Understanding Realty
Interest Only Mortgages for the Wealthy Investor
It is for these types of investors that the interest only
mortgage options should be used. The borrowers are business people,
with business plans, and enough knowledge about the workings of
commercial and mortgage loans, to understand a good investment from
a bad. The commercial mortgage industry is a huge market, and since
most of the monies borrowed exceed the $100,000.00 amount, the
international bank rates, or LIBOR, are used for determining the
commercial mortgage rates.
Wealthy investor usually means successful investor. These
investors are very educated in the investment process, be it real
estate or stocks, they understand the risks they’re taking, and how
to maximize the risk for the profit. The real estate investor and
the interest only mortgage are a perfect pairing. The real estate
investor looking to retain an investment for short term can really
benefit from the lowered capital investment of the principal
payment. Especially in a situation where the investor is improving
the property and the value is certain to increase.
Many of the consumers, who are being offered these interest only
loans, are not business people; they’re not wealthy investors
looking for a way to invest excess capital. They’re simply consumers
looking for a place to live.
The investor normally has an investment analyst at his or her
disposal, with tools and resources that can determine a good
investment, the risk involved, and measure it against the amount of
risk the investor is willing to take. All these factors go into
determining if an investment is a buy or sell. This particular
borrower fully understands the risks involved in an interest only
mortgage, and has spent the time needed to determine if the product
is right for his investment needs. The real estate investor is a
business person, not a consumer borrowing to pay for a place to live
When you compare this with the consumer buy or sell, you’re not
even comparing apples to apples.
Some investment opportunities for the wealth-building investor
will at some point require an additional amount of monies to turn
the investment into a profitable situation; do you suppose the
average consumer has another ten or fifteen thousand dollars at
their disposal, in case the interest only option should become a
problem, or they’re home should need unexpected repairs, in order to
remain at the purchase value? Most likely, the answer here would be
no.
The short-term real estate investor or developer wants to keep
his or her expenditures at a minimum during this investment period,
saving as much of the expendable cash as possible for the actual
renovation or preparation for sale of the property itself.
The less money spent on mortgage payments, or in the investor’s
eyes, investment expense, the more money there is to actively and
aggressively pursue potential buyers and increase the value of the
property. This is good business, and good business is based on sound
business decisions.
It is here that every consumer needs to stop and reevaluate their
borrowing situation against that of the investor. The
wealth-building investor is a business person. Their livelihood
depends on their knowledge of the product they market, in this case
real estate. Normally, a business person is not going to take a risk
with their personal investments; not like the risks they will take
with a business investment. Why? Because the home they share with
their family is much more important than a business deal, most are
not willing to risk losing their home.
I still am not an advocate of the interest only mortgages, but
for some situations they are the best option. In a business setting,
when many factors have been thoroughly discussed, and the interest
only option has proven itself to be the best choice, I think the
interest only mortgage should be used. But this option should remain
as the knowledge of LIBOR is among the masses, virtually unknown.
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