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Is it Better to Pay Off Loans Or to Invest?

What to do with your money is always a temptation. Is it better to pay off loans or to invest your extra cash is often the question whenever a person comes into extra income. It is hard to sit on the sidelines and watch others take advantage of low stock market and real estate prices while you plug along slowly chipping away at your own mountain of debt.

The goal of becoming debt free is admirable. Just think of the opportunities you would have for investments if you did not have to sink most of your available cash into old debts. You probably wonder every month whether it is better to pay off loans or to invest any extra cash you have earned.

Here is the quandary that arises when you try to balance reasonable actions with the dreams of getting rich through investments. The thing holding you back are old debts. You must use today’s money to pay off things you may no longer even have, like all those expensive dinners out or clothes that are now out of fashion.

Most financial advisors would tell you that the answer to the question of whether it is better to pay off loans or to invest is to pay off loans and old debt as fast as you can. There are fast plans to reduce debt, and best-selling books on the subject of debt freedom are everywhere. The main point to paying off old debts, besides meeting your legal obligations, is that once you are fully paid off on those debts, your money will be all yours. You can do with it whatever you want, rather than paying your future income to others. If you have loans, you have promised future income to others, like the bank.

Most of the debt free program advisors will tell you that you need to clear the deck of loans and other bills prior to even thinking of investing. But here comes the rub. A good part of investing is timing. If you miss the big opportunity to get in on the investment before it moves upward, you miss the big chance to make money on that investment. No one wants to get in at the top, they want in at the bottom to make the investment profitable.

Recent economic hard times and the stock market downturn may cause some people to rejoice that they had decided to pay on debts instead of investing while the investments were turning downward. They are ahead of the game and will be ready to jump on board when the investment train goes back uphill again as it always does.

In bad times, it is better to pay off loans than to invest. Keep an eye on investments, and do research so that when you are loan free you have money saved and ready to invest and know where you want to invest it. Live life on a cash basis and never get caught in the loan/debt trap again.

Best Investing Advice

Many people are finding it harder and harder to save money. They wind up with no retirement fund, living paycheck to paycheck, and overspending to make matters worse. With inflation constantly on the rise, what can we do to invest? Read on to find out our best investing advice.

Investing in general, is tricky and takes discipline and some luck. Some people in their 60s and 70s may have little to low funds in their savings account and rely heavily on the only financial asset that guarantees a solid investment – their home. Running out of money is stressful, undoubtedly, and many people make the mistake of turning to personal loans to come up with financial means of dealing with debt, but that only exacerbates debt and solves nothing. Hopefully these tips will help you avoid getting a personal loan.

Investing is all about high returns right? Wrong. Most people cling to the idea of high returns when deciding what to invest their money in, and this is not always true or the only way. The things worth investing in should not be determined on high returns, at whatever initial cost, but think of it this way: start out by making sure you don’t lose money. The principle of investing is not buying at peak price and selling back at bottom rate, because then, the return investments are meager, at best. Investment successes start out with possibly accepting a lower rate of return, and focus on a creating a solid business and investing plan that reduces the wild goose, unpredictable chase. We’re talking about playing the stock market. Investors focus on the wrong thing a lot of the times. That one stock that seems to be at the top, while they should be focusing on setting realistic, more reliable financial goals.

If we focus more on the basics, before the details, we’re on the right track. For example, ask yourself some fundamental questions before you decide what to invest your hard earned money in. How long do I want to achieve certain financial goals? What is my goal? What is my tolerance for risk for low-returns? What can I afford to set aside and save for investment? Stick to your comfort zone. Set aside some time everyday to reassess your strategy and make it a part of your daily routine. Control your risks by making sure you only invest your time and money into something you truly believe in, is confident in, and you understand in totality. Stick to your initial gameplan based on your financial outlines and goals. This means deciding what you want to save for, how much you’d like to acquire, and then stick to an established process. You may need to consult with a financial adviser to get you on your feet and in the right direction, but it will be worth it in the end.

Decide what you want to invest in. Stocks? A bank program that guarantees some interest? Putting your money into certificates of deposit, savings bonds, or money market funds over the span of a couple years will aggregate some funds gradually. While playing the stock market is risky, it cuts the time in which you’ll have to wait for some sort of return investment.

Come up with a Plan B. What will happen if you fail at investing? The last option could be to take out an appropriate personal loan to compensate for some financial setbacks while you build up some more funds. Don’t give up, compare personal loans for the best low interest rate so you can repay your debt and start investing again for your future.

Property Investors Often Use Interest Only Loans to Get Ahead

Quite commonly property investors get offered ‘interest only loans’ and it all sounds a good idea at the outset but there are factors relating to interest only loans that a property investor needs to be aware of as well when using them as part of their property investment strategies. In actual fact an interest only loan can be, under the right circumstances, a very good way to get your foot in the door when property investing.

What is an Interest Only Loan?

It is a loan where only the interest is expected to be repaid each time with no principal/capital reduction.

Commonly these loans are only set up for a short period of time, say 3 – 5 years.

Such a loan could be part of a split loan where interest and principal is paid for 1/2 the loan and the other half is interest only. Thus some principal is being paid off the equity as well as having reduced repayments.

Why would you take on an interest only loan?

This strategy is often used when an investor wants to purchase a property, but at the same time keep their repayments as low as they can without taking a loan for an overly long period of time which is another strategy for reducing a loan repayment. By only having to pay the interest each repayment the amount is considerably smaller.

If an investor buys a property and the rent is not going to be sufficient to cover the outgoings of the property they may well decide to do interest only so that the short fall is not so great.

Interest only loan where there is positive cash flow.

In a case where the property will have positive cash flow even with an interest and principal loan, an investor may decide to go with an interest only loan because they have sufficient equity to purchase another property and want to keep their repayments as low as possible during the first few years of owning the properties.

Why? An investor may be offered or find an exceptionally well priced property and want to add it to the portfolio but keep the repayments on the portfolio as low as possible in the initial years.

It could well be that the investor is just wanting to keep the repayments low, but there are other possible scenarios too and following is one situation that may be the reason for taking on an interest only loan.

Using lower repayments to upgrade a property.

A property may be purchased that has excellent investment potential but does need a bit of an upgrade in the short term. There could be repairs to the property or properties and by having lower repayments the positive cash flow can be used to do repairs or upgrade the properties. The improvements will most likely have the effect of increasing the equity in the property.

When the investor then goes to refinance at the end of the interest only loan period, the property is that much more valuable because of the repairs and upgrades done with the positive cash flow funds.

Risks of interest only loans.

Property investors need to understand the risks of interest only loans before they commit themselves into this style of loan when building their property investment portfolio.

Interest only loans seem so attractive with the lower loan repayments but there is a risk so make sure that you understand how it could impact your investment.

- You purchase a property at $110,000 with no down payment because you have equity in other property

- You set up an interest only loan

- All is going well then property prices start to slip so instead of owning a property at $110,000 value it is now worth $95,000

What could happen is that with the lower value in the property you are most likely going to be asked by your financier to pay sufficient monies on to the loan to bring it in to a neutral or positive value situation.

If you cannot do this the bank is going to sell the property. This comes about because you have not being paying down the principal as you have been making your repayments.

This is the risk of interest only loans and is a situation to be very aware of when considering this option.

It is not so risky when you have sufficient equity behind you, or cash in the bank, but if you do not it could put an investor in a difficult situation, therefore it could be or have been better to purchase a cheaper more affordable property at the outset.

Build your property portfolio slowly and surely, check out the various property investment finance options available to you and decide whether an interest only loan is for you or if you should choose another altogether, or combine it and have two different types of loans working for you when you set up your property investment finance.

Copyright (c) 2010 Kaye Dennan

6 Tips for Taking Your Real Estate Investing to the Next Level

Many real estate investors have come to me with the same concern… they know they need to take their investing to the next level so they can obtain that bigger cash flow they’ve been thinking and dreaming of… but they don’t have a clear plan on just how to do it.

If you have you been thinking about taking your investing to the next level, this article is for you.

Getting your real estate investing to that next level means venturing into new and possibly unfamiliar territory… But, in order to reap those rewards… it’s got to be done. Many investors stick with the same types of deals they did when they first started investing. There is nothing wrong with that… Unless you are looking for that something bigger.

The following is a list of 6 tips to help you take your real estate investing to the next level…

Tip #1: Go After Bigger Fish

Think back to why you first got into real estate investing. I started investing because I wanted to make some serious cash, and I was tired of struggling financially. I started like many investors do-dealing in single-family properties. Then I decided I wanted a better cash flow and I wanted it fast. I went after bigger fish.

Commercial property investment deals offer some of the greatest cash flow and returns for your investment dollar. The number of units, and the size of the properties can bring the largest returns for the amount of time and money you invest in any deal.

Tip #2: Continually Educate Yourself

To get to the next level in your real estate career, you must continually educate yourself. Education and information enables you to find solutions to any challenges that may come up as you’re doing deals. Education also helps to eliminate unnecessary risk. Unfortunately, many investors believe that their lack of knowledge prevents them from doing the tougher types of deals, like large multi-unit residential or commercial properties. It doesn’t take much to get yourself informed and educated. Read books; attend seminars; talk to experts; and never hesitate to ask questions.

Tip #3: Get a Mentor

A good mentor helps you gain practical experience much quicker and more easily then going it alone. Books and courses are important. But a mentor helps you navigate deals, and overcome any challenges you face along the way. Mentors can serve as your safety net for when you head into that real estate investing territory you are unfamiliar with. If you are serious about taking your real estate investing to the next level, a mentor is necessary. A mentor will get there quicker and with much less risk than going it alone.

Tip #4: Utilize a Team of Experts

There are many people who shun the idea of new investors taking on the risk of large, complicated projects like large apartment houses or commercial real estate investments. They are right. Very large investments are not for very inexperienced or novice investors. So why not let the experts be your experts. Your team of experts works to eliminate the risk associated with your inexperience and lack of knowledge. You can get to the next level in your real estate investment career when you put together a team of people with the expertise you lack, people who already know how to navigate their way through a big and very profitable deal.

Tip #5: Develop Marketing Skills

Marketing is necessary for any business. In fact, businesses lacking a marketing system fail. In order to successfully take your real estate investing business to the next level, you must develop your marketing skills and put them into action. A very good way to start marketing your real estate business is by using direct mail. Then, when you begin to receive responses to your direct mail efforts, get yourself networking at places like local investment clubs as well as with bankers and lenders. This is an easy way to get started-take one marketing strategy, learn and hon it. Then start working other forms of marketing (networking, for example).

Your business will get to the next level only when you start learning about and utilizing successful marketing strategies.

Tip #6: Have a Can-Do Attitude

Attitude makes all the difference… especially in real estate. A person who thinks s/he can’t do a deal because it’s bigger than he or she is used to, cannot and will not get his or her business to the next level. The wrong attitude can doom you before you even try. Conversely, a person who is hungry enough for success will attain it simply because he or she doesn’t given up.

No matter where you are with your investing, these tips can help you take your real estate investing (and cash flow!) the next level. Multi-unit residential and/or commercial real estate can definitely be the right vehicle(s) to provide some of the greatest cash flow in the industry.

When you combine education, expert assistance, marketing, and the right attitude, you have the makings for conquering bigger investments successfully, and therefore achieving bigger and better cash flow deals. Your next step is to take action.

Useful Real Estate Tips For Buyers

Useful Real Estate Tips

Before venturing out to purchase real estate, whether it is vacant land or existing homes, get pre-qualified by the lender of your choosing. Nothing pains me more than to watch perspective buyers find exactly what they want, only to find out that they are not qualified for the purchase. Not to mention that, in this day and age, many sellers are requiring that an Offer To Purchase is accompanied by a pre-qualification letter.

Talk to a Mortgage Specialist

DO NOT GO IT ALONE, sit down and talk to a loan officer, whether it is at the bank where you do business already or with a company that specializes in home mortgage lending. When you have this sit down, be frank and honest, do not embellish on any of your financial details. The loan officer can only help you if they have the correct information. When you leave this meeting, you should be armed with the knowledge of knowing exactly where you stand. If you are capable of purchasing, you will have the number that you can spend, and if you are not capable of purchasing at the moment you should have the information and a step-by-step approach to get yourself to where you can buy. Keep in mind that during this initial conversation it is not necessary, nor should you give permission, for your credit history and other vital stats to be verified. Most loan officers will give the information you need to begin your search without verifying those details. If the mortgage broker or loan officer will not do this for you, find a different mortgage broker or loan officer.

Find a Buyer’s Agent

Your second hurdle to cross, is to find an experienced real estate agent, knowledgeable in the selected area’s real estate market, to represent you and help in your search. Speaking of search, your buyers agent must also be a member of the National Association of Realtors in order to have access to the MLS system. DO NOT GO IT ALONE! In this day and age of the internet, many buyers take it upon themselves to do all their own searching and investigating of the real estate market in an area. If you are just looking around a city or area to see what it has to offer, that’s great. If you are serious about buying a home, find a Realtor in that market and put them to work. Having a buyer’s agent in most scenarios costs you the buyer absolutely nothing and the seller of a listed property has their agent aggressively representing them. Remember that all listings in the Multiple Listing Service already have an agreed upon commission split between the Realtors involved in the transaction that is paid by the seller.

How Real Estate Agency Works

Here is how real estate agency works. A listed property that you have found on an area MLS search or through some other form of advertising has the commissions the real estate agents are to be paid already built into it. When that property is sold the listing agent and the buyer’s agent split this commission, which is paid by the seller of the property. The fee is already included and being paid out whether you have an agent representing you or not. Sometimes you and your agent look through what is currently listed without finding a suitable property. However, we still have the For Sale By Owners (FSBO’s) to go. In the event, you look at FSBO’s, having a buyer’s agent becomes even more beneficial because the seller is not under any obligation to disclose facts to you. While you may end up having to pay your real estate agents commission, he/she will earn every penny of it by making sure the price you pay is relative to the fair market pricing. They will assist in drafting the Offer To Purchase and Contract that protects you in the transaction, make sure all the appropriate home inspections are completed on time, help you hire an attorney to close the transaction and help you avoid all the stress.

Hiring a Real Estate Agent

• What should you look for in choosing a Realtor? That’s a legitimate question, and there are numerous answers that apply. First and foremost, make sure your real estate agent is a Realtor, because Realtors are held to a higher standard and a strict code of ethics and are the only real estate agents with access to the MLS.

• Secondly, find an agent that you communicate well with and that listens to what you are saying. You’ve all seen the commercial where the real estate agent keeps taking the clients to the same type of homes even though they have already expressed their desire to see something else. We all chuckle, but this happens. If the agent you are currently working with is not listening to you, find another agent. There are a lot of real estate agents in any market.

• Thirdly, and in a tie with second, find an honest agent. Does your agent tell you what they honestly think about a property? Both the good and the bad. Does your agent play devil’s advocate, or just sit there and try to talk you into a house you know is not right? While it may sometimes cost your agent the sale, they are working for you and are helping you find what you want. If they cannot objectively play this role, find another agent. This brings me to a extremely crucial point. DO NOT sign a Buyers Agency Agreement until you have spent a little bit of time with that real estate agent. They might tell you it is company policy or that they have to, but they do not and neither should you.

• Find an agent that brings more to the table than the ability to fill out a form. You will find that many real estate agents have extensive backgrounds in home construction, home inspections, home design, etc. These professionals are not only trained as real estate agents and can bring a wealth of knowledge to the table when considering your next home. There are many other answers to the question, but these I have mentioned are the most important.

These tips outlined above are just some of the basic tips to follow to help your purchase of real estate be a good experience. As I always tell my client, “buyer’s remorse on a car is bad, buyer’s remorse on six figures is the worst.”