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Want to Achieve Financial Independence? Invest in Apartment Buildings!

Most people want to achieve financial independence. But very few manage to become financially independent. Investing in apartment buildings is one of the most reliable and fastest ways to reach financial independence. Most people know that you can make big money in commercial real estate. But they think that it is only for people with lots of money. In reality, you do not need much money to become a commercial real estate investor.

One of the main reasons why most people fail to achieve financial independence is because they think that it is impossible so they do not even try. But with the right vehicle the chances of becoming financially independent are good. Investing in apartment buildings is one of the best vehicles to achieve financial independence.

The good news is that it is fairly easy to buy apartment buildings. It is possible to get started with little money and the necessary knowledge is easy to acquire. But you need a lot of courage to buy your first apartment building. Even if it is possible to get started with very little money, having a couple of thousand dollars available will make things easier. You want to pay for an inspection of the building. The cost of such a survey depends on the property, generally smaller surveys cost $1000-2000. You need to get an appraisal in order to get a loan. The cost of the appraisal can sometimes be rolled into the loan. The price of an appraisal depends on the property as well, starting from around $1000.

In most cases, you also need to come up with earnest money. How much earnest money is needed is negotiable. If you are dealing with a motivated seller, the money you need to provide can be small. But the real advantage dealing with a motivated seller is the possibility of getting seller financing. The banks will only lend you 70-75% of the appraised value. A motivated seller will lend you the remaining money. Closing costs in commercial deals are often high but most of them can be rolled into the loan and a motivated seller may lend you the money you need to close the deal.

It is difficult to buy your first apartment building. But given the handsome cash flow a successful deal will give you, it is well worth trying to get started. Even smaller deals should provide you with a four figure positive cash flow, per month. Already your first deal will get you well on your way of achieving financial independence.

Hard Money Loans – Easy Profit With Hard Money

A hard money lender is an alternative to traditional bank financing. They are usually private individuals with an abundance of money that they will lend to real estate investors on a short-term basis. These loans are not limited to the purchase of real estate but can also be used for the repair of distressed properties.

Hard money loans are called this because they charge higher than market interest rates, have higher upfront fees at closing usually in the form of points and will lend to a much lower loan-to-value (LTV) ratio compared to traditional bank financing. The terms charged by hard money lenders vary from lender to lender and are sometimes influenced by the experience level of the investor and the amount of transactions they have completed with the lender. Lenders will generally lend anywhere from 60 to 75% of the after repaired value (ARV) at a rate of between 10 to 18% and charge points from 2 to 8 points. The loan terms usually range from 6 to 18 months.

These loans can be an effective tool used by real estate investors as they build their real estate empire. With the recent tightness in the lending market, it has become more difficult for investors to get loans for investment properties. Traditional lenders are requiring a higher down payment percentage and they will not finance the rehab costs. For investors this means they are required to come up out-of-pocket costs for the down payment and the rehab. For some investors this amount will limit their ability to purchase a profitable property. Hard money lenders on the other hand will lend based on the ARV instead of the purchase price. If an investor is able to purchase a property at a low enough value then they could finance the entire acquisition cost and rehab cost which allows them to essentially purchase a property with little to no money down.

Starting August 1, 2008 Freddie Mac is lowering their loan limit for investor loan from ten loans to four loans. Investors who wish to invest in more than four properties will have to find alternatives to loan endorsed by Freddie Mac. Hard money loans can provide an alternative source of financing for real estate investors.

Traditional bank financing usually takes 30 to 60 days to close on a loan. Hard money lenders can sometimes close on a loan in as little as 48 hours but the average is seven business days. If a real estate investor finds a deal that is on the verge of being foreclosed on in a week’s time then they would not be able to purchase that property using traditional bank financing. A hard money loan is the only viable alternative in that scenario.

Choosing FHA Home Improvement Loans

In order to obtain affordable homes through loans easier, people can turn to FHA home improvement loans. This gives them the opportunity to borrow up to $25,000 for homes and there is no equity.

In a nutshell, the loan that you make with FHA home improvement loans can go beyond the value of the house that you want to buy.

Choose the right FHA home improvement loans program that will assist you in the light or moderate rehabilitation of the properties. There are features such as the construction of non-residential buildings on the property.

This may mean an asset in the long run. Let’s say you purchase a home and they eventually make a playground. This will be good news for your children.

The program you sign up for can also give you the loans that you need that can assist you in the 20 years time. It may be for single or multi family properties. Either way, the maximum loan amount should be seized.

If you want to improve your FHA home improvement loans, the best thing to do is to not exceed the total structure. There are fixed rate loans and check whether the programs you choose offer the same thing.

There are eligible borrowers for these scenarios. If you qualify, then you are lucky because you are a step closer to getting your own home.

Just make sure that this home is what you really want. If you can speak with the person who is leasing the property, do so. Provide him with the information he needs from you. You must also come into an agreement of the timeline.

The date must be clear on when you have to pay and when he can expect the money. As the person buying the property, you should always make sure that you pay on time so that your loan does not increase.

Remember that there are inflation rates when ever you skip a payment in any loan. That is the same case with FHA home improvement loans.

Another thing to remember is that the FHA home improvement loans can be used to finance the permanent property improvements in your investment in the long run.

With that being the case, you get to protect or also improve the basic livability of the home that you are spending for. A home is an investment therefore you should always make sure that you are taking the right steps to maintain it.

The Benefits of Interest-Only Loans

You may have heard people talk about interest-only loans when they talk about their investments. Whilst the definition of what interest-only loans are is simple to explain, the reason behind them is something that has many people scratching their heads. Interest-only loans are simply that, loans where you pay only the interest expense and do not pay any of the principal amount off the loan. Meaning your loan balance remains exactly the same for the term of the loan. Easy! Now why would you do that? Many people from an older or more traditional way of thinking approach loans as something that you want to pay back as soon as possible and having full ownership of your asset is paramount. Whilst this may be true of an asset like your personal home for instance, an investment is something completely different.

By having the borrowed funds that were used to buy the investment property set to interest-only repayments, the total expense incurred in operating that investment is reduced as you do not have to factor in principal repayments on your lending. This is good as it allows your property to become cash flow positive quicker, at which time some of that income can be used to fund the next investment.

But what about the loan balance you ask? Most investors take a longer-term view, especially when investing in property. It is expected that over time property will increase in value, allowing the owner to make a profit when the property is sold. By taking the funds that you would have otherwise used to pay off principal amount of your loan and use it to invest in another property for instance the return on your dollar is generally assumed to be more.

As a very basic example, a couple purchase a rental property for $300,000. To accomplish this they borrow $200,000 from the bank. The set the loan to interest-only repayments and as a result make a small profit on a monthly basis from the rental. They use this profit to buy another rental property for the same amount a year later, borrowing exactly the same amount. So now they have 2 properties worth $300,000 each and have $400,000 of loans. Over a period of 10 years (long term view remember) the house values may have doubled (house prices double approximately every 10 years), now they have 2 homes worth $1,200,000 and loans against these homes for $400,000 still. The couple are now in a far stronger position than they would have been had they bought one investment property and had been paying the loan off over that time. This does not take into account rent increases over that time, which would put the couple in an even stronger position.

Interest only loans are not for everyone and I would recommend talking to your accountant or financial advisor before you sign yourself up for one if you are unsure.

Investing in Property and Looking For an Investment Loan

Why invest and why take out an investment loan?

People’s needs for investment are as varied as the investment vehicles themselves. Some want to own their home outright, pay the kids’ university fees, or take world trips; while others want to start their own business or retire on a comfortable income.

The reality for most of us is that we won’t be able to afford these things on our salary alone (unless you’re fortunate enough to be the CEO of a major corporation). The key to successful investment is to leverage, that is, to use an investment loan to improve your capacity and increase your return.

Why invest in property?

Investing in property is the safest way to invest, but we also believe in a diversified portfolio to minimise risk. Similarly, Australians have trusted investment property as their favoured investment vehicle for generations – and with good reason.

We recognise the cycles, the incredible advantage that appropriate leverage (making capital gains from borrowed funds) offers, the benefits of rent return and taxation relief in servicing those borrowings, and the significant growth achievable over time. It is not unusual for ordinary investors to accumulate four or more properties over 10 years – and the financial flexibility and cash flow outcomes can be exceptional, giving you piece of mind.

Property allows you to leverage. With only $20 000 cash invested (plus around $10 000 upfront costs) it is possible to invest in a $200,000 property, making your earning potential greater.

Can you afford to invest in property?

The question should really be, “can you afford NOT to invest”, whether it be in investment property or some other form of investment? While everyone should be investing to give them more options in life, property investment may not be suited to everyone. Most people on a standard wage can service an investment loan. After all, the investment loan interest is first met by any rental income you generate. As a general rule there will only be a small shortfall on the interest on your investment loan. Traditionally the investment loan shortfall, as well as other costs relating to your investment property would be met by your personal income. Many investors however include a capitalising line of credit in their investment loan package so that they can draw on this to meet any shortfall costs as opposed to paying same from their personal income. Instead, they use as much of their personal income as possible, not to pay any shortfall interest on the investment loan but to make additional repayments to their home loan. This way their home loan is paid off much more quickly.

With your investment loan you should also remember that negative gearing does deliver some relief to servicing your investment loan on the way through. While most investors will wait until the end of the financial year to claim their tax deductible shortfall you can in effect claim the investment loan shortfall on a monthly basis. Check out the ATO website on deductibility of interest on investment loans.

What history can tell you about property

History shows us that all property whether it be investment or owner occupied doubles in value every 7 to 12 years. Each property market is cyclic, that is, it goes through times of fast growth followed by little or no growth. When one market, eg Sydney, is in strong growth, other markets, eg Brisbane, will be in a little or no growth phase. The markets are referred to as being counter cyclic – when one is doing well, another is doing not so well.

This means for example that when the Sydney’s growth slows, Melbourne’s picks up followed by Brisbane. This is the reason we emphasise the importance of investment property as a mid to long term investment. The key however is to identify the markets with the highest probability of short to medium growth and lowest probability of downside risk. This enables you to build equity faster and therefore add to your investment property portfolio.

It also means that there are always new opportunities for investment property as there are always markets somewhere which are experiencing their growth phase. Choosing investment properties in growth markets assists in developing well-balanced, diversified portfolios.

Property in the future

In the past all property was good investment property, and a lot of people did very well out of it. While those days are gone, there are still exceptional opportunities for investors who understand the current market influences such how our population is changing, how family size is changing, how types of employment are changing, and how the economy is changing and what influences it.

So why wait? Research property – buy with your head not your heart – be an informed purchaser and most importantly make sure your investment loan is also working for you.