Showing posts with label Debt. Show all posts

Monday, November 16, 2009

Succeed Financially by Using Credit Wisely

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No Debt Is Good: Aiming For A Debt-Free Life

Did you know that you're being deceived? Right now, everywhere. On TV. In the newspaper. On the radio. In magazines. You're getting the same message over and over again: "buy now, pay later"; "consolidate your debt into one easy monthly payment"; "get a secure line of credit". Or the perennial favorite, "don't worry, it's good debt".

The truth is, there is no such thing as good debt. Debt is debt. It's money you owe someone, money that needs to be paid back at some point in the future. "Good debt" is a misnomer. There's better debt, sure, because there's also really bad debt. But debt is never good. Not really.

We Live In A Debt-Ridden Society

We're encouraged to buy things on credit all the time. Why? Because it's a profitable business for lenders. They're not doing it out of the goodness of their hearts. They're in it to make money, and their target is you.

Of course, it's hard to live entirely without debt. To buy a home these days you almost always need some kind of mortgage, this is true -- few people can afford a house outright, especially at the beginning of their careers and families. But you don't have to be in debt for the rest of your life. A mortgage is meant to be a temporary debt, one backed by the (normally) stable value of the property you purchased with it. It should be for a reasonable, affordable amount that can be paid back within 10 to 20 years of the purchase. And you should have some of your own equity in the house right from the start. But that's not what people do anymore. They get mortgages for 100% of the appraised value of the house. Worse yet, they get interest-only mortgages that leave the principal -- the amount you borrowed -- untouched. Is it no wonder that these people eventually find themselves drowning in debt?

It Goes Beyond Mortgages

But it goes beyond mortgages. A debt mentality pervades our society. Once you have equity in your home, for example, the banks urge you to "free up" the money with home equity loans and secured credit lines. Use the money to better your life, they say, by renovating the house, taking that big vacation you've always wanted, or -- here it comes -- consolidating your other debt.

Your Other Debt?

Your other debt? Sure. You think the only debt people have is mortgage debt? No, they have plenty of other debt. It's a banker's wet dream out there today... Credit lines. Cash advances. Overdraft coverage. Automatic credit card limit increases. Pay nothing now. If you're not careful, you can build up a lot of debt very quickly.

That's The Problem

And that's the problem: those debts have to be repaid sometime. Rack up too much debt and soon you'll be worrying about the monthly payments. Your peace of mind will suffer, and possibly other things like your marriage and your job. Is that the kind of price you're willing to pay in order to have things you couldn't otherwise afford?

The Solution

The solution isn't debt relief or debt consolidation. It's debt avoidance. You should do everything in your power to avoid debt. Because too much debt will tear you down, physically and mentally.

What if you already have a lot of debt? There are things you can do. Yes, you can consider consolidating the debt, but that will only work if you're able to stop accumulating more debt once your current payments are lowered. Otherwise, you need to attack your debt using a step-by-step plan that involves paying off the highest-interest debt as quickly as possible, then using the money you free from that debt payment to pay the next-highest debt, and so on. It's the snowball debt reduction method, and it works.

The key to all of this is willpower. Make the commitment today to be debt free as soon as possible. The peace of mind it gives you will make it all worthwhile in the end.

Eric Giguere is a proponent of debt-free living. Visit NoDebtIsGood.com for more debt avoidance tips and resources.

Article Directory: EzineArticles

Sunday, October 11, 2009

Why Property Investing?

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Why Property Investing?

Three Good Reasons to Invest in Property

Plus others you may never have considered

Many future investors ask why property investing is better than any other type of investing. Here I will give you a brief rundown as to the advantages of property investing over other forms of investing.

I'm sure you have heard about all the beat up about using investiment property to create instant wealth. But the truth is that is just not true. Successfully investing in property needs a different mind set. The change in mindset required is a change from a trader mentality to that of an asset holder.

A Trader is always looking to buy something at a lower price than he can sell it for.

There are three very good reasons for you to invest in property and they are:

The Multiplier Effect: This is the best reason. Property always trends upwards. If you buy a real estate investment propertty today, in 7 to 10 years (or even shorter) it will double in value! Stick with me and I will show you how to hold it and aquire more to grow your wealth faster.
Ready Access to Cash: Yes this is true and one of the little realised secrets of the truly wealthy. They do NOT sell as soon as it goes up in value, rather they use the increased value to borrow more money.
Property is Great Security: This is the basis for the whole philosophy behind property investing. this is the reason why banks will lend so much against real estate investments as opposed to any other form of investment. It just is plain and simply is the best form of security, even in the light of recent market fluctuations. But more on that later.

These are the three best reasons as to why property investing is still a great investment and here are some more.

Property prices Trend Upwards.
There are records going back for many years that show every property has doubled every 7 to 10 years. To verify this for yourself, just go the local department of records and examine the prices of properties for the last 50 or 100 years. You will see that each seven years a properties value is almost exactly double that of 7 years ago.
Yes it's true there are exceptions to this. In some areas prices go up faster and in some areas prices will hardly seem to rise at all with time. but well located property, as I will help you to identify, will inevitably rise in value.
Peace of Mind Investing
The main reason why property investing is "Peace of mind investing" - you dont have to follow the markets and make daily, weekly or monthly adjustments.
Property Investing is Very Tax Effective
Another reason why property investing is so great are that the costs of owning a real estate investment can be deducted from your taxable income. (You will need to check your particular circumstances in your particular jurisdiction.)
Risk and Reward
The approach I advocate in these pages of taking a long term holding position with regard to your property portfolio
Multiplier Effect
A Comparison of Growth Potential
Liquidity
What if I need money quickly? This is a question often asked by people who are trying to come to grips with the idea of balancing several million dollars of growing equity against a diminishing debt.
The answer lies in managing your credit. That is every year or so as your property values increase have them revalued and arrainge for a corresponding increase in your lines of credit from your banks. for my wife and I this happens automatically each year or so as we purchase new properties.

Do some of these reasons surprise you?

On other pages I'll go through these in more detail so you can see the analysis and support behind them.

Return From Why Property Investing?
To Freedom Steps With Property Investing

Tuesday, October 6, 2009

Lenders Mortgage Insurance - The Secret that Professional Investors Use

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Lenders Mortgage Insurance
The Secret that
Professional Investors Use

You may have already discovered lenders mortgage insurance (LMI).

Perhaps a loan officer mentioned it in passing during your borrowing capacity assessment interview.

You should always have your finance capacity assessed prior to looking for property. This will do several things for you when looking and evaluating properties.

Firstly it will help you to home in on the right property type and price range of property to look at and avoid wasting your time.

Secondly when you do find a property that fits your property investment criteria
then you are in a more powerful position. Both in terms of bargaining for the price you will pay negotiiating the terms that suit you best.

Lenders Mortgage Insurance is a Tool

Do not view LMI as an expense to be avoided.

LMI is a very useful tool that will improve your real rate of return or return on equity invested. I will outline the way that this works below.

Because you can borrow more, with your existing financial resources, LMI will also help you progress faster toward acheiving the property investing nirvana that you are seeking. Whether that be total financial independance, extra money to give to the worthy cause of your choice or the knowledge that you have total financial security.

For now just say that if you want to buy a property worth $100,000 then the bank would normally ask you to come up with $20,000 for the deposit. Which is a standard requirement of many banks.

This is where lenders mortgage insurance (LMI) comes into play. Using LMI you can reduce the amount required for the deposit to as low as 5 percent, perhaps less, depending on your financial institution.

LMI is Your Greatest Ally

Many new investors see a request from the bank to use of lenders mortgage insurance as an added expense. An additional cost barrier imposed by the banks to stop you from acheiving your investment goals.

Do not look at it this way. LMI is your friend. Professional investors (this means people like you) see the use of LMI as their greatest ally when it comes to obtaining the finance they need.

As I will show you below LMI is a very useful tool for real estate investors

LMI is a Capitalizable Expense

The great thing about using lenders mortgage insurance is that you can generally add the amount that LMI will cost you on to the amount being financed.

Why is this so beneficial to you?

Because it saves you using your precious available capital or equity. This can make an substantialf difference when you want to move on to your next investment property.

Is LMI a Tax Deduction

Lenders mortgage insurance can be viewed as a cost of doing business.

As such it can be deducted from your gross income when it comes to tax time.*

Your gross income is the rental income from your investment property and any other income you may have to declare in a tax year.

LMI Improves Your Return on Equity Invested

Quite simply put lenders mortgage insurance will improve your return on equity invested by allowing you to invest less equity in each property you buy.

So from the example above, using the standard requirement of the need for a 20% deposit with a $100,000 property. This would give a loan to value ratio of 80% and then your capital requirement would be $20,000. ($100,000 x 20%).

If the value of your property were to go up by 10% in one year to be valued at $110,000 then your net increase would be $10,000.

This equates to a 50% return on equity invested. ($10,000 / $20,000 x 100)

If by the use of lenders mortgage insurance you were able to reduce the deposit requirement ot 5% or $5,000 ($100,000 x 5%) and your property rose in value by the same 10% then ou would have a 200% return on equity invested. ($10,000 / $5,000 x 100) of 80%.

If you had $20,000 to invest you may think great, I'll just pay my $20,000 deposit and get my investment property. But if you used LMI you could lower the capital requirement to just $5,000.

In this case you culd then afford to purchase 4 properties instead of just your original one.

What's an LVR?

For a more detailed explanation see the loan to value retio page here.

For now it is enough to say that banks use your loan to value ratio (LVR) to calculate the level of debt (risk from the banks point of view) that they would be acceptable for a particular asset.

Some banks and financial institutions are more strict on this criteria than others, especially in the light of the sub-prime mortgage crisis that has caused a stir with less than optimally financed properties.

However that will not be you. You are aiming to obtain premium quality financing at terms favourable to you, not the banks.

And this is very acheivable, thousands of people have done it before you and millions more will do it in the future.

The Benefits of LMI - A Summary

In summary, lenders mortgage insurance can reduce your capital outlay requirements, enable you to progress faster with your property investment ambitions and improve your return on investment for any property.

Quick Links:

Lenders Mortgage Insurance
Borrowing Capacity Assessment
Property Investment Criteria

Loan to Value Ratio