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IPILI 1%
& 2% Payment Option Loans
"Maximize cash flow on your rental properties, while at the same time
create the appearance of profitability for your lenders"
The POA Loans in the industry are uniquely
designed in a sense that it gives the borrower ultimate flexibility in
payment structure. Flexibility, when used appropriately can generate higher
profit levels for your cash flow holdings, generate additional operating
capital and simultaneously demonstrate
higher profit levels per holding to
the lending world,
thereby helping you procure higher levels and more
competitive financing for your business' needs.
Of all the many benefits
with
this type of financing, there are only a few disadvantages. By selecting
the right properties to consider financing under this structure and by
employing sound money management, you can all but eliminate any
disadvantages associated with converting your traditional mortgages to the
"Flexible Payment Loans" available today.
Here's how it all
works:
|
Loan Type |
Value |
Mortgage |
Gross Rent |
Interest Rate |
PI Payment |
Taxes &
Insurance |
Net income |
Annualized
Income |
|
Conventional |
200,000 |
160,000 |
1,700 |
7.000% |
1.064.48 |
275.00 |
360.52 |
4,326.24 |
|
Payment Option |
200,000 |
160,000 |
1,700 |
2.000% |
591.39 |
275.00 |
833.61 |
10,003.32 |
|
|
|
|
|
|
|
Difference |
473.09 |
5,677.08 |
|
Payment Option Fully Indexed
Payment: |
1,086.06 |
|
|
|
|
|
2% Payment Option |
591.39 |
|
|
|
|
|
Interest Only Payment Option |
960.00 |
|
|
|
|
|
Annual Deferred Interest |
4,423.32 |
|
|
|
|
Explanation:
The above property (Duplex) generates a monthly
gross rental income of $1,700.00.
Its
current financing structure consists of a traditional 7.000% Fixed Rate
Mortgage with a payment of 1,064.48 per month. After property taxes and
hazard & rent loss insurance, the property generates a monthly "Net
Operating Income" or "NOI" of $360.52 per month, or $4,326.24 over the
course of a year.
By restructuring the financing to a "Flexible
Payment Option" loan, you will have the option of making one of three
payments. The minimum payment (Usually 1% for Owner Occupied properties and
2% for Non-Owner occupied properties), and interest only payment or a
regular amortizing payment, similar to that one of a traditional mortgage
(Example #1). Since this is a rental, let's assume you make the 2% payment
over the next twelve months. By doing so, you would have saved $473.09 in
monthly debt service; or in other words, you would have generated an extra
$473.09 in positive cash flow. Your total net operating income increases
from $360.52 to $833.61 netting you an additional $5,677.08 per year in
income.
How is this possible? It is made possible
through this loan program. There is however a catch.
The
catch is; by making the 2% minimum payment, you failed to meet the minimum
required interest only payment of $960.00. The difference between what you
have been paying and the minimum required amount is $386.61 per month; or
$4,423.32 at the end of the year. This amount is added to your total
balance owed. While that may initially seem harsh and seemingly risky; now
it's time to introduce financial planning, leveraging and simple money
management techniques into the equation to reduce if not totally eliminate
the risk behind an increasing mortgage balance amount.
While you owe an additional $4,423.32 to your
mortgage, didn't you retain an additional $5,677.08 in profit?
By taking
the
additional profit and simply keeping the money in your operating or escrow
account, you guarantee yourself to never be in an "Upside" down situation
when you are ready to sell your property. In five years, you'll owe
$22,116.60 more than what you initially
borrowed, however,
youre holding on to an additional $28,385.40 in profits.
Now it's time to
discuss "Putting your money to work for you"
A. What if you took the additional annual profit
of $5,677.08 and reinvested into an interest bearing account spawning
dividends higher than the rate
at which
you borrowed the money?
B. What if you took the additional annual profit
of $5,677.08 and
applied such to credit card debt with interest rates in excess of the
rate
at which you borrowed the money?
C. What if you took the additional annual profit
of $5,677.08, and two additional duplexes generating identical returns?
Example A. Generates a higher profit assuming you
can earn interest in excess of the 7.2%
rate you
are paying.
This can be very easily accomplished by investing in one of the thousands of
mutual funds available on the market. The difference between interest
earned and interest paid is pure profit.
Example B. Saving interest is no different than
earning interest. Most credit cards charge interest in excess of 7.2%. By
simply paying off higher interest debt, you are countering the 7.2%
interest
you are
paying on the
mortgage. The difference is pure profit.
Example C:
To really expose yourself to a much higher profit potential; what if you
took the savings and reinvested such back into your Real Estate Investment
Business, buy acquiring an additional property or two? I don't know about
you, but I can certainly buy at least one $100,000.00 property with
$5,677.08, hold and rent it for a year, and turn a quick $20,000 in net
profit. Meanwhile the additional $4,432.32 is only costing you an
additional $319.12 per year in
interest!!!
This type of leveraging is certainly beyond the
normal square box most of us are accustomed to. However, study the
principal structure, analyze the possibilities and do the math. If you're
one to sit back and watch the game, this probably isn't for you. If you're
one to join in on the fun and make things happen, this concept can be very
rewarding. Some call it
micromanagement; I call it "Smart Investing by
Leveraging"
There are
other variables to consider when making a decision. In fact, an explanation
of such will lead to boring reading. If this concept interests you,
email us with your information and let's exchange information. In the
end, we will gladly provide you with an honest opinion and overall analysis
of how this type of structure may or may not benefit your needs and the
expectations of the property on hand.
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