EZ Investing

CHAPTER 1

THE BENEFITS OF HOME OWNERSHIP

In the United States, owning a home is one of the most respected achievements that one can attain. Even the Government is willing to give us certain benefits in connection with owning a home for the general well being of the country and the economy. Here are some key benefits of home ownership:

FREE AND CLEAR

Just think of it. Once your home is finally paid for you take away the biggest bill that comes to you every month – the mortgage. You can live in your own property without the fear that someone is going to ask you to leave. Before the mortgage is paid, or worst yet, if you were still paying rent to someone, there is always the fear of not being able to make that next payment. The mortgage company may come in and foreclose on your property or the Landlord may have you evicted for non-payment of rent.  Owning your home free and clear is the American dream.

COMPARE RENTING WITH BUYING

The general idea is that if you can afford to rent, you can afford to buy. As a matter of fact, the money you pay for rent is usually higher than the mortgage that your landlord pays. I know because I am a landlord with rental properties. My rent from my properties are able to pay off all my mortgages on a monthly basis and still leave me about a $1,000 in cash flow to pay off other operational and personal expenses. I think it’s obvious to see that when you make a rent payment, that money is literally wasted. However when your landlord makes a mortgage payment, he or she is paying down a debt. With every mortgage payment, a certain percentage goes back into the property in the form of equity. As a tenant, you are actually paying down the debt of your landlord.

VALUE APPRECIATION

General studies have shown that on the average, property appreciation has always outpaced the consumer price index by about 2 to 1. This is an important factor to consider. Not only is your debt being paid down with every payment, the value of your home is also going up from year to year. I think you can already get the picture. You can see the tremendous advantages to buying and either selling your properties for a profit or renting them out.

MORTGAGE AMORTIZATION

In “Value Appreciation” we said that the value goes up and the mortgage is going down. Everything in between represents equity for you. Now equity is simply the difference between the value of your home minus the mortgage you owe on it. People will normally make use of this asset, by selling or refinancing their homes. Your property values can also be going up while you sleep. You can’t really say that about your car, can you? When you borrow money to buy a property, the banks amortize (spread it out - generally over 30 years) the debt. Each payment you make is made up of two parts: Principal and Interest (P&I). The interest is highest when the mortgage is new. You can expect that 98% or more of the payments you make on a new mortgage will all be going towards paying the interest on the property.

Only a small percentage of your payment will go to paying down the debt (principal). However, as the mortgage gets older, more value is being added to the property because the principal amount increases while the interest amount decreases.

HOMESTEAD LAWS

I live in Florida. Here we have Homestead Laws to protect homeowners from potential financial disasters. Each state may vary to what degree in which your home is protected. In Florida, the statement “your home is your castle” is important to the state. These laws can protect all or part of the equity in your home in case of some financial mishap. If for some reason you are forced to file for bankruptcy, these homestead laws can protect some or all of the equity that you’ve work hard for. When you rent a home, there is no such protection. You are just passing through.

Now that you are all excited about all the different advantages to investing in real estate, we are going to look at some of the most common and effective techniques to buying properties creatively. The keyword here is creatively. You have to be willing to play with many different options available to you in buying a piece of property. Always keep in mind that the seller, most of the time, wants to sell the property he or she has for sale a lot more than you are willing to buy it. Therefore you should think of ways in which you can buy their property creatively; that is, you want to use the technique(s) available to you that will be beneficial for the two of you.

Generally, you will find that most people are oriented towards the more traditional way of buying property: they think of a down payment, a lender to finance, closing costs and a handshake. This way the broker gets his or her commission, if there is one involved, the mortgage broker gets his share and ultimately you, the buyer ends up paying for most of the costs related to your purchase. It’s all included in your loan. You will be paying for it over the life of the loan. If you are fortunate enough to have some money for a down payment then you pay that up front. The key to the game here is to realize that, in real estate, there is no set ways of doing things. Ultimately it is what you and the seller agree on that governs the sale. After reading this book, you will hopefully have stretched your mind to a new lever of creativity.

1 - LEASE OPTION

A lease option is a legal arrangement where you the buyer agree to rent the property from the seller with the option to buy it at a later time for either a predetermined price or for a price that will be determined at the time you decide to exercise your option. Generally the rental agreement must be for a period of 12 months or more. For example, you see a house that you like. John is the seller. You find out fro