Using the Equity in Your Properties to Create Wealth 

As an investor you should always own more than one property
and leverage the properties you do own.

 Case 1

You purchase a property for $250,000.00 and make a down payment of industry standard of 20% or $50,000.00 which leaves you with a mortgage of $200,000.00  at the present mortgage rate as of March 6, 2010  of 5.01% 30 year term  your payment will be $1,074.87.

You have $50,000.00 of equity in the property.  

 Case 2

You purchase a property for $ 250,000.00 and pay cash.
You save $1,074.87 a month in mortgage payments.        Your property is F & C
You have $250,000.00 of equity in the property.

 Case 3

You have owned a property for many years with a value of $250,000.00 and you have
paid off the mortgage and now have a property with no mortgage payments.       Your property is F & C
You have $250,000.00 of equity in the property.

 In all three of these cases you have equity, this equity is your money and what you do with it is your choice. 
As in physics, where you have opposite and equal reactions, there are opposite and equal investor ideas,
everyone should do what makes them most comfortable, just remember nothing ventured nothing gained,
if your comfortable where you are then stay there.

John Kenneth Galbraith said "We have two classes of forecasters: Those who don't know--and those who don't know they don't know."  The same is true with investors.

 
In case 1, this is a typical non-creative real estate transaction, put money down and get a mortgage.

In case 2, this is done by someone who is security conscious and believes that by not having to pay a mortgage they are safe from what happens in the world.

In case 3, this is someone who has had a property for a length of time and subscribes to the theory of case 2, when the mortgage is paid off they feel secure.

 Security or peace of mind is very illusive and very expensive. 
Equity that is not being used is "dead money" and also very expensive.

In case 1, we have $50,000.00 of unused money, in case 2 and 3 we have $250,000.00 of unused money.  
How can we maximize our equity, create wealth, and increase our peace of mind.

 We know that cash goes into a piece of property and becomes equity, but to get our equity out of a piece of property without selling the property costs us money.  A lender will only return our equity in pieces, called loan to value.  In case 1, most hard equity lenders will not even loan money in the 2nd position and if they do it will be a small amount, maybe 15 to 20 thousand and at a high rate of interest.  In case 2, & 3 it may be a high of 80% and the lender will make you jump through hoops to receive that much, and you will be paying a much higher rate of interest than in case 1 and even at 80% you will still have $50,000.00 of "dead money" or unused equity.

Dead money or unused equity will save you at present rates of interest 5.01% a month, using that unused equity and renting it out (hard equity lending) can bring you 12-14-16-18% return.  The rule of 72 says if you invest your money at 14% it will double every 5 years. 
$50,000 invested at 14% will be worth $ 100,000.00 in five years. 

Not having a mortgage of $50,000.00 @ 5.01% will save you $16,123.00 over a 5 year period.

Peace of mind is very expensive.

 Creating a mortgage or note on your equity may be the easiest way to get 100% or more from your equity out of your property.

     How you create the terms of the note is very simple

Time - Interest rate – Principle – Payment (You only need three to determine the fourth)

You create the terms however you choose.   

You start with the Principle.  (You can choose whatever principle that will work for you)

You should choose a Payment that is reasonable, but not too high or low.
You choose a reasonable Interest; remember you want to make this note marketable to another investor. 
The T ime will just come out.  You can add a balloon to the note as an added enticement to an investor.

Example:

Principle - $50,000  - 8% Interest  - Payment - $750.00

Length of Time in this case will be 88.5 months

You could add a balloon to the note as an added enticement to an investor.

 

In all three case's  – You create an entity, a corporation or LLC that will be the payee on the note you create. 

You have created the note, now you record the note to make it a public record.

You open an account with the entity you created.  Each month you will make a payment to this account creating a seasoned note. 

Now you are in a position to work with motivated sellers and take advantage of F&C property

 

What are the advantages of creating a note on your equity.

The note can be used in several different ways. 

  1. As a down payment on a larger piece of property.
  2. As option money on a purchase of another property.
  3. You could sell a portion or the whole note for cash now.
  4. Used as an exchange of other properties.
  5. As collateral for a short term or bridge loan, etc.
  6. Possibilities are the same as if you have cash in your hand, and it's safer than cash.

  

(Taxes & Insurance) have to be paid whether you have a mortgage or not.
 

                               
    
Your present property with equity you're not using (dead money)

                     You create a note on the equity in your property

                   Example

                                              MORTGAGE NOTE

    FOR VALUE RECEIVED the undersigned promises(s) to pay to the order of  ____________________
the principal sum of   Fifty thousand dollars / 00 cents ( $ 50,000.00 )
The payments are as follow,   $750.00 per Month of each year. Payments due on
5th of each Month, starting November 7, 2010 
In the event the payment is not made at the end of each month, or extended by note holder in writing and agreed to by both parties,
then the property and all rights of ownership shall revert to note holder.
This note will balloon 3 years (36) months from November 20010 – November 2013
The balloon payment will be Ten thousand dollars/00 cents  ( $ 50,000.00 )
In the event the balloon payment is not made on or before November 2013, or extended by note holder in writing and agreed to
by both parties, then the property and all rights of ownership shall revert to note holder.
 ( No pre-payment penalty ) 

 This note is secured by a mortgage on the real estate located at 
1234 N. W. 89 St, Miami, Florida 33142 

Folio # 30-34-32-031-0570
Legal Description:     1  JACKSON PK ADD NO 3 PB 7-256          4 OR 26427-0347 0438 7
                                  2 LOT 18 BLK 4                                                5
                                  3  LOT SIZE 76.000 X 120                                6 

Each maker and endorser severally waives demand, protest and notice of maturity.  Non-payment or protest and all requirements necessary
to hold each of them liable as makers and endorsers and, should litigation be necessary to enforce this note, each maker and endorser waives
trial by and consents to the personal jurisdiction and venue of a court of subject matter jurisdiction located in the State of Florida and County of     Dade
Each maker and endorser further agrees, jointly and severally, to pay all costs of collection, including a reasonable attorney's fee in case the principal of this
note or any payment is not paid at the respective maturity thereof.  This note is to be construed and enforced according to the laws of the State of Florida. Default
shall include, but not be limited to non-payment of any respective installment within ( 15 ) days from the due date set out herein.

 Unless specifically disallowed by law, should litigation arise hereunder, service of process therefor may be obtained through certified mail, return receipt requested;
the parties hereto waiving any and all rights they may have to object to the method by which service was perfected.

 ______________________________           __________________________________
Witness                                                                                                                            
______________________________           __________________________________
Witness                                                    

 STATE OF:         Florida              COUNTY OF:    Dade
       Before me personally appeared _________________________________
to me well known and known to me to be the person described in and who executed the foregoing instrument, and acknowledged to and before me
that he executed said instrument for the purposes therein expressed. 

WITNESS my hand and official seal in the State and County aforesaid, this       day of         2010                

                    ___________________________

Notary Public

State of ____________________

My Commission Expires:

                                                                                            

  • You use the note as a down payment of a larger property

  •                Plaza
  •                        
  •                              You have used your equity to increase your wealth
  •  

    In Summary

Creating a note and using the equity will be utilizing your entire properties value.

 Example:

Present Condition - You own a 12-unit apartment building that has proven to be an excellent investment and now has a sizable amount of equity. You have an opportunity to purchase a larger apartment building, that with good management will also be a great investment, but you don't want to sell your 12 unit building to purchase the larger building.

Possible Resolution - You work with this motivated seller of the larger apartment building and he agrees to take the note you have created previously on your property which is secured by the equity in your 12-unit apartment building as the down payment on the his property.

Benefits to You – You will have increased your wealth, as you now own two excellent investment properties.  The note created has the terms that both benefit you and the seller, and you didn't have to pay all the closing costs and the time it would take to get a mortgage on the new property.

Benefits to Seller – The seller moved his property with the minimum amount of problems and costs, and will receive all the tax benefits of an installment sale.

The seller may or may not have received any cash in the transaction, but has received a note collateralized by a 12 unit apartment building, and will be receiving payments each month from the note, plus the payments each month on the note created on the remaining equity on the property he just sold.  If the seller received cash in the transaction he has to do something with the cash.

Placing the cash in the bank or CD will give him a return of less than 2% to 3%.  Receiving a monthly payment will give him a return of the terms of the notes. 

He also has the same options as stated above.

What are the advantages of creating a note on your equity.

The note can be used in several different ways. 

  1. As a down payment on a larger piece of property.
  2. As option money on a purchase of another property.
  3. You could sell a portion or the whole note for cash now.
  4. Used as an exchange of other properties.
  5. As collateral for a short term or bridge loan, etc.
  6. Possibilities are the same as if you have cash in your hand, and it's safer than cash.  

Questions, comments or suggestions on any of these articles, Send us an

or call Wayne H. Wagie 786-326-4747

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