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andy
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« on: January 14, 2009, 10:53:52 AM » |
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Would you borrow $10 from Amy to earn a return of $2 after investing the money?
answer is , "it depends... how much does amy charge?"
REGARDLESS if amy charges a % with fees, she will have a total amount charged. We need to find this amount out.
If we earn $2, we know that if we pay amy 20% after its all said and done [$10 + 20% = $12], we break even. So would you pay amy $15 for the total amount borrowed? OF COURSE NOT!
So why do "investors" have mortgages, where they may earn 12%ROI, CAP rate %, when you figure, INTEREST [kills the deal alone], fees, closing costs, don't even get me started on the realtor fee... We can figure an $80k mortgage will take , oh , just guessing >$200k to pay off after 30 years. The real figure is higher at 0% down
Thats 250% opportunity cost!
If we earn 12% per year [yes yes, 250% divided by 30 years is 8.x%], why pay over 12% for the investment? This particular scenario would generate about $90k for the bank [quick interest], and if the property cashflows, w/out paying principle down any extra... only $64k is returned to the investor, if $180/mo is cashflow per month. These #s have been pulled from an actual example.
My point is, I will not pay Amy 250% on my $10 investment to earn back $12. thats borrow $10, earn twelve, and pay back $25. To me this is unacceptable. Yes of course, this spans over the course of interest timeperiod, which is better than not having it at all! MY point is though:
Do you repeat buying with mortgages? IF so, when do you stop, or would you argue there is not time to stop?
Saving money to some degree and pay cash for your properties? [I have math-proof this is faster than using mortgages]
When is it time to pay cash [to the month]?
When is it time to buy the 2nd rental house with all variables enacted?
I found a way to make rentals pay off inside of THREE years, borrowing money, and have it faster than cash payoff. I need to start calling you guys and explaining my theory, which I cannot poke holes in. in short, MAKE COMPOUND INTEREST WORK FOR YOU. Its about time.
I deeply regret that I am at work when the west knox rei is in session [all others for that matter]. Maybe I'll cut work one day and visit, because I would love to share this information that took me over 4hours of sitting at at desk banging my head, that can save YEARS, and face it , none of us are getting younger!
Andy <--- wants to get the word out
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