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Have you heard about all the bad press about Cash Flow ARMs and all the other kinds of loans that contains options where your loan balance increases over time? Much of it is warranted! This loan is a tool and just like any tool, there is a right way to use it and an incorrect way! Most people that get Cash Flow ARMs do it only to receive a lower payment on the home that they live in. They couldn’t afford it using any other kind of financing. They finance the house to the hilt and quickly they get upside down when their loan amount begins to get bigger! Pay option ARMs are a good choice when your home is seeing good appreciation (5% or more) because this type of loan has the ability for negative amortization (the loan balance can actually increase over time). In this case the amount of appreciation will easily out pace any increase in the loan balance. Pay option arms are good for property that you are financing under 90% of the value. In fast appreciating markets you can get away with a higher amount but leaving 10% equity in the house is bare minimum. Why? Well, If you sell the house through traditional means, your selling cost could be anywhere from 9-15% of the sales price! No one likes the idea of having to come out of pocket to get rid of a house! You want to make money! Real estate investors may get some of the largest benefits in using Smart Loans. When you buy a property that conforms to a few of the criteria mentioned earlier, using pay options will let you get the following: 1. Flexible Payment Structure – Just as the name Pay Option ARM states, you have different payment options. One, you have the payment based on the start interest rate of the loan (which could be as low as 1% or less!). With the second option, you have the interest only payment. Three, There's an option to pay based on a 30 year amortization term. Lastly, the fourth pay option is based on a 15 year term. The last 2 pay options allow you to pay down the loan balance if you want. 2. Increase Monthly Revenue – Cash flow is the main objective when dealing with rental property and cash flow ARMs are one of the best methods to increase it. Used correctly, cash flow ARMs can increase the revenue on you rental by over 100%! 3. Minimize The Cost Of Empty Units - Anyone who owns rental property has had vacancies. If you haven’t yet, just wait you will! One single month of vacancy, property dependent, can just about destroy the profit for an entire year! Don't think so? Go ahead and add up the holding expense for carrying the note, utilites, cleaning, and a little touch up paint and see what you get. If there was a way to reduce the largest expense, the mortgage, by a third, wouldn’t that ease the pain? Again, cash flow ARMs are the way to go! 4. No more worrying about unexpected repairs – In the same regard as the vacancy example, you will be better able to shrug off the effects of an unexpected repair because your cash flow has over doubled. 5. Give incentives to residents for good "behavior" – You can get very creative here. Credit for paying before the beginning of the month (for example, payment by the 25th). Discounts on longer term leases such as an 18-24 month lease, etc. The extra revenue from using a pay option ARM can smooth out you tenant churn and give you ability to assist you with tenant retention, particularly in a renters market! 6. Leverage the property to payoff personal bills – If you cash flow from switching to a pay option arm goes from $250 to $500 a month, you can use that extra money to pay off your car, credit cards, student loans, whatever. 7. Save the additional revenue to purchase more property! – You will be able to use pay option arms to buy even more property! That way your business starts to feed off of itself without you needing to use your the earning from your 9 to 5 to finance it!
Article Source: http://www.rightarticle.com
About the Author: Fred Hopkins is an 8 year consumer loan industry veteran and a real estate investor. He specializes in bad credit home loans and investment property loans. To sign up for his FREE Investor Financing Newsletter go to www.mountaintopmtg.net/investorloans. Get a unique version of this article from our mortgage article directory
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