4 Steps to Assembling a House Buyers Jigsaw - for Investors and Home Seekers

Whether you are an Investor or Home Seeker buying a residence to live in the hardest thing about buying and holding a property long term is the financing: not so much obtaining the loan needed to buy a house but managing the on-going mortgage payments.

For 10 million families whose homes went in to foreclosure the task was far too difficult. While the blame can be laid at the feet of Banksters and slick talking Mortgage Brokers and Real Estate Agents who oversold the properties and the financing a lot of the fault is due to the unsuspecting saps falling hook line and stinker for the lure of easy money housing loans that would put them in to their dream home. Few home buyers have any financial education, and they can hardly manage the household budget. When emergencies crop up, the economy stalls or catastrophic financial events occur their ships are not just at sea but well and truly shipwrecked.

The average home buyer is ill-equipped to manage a mortgage as they go about taking out a home loan for hundreds of thousands of dollars simply on a wink and a nod from a mortgage broker and real estate agent. Buying a home using finance is not a simple matter when it obligates the borrower to maintain mortgage payments rain, hail or shine. It is more like putting together a gigantic jigsaw puzzle with a lot of pieces.

Here is an example of what I found to be an effective approach broken down in to 4 simple steps - although in order not to fall you should get assistance for what is in fact the biggest investment most people make in the whole of their life.

Step One is finding the right property. As Real Estate Agents are not financial wizards and their commissions are bigger when they sell you the most amount of property you can afford listening to them is your first mistake and will cause you to fall in to the lion's den. Mistake number two is listening to a mortgage broker whose remuneration is also based on a commission structure with maximum reward for them from the biggest home loan they can persuade you to take on. Again they are not financial wizards, and only recently did they have to qualify for a minimum understanding of things like budgeting and financial commitments of customers to match their capacity to pay. However in working out the figures for customers there is little understanding of the impact of changes in the economy, and the need for income protection - that insures against loss of employment not just for sickness or accident.

So in step one you need to ensure that the house you select and the mortgage commitments you take on are not too big for your pocket. Best you get a tailor to help you - such as Cygnet Trading LLC who can tailor your real estate acquisition and financing to take care of contingencies and make sure they fit!

Step Two involves the structuring of the Contract of Purchase of the property. How many Real Estate Agents ever do that? When after all they are just in the business of selling you a house and representing their client (who is Not You) - it is the Seller!

How you structure the home purchase will have a large baring on the size of loan you qualify for and whether it is possible for you to get 100% finance as well as being able to drag out equity sufficient to pay for the mortgage at least for the first two years. I can never recall having ever paid any deposit on a property out of my own pocket. Here is an example of how it can be done.

The closest time to using my own money was when a New employer refused to lend me half a million dollars for an auction on the next day. They were ever so polite - explaining to me that as I still had a large mortgage with another insurance company (my previous employer) there was a company policy not to provide another loan until their competitor's loan was extinguished.

That same afternoon I was busy out of the office - running around to a number of banks, increasing the limits on all my credit cards. *WARNING: Do NOT try this yourself - it can be DYNAMITE!

At the auction I was the under bidder when the property was passed in and the auctioneer asked me to wait behind to discuss with the seller - as there was an issue with the highest bidder (their next door neighbor with whom there was a feud). Fair enough I waited - the property was worth over $500,000 and I struck a deal with the seller for $430,000 ($30,000 was to go to his wife for a painting - lol). Bottom line was I took out of my pocket a couple of credit cards to make the deposit.

Funny the next day the AGM at the office apologized for making me miss out on the home. He just about fell over when I told him I did not miss. Of course he asked how did I manage to buy? I simply told him "Oh I just used my credit cards" and left it at that.

So that is one way to secure a property - and you have to know what you are doing - or have pretty good assistance. I proceeded to get a loan from a bank sufficient to settle using equity in my first property as the down payment and a few months later refinanced that bank loan through a private money lender in order to borrow out enough equity for 18 months to cover interest on the mortgage payments. Within that time I sold the first property paid off most of both loans and then refinanced the house with my employer for $500,000 - which not only gave me enough to cover interest payments on the loan but also enough to buy another property. *To keep it brief I won't outline that - except to say it was done in a similar manner.

A few years down the track while I was overseas I was contacted by the neighbor who bought the property from me for $750,000 - and the profit was tax free. Not only did I not use any of my own money to buy any of the 3 properties I did not make any mortgage payments out of my own pocket as all payments were made using borrowed funds.

Step Three - Refinancing and Tax. Those loans were structured in such a way that the Tax Office put money in to my pocket for borrowing the interest payments. That zeroed my assessable income and so I paid no tax over the years - but had tax dollars in my pocket to cover living expenses - plus the tax free profit on each property when they were sold.

As a property increases in value there is an equity build up. It is like having a money tree in the yard and can be harvested regularly for whatever you want. If the borrowings are for investment purposes the interest expense is usually tax deductible so you can effectively cover all mortgage interest by using your money tree and do as I have for years - live off the tax rebates.

Step Four is rinse, repeat and cashing out. By using the equity build up to acquire additional property investments your asset base increases. It does not necessitate higher risk as if you buy well and the market rises your equity increases which actually reduces the debt to equity ratio.

When you buy well the appreciation in the value of the properties is usually greatest in the first few years (in terms of percentages). Few Real Estate Investors recognize this and so they continue to hold properties way pass their use by date. If you are a Real Investor you should be taking profits and rebalancing your asset portfolio in the same manner as Professional investment managers.

Cashing in properties before they turn to vinegar is not only prudent money management, it reduces market risk and enables you to reduce or retire debt.

If you need assistance with Real Estate Jigsaws CONTACT me with the Magic Word "Jigsaw"