefit you financially, not only to help consolidate your debt, but as a tool to help gain control over more assets.
Getting a secured line of credit simply means that the lender will put a lien on one of the borrowers’ assets. The most commonly known form of this is called a Home Equity Line of Credit (HELOC), also known as a “second mortgage”. The reason the HELOC is called that is simply because it uses the equity in your home as collateral, and if you fail to pay back the loan, the property is taken just as in a regular mortgage. However, one of the major differences between a regular mortgage and a HELOC is that the HELOC turns the equity in your home into a credit card so to speak, meaning that you are free to use that money on whatever & whenever you choose. A secured line isn’t just for homes, though, you can use other forms of collateral such as fixed assets (land, buildings, equipment), inventory, real estate, or accounts receivable (for businesses). Secured loans usually have lower interest rates, and qualify for larger amounts since there is less risk for the lender.
Unsecured lines of credit are known more as a “person loan”, meaning that the loan itself is not backed by any sort of collateral, but guaranteed only by the borrowers’ credit. The maximum amount loaned could be anywhere from a few thousand to several hundred thousand dollars. These types are usually harder to obtain, and have a higher interest rate than a secured line, and tend to have lower maximum lending amounts due to the greatly increased risk for the lender. The bonus about an unsecured line of credit is that should the borrower default on the loan, none of the borrowers’ assets can be touched, much like a credit card.
While both lines have their individual advantages, both types have a fair bit in common as well. Both can be beneficial for debt consolidation in such a way that you could use the money to pay off your car, credit card, boat, unexpected business expense, or any other debt you may have and transform it into one payment a month with one simple interest rate. This method will (on average) drastically reduce the payment amount, since you now have one payment, not multiple. Best of all, your cash flow goes up immensely making it easier for you to fund investment deals! Both lines can typically be set up on a revolving balance, meaning that any repayment made immediately becomes available again to the borrower. The best way to take advantage of this is to set your paycheck to drop into that line, essentially making your payment each month (twice even, depending on how often you get paid), but that money is still available for you to pay your expenses as well. Basically, turn your line of credit into your “new checkbook”, with a lot more money in it!
As always, we would love to help you learn more to Properly use this tool at its fullest potential, and in the most informed way possible so that you don’t use it the wrong way. Even the best of tools can hurt you if not used wisely! Feel free to leave us a note with your thoughts or questions!
Leveraging your equity to acquire assets
Grow the cash flow
Now that we have your mortgage and other debts under control, let’s talk about leveraging your equity gains to acquire more assets to acquire more cash flow. There are many options to choose from, and you will want to them over thoroughly before you get started in a specific direction. The easiest way to start is to acquire a rental property. Simple enough plan, right? The basic plan is you get a house for $25,000. The payment on the house is let’s say $300 per month including all expenses and then you charge rent of 600 per month. Now you’ve just increased your cash flow, and you have a new asset that someone else is paying for you to gain equity in and eventually own. If you have gained equity in your home through setting up a better payoff plan through the mortgage & debt acceleration program we offer, you have now set yourself up to loan against that equity to buy your first rental property. You should, of course, figure out your financing options so you can search within your budget and be ready to make an offer when the time comes. Now you just need to do some hunting to find the right deal that suites your budget and creates a steady, low risk cash flow stream. There are basically ten good things to look for in a rental that will help keep you safe as you tie up your assets to leverage your new deal;
- Check out the neighborhood quality. You can always talk to renters in the neighborhood to get the real scoop on things, as they don’t have any vested interest and will tend to be more honest about the current surroundings.
- Property taxes should be figured into your calculations as an expense
- Crime rates. This is an important thing to consider, as you want your rental to attract healthy tenants, and no one wants to live in a ratty area worrying about violence or theft.
- Job Market
- Amenities such as nearby stores, shopping malls, and other stuff people enjoy having close access to.
- Building permits or development plans that may affect the area either for the good or bad of your investment.
- Number of listings and Vacancies in the surrounding area. If everyone’s moving out, there is a reason to investigate.
- Rents-How much is stuff around you renting for?
- Natural Disasters. Obviously don’t want your property investment to be blown away in a tornado every other year.
Now after you’ve done all your homework searching by way of listing sites such as:
So, after you’ve done all your searching and found some deals that suite your fancy, get a realtor and go for it. Bingo you are on your way. This is obviously a slightly abbreviated perspective on the whole process, but with some extra guidance you can do very well by setting yourself up as a landlord. Thankfully we have people within Pride Consultant who will be able to help guide you into the right knowledge to proceed with confidence. Other things to consider with your rental investment is using a rental management company to help deal with anything that may arise with the acquisition of tenants, the setting up of proper rental agreements, repairs and any other necessities to maintain a good quality, efficient rental. Another one of the great reasons to be set up as a landlord of multiple rentals is the vast amount of tax advantages you get to utilize. In a later post, we will be going over the benefits of owning rentals and how they can pay you in more than just income, but through tax advantages to help you pay for your kids or grand kids college, (tax free), and much more.