If you have invested in the stock market, you know what moving money can mean to you: going on margin to leverage yourself into another position or selling a part of one position to get another position. Why would you do that or why does anyone do that? It's simple, to maximize your profits. Money is a rare resource, as you know, and therefore must be allocated into the proper channels for it to perform at it's best. So why not use real estate as well? I know some of you have now leaped to your computers to say, "Are you kidding?” Not really.
There are many ways to use real estate to help you grow your money. I will speak of a few and let you mull it around and see what you think. We shall begin with the option arm, which in my opinion is an option for disaster most of the time. It will, however, work for you if you work it, and not vice versa. The one plus of the option arm is that the payment is made at an artificially low rate, which of course can also be its major detriment. This rate, known as the pay rate (not the interest rate), is designed to let you live now and pay later as the difference between the pay rate and the interest from the real interest rate is added to your balance each month. Your balance goes up, not down. If you use the option arm to your advantage, you pay the minimum payment each month, let the unpaid interest accrue until the end of the year, and then pay the unpaid yearly interest in one payment. Net result is using a great deal more of your money all year long (depends on the size of the loan) and still getting the maximum interest deduction for the year.
The option arm exercise takes great discipline because if you don't pay it off, you end up paying interest on interest for a very long time and you lose one of the major tax advantages of real estate. So what else can you do? You can move money between several pieces of real estate to allow you to increase the value in one or more of the properties.
One of my clients has three homes, one primary and two second homes. She likes to buy houses, fix them up and eventually sell them at a nice profit. She has a very low interest rate arm on her primary property, which was rehabilitated and is now done, and several types of arms on her other two properties. One of the second home properties has gone through the fix up and is about finished; the other one is about to undergo the work. The following will demonstrate her money moves to make all of the rehabilitation work:
1. To complete the rehab on the initial second home she added an equity line on her primary residence. She also used part of the line for the down payment on the next second home.
Roger Schlesinger's Mortgage Minute is heard on hundreds of radio stations and daily on the Hugh Hewitt radio show and Michael Medved shows. Roger interacts with his hosts and explores the complicated financial markets in order to enlighten his listeners and direct them along their own unique road to financial freedom.
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