Some random thoughts

From: Mark Laszczuk


Okay kids,
I had some random thoughts. I was checking out John Reed's site and read his thoughts on nothing down deals. Now, I know there are people here who believe in doing a deal for 106% of the purchase price, claiming they have put nothing into the deal.
Now, I know nothing of this strategy, but it seems to me that you are shooting yourself in the foot here. In the end, you have a loan or loans that are greater than the value of your property, and the interest payments would surely eventually exceed what you would have paid if you put in even 5% in the first place.
Is this correct, or is it way off? If it is correct, why do people believe it is a good idea to pay more in interest in the long run than putting down an initial deposit. Wouldn't that put your plans back?
Like I said, these are just random thoughts I don't really go for or against this strategy, just hoping someone can put it into perspective for me.

Mark
'no hat, some cattle'
 
Last edited by a moderator:
Reply: 1
From: Rolf Latham


Hi Mark

A no down strategy depends on finding a deal that provides good income AND capital growth.

It is favoured by many investors simply because of the leverage that such a deal can offer. At 106 % ANY profit made is money for jam since the investor has none of their own money tied into the deal.

ta

Rolf
 
Last edited by a moderator:
Reply: 1.1
From: Rixter ®


Hi Mark,

Plus also to add to Rolfs post above, buying under fair market value diminishes any over capitalized borrowings from the beginning.

©

Happy Investing,
Rixter® :)
 
Last edited by a moderator:
Reply: 1.1.1
From: GoAnna !


Hi Mark

My thoughts are if you can borrow 106% then your plan will move along faster than if you saved cash for deposits. The joy of growth assets like property is that they provide leverage for the next purchase.

Of course you don't want to borrow 106% if you can't see any profit in the deal. But then I can't understand why you would want to do so with a 20% cash deposit either. For a property to be a good deal it would need to be soon providing you with income and/or capital growth. Otherwise it is hardly an investment. And if you think about it a positive income return on an investment on entirely borrowed funds is in fact an infinite return. Who could ask for better than that?


GoAnna !
"Opportunities are usually disguised as hard work, so most people don't recognize them."
-Ann Landers
 
Last edited by a moderator:
Reply: 1.1.1.1
From: Mark Laszczuk


Thanks for that guys. Helped to clarify some lingering questions.

Mark
'no hat, some cattle'
 
Last edited by a moderator:
Top