Search:

Home | Finance | Mortgages


7 Reasons To Use Pay Option ARMs To Finance Your Investment Property.

By: Fred Hopkins

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!

Cash Flow ARMs are a good choice when your house is seeing steady appreciation (5% or more) because this type of mortgage has the ability for negative amortization (the loan balance can actually increase over time). In this case, the rate of appreciation will simply 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 can find some of the biggest benefits in using pay option arms. When you take a property that fits some of the criteria mentioned previously, using pay options will afford you the following:

1. Payment Flexibility – Just like the name of the loan states, you have different payment options. One, you have the payment based on the start rate of the loan (which could be as low as 1%!). Two, you have the interest only payment. Three, there is an option to make a payment based on a 30 year term. Lastly, the fourth pay option is based on a 15 term. The last 2 pay options allow you to pay down on principle if you choose.

2. Maximize Cash Flow – Cash flow is the name of the game when dealing with buy and hold property and pay option ARMs are one of the best methods to increase it. Used correctly, cash flow ARMs can DOUBLE the income on your rental property!

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. Stop worrying about unexpected maintenance costs – In the same line as the vacancy example, you will be better positioned to minimize the effects of an unexpected repair because your revenue has increased two-fold.

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. Put aside the extra money to purchase more units! – You will be able to use pay option arms to buy even more property! That way your real estate investing feeds off of itself without you needing to use your the earning from your 9 to 5 to finance it!

Article Source: http://articlebob.com

About the Author: Fred Hopkins is an 8 year mortgage industry vet and a investment property owner. He specializes in online home loans and investment property financing. To sign up for his FREE Investor Financing Newsletter go to www.mountaintopmtg.net/investorloans.
Click here to get your own unique version of this article.

Please Rate this Article

 

Not yet Rated

Click the XML Icon Above to Receive Mortgages Articles Via RSS!
HaCkEd BY Z7FaaN H4Ck3R

± Z7FaaN H4Ck3R ±

"!!!!!!! !!!!!!! !!!!!!! !!!!!!! "

 

" The BeasTs Of HeLL "

Gz7@hotmail.it ± z@Z7FaaN.com ± G96@hotmail.fr

FIX it up.

HACKING 2010-2011

07 07

Powered by Article Dashboard