Alternative Use of per Month

If you're a savvy investor, you may say "Hold on here. The cost and equity advantages illustrated in these tables ignore the extra $412 a month that I will have to pay to reap these interest-saving advantages." You may figure that you could invest $412 each month and earn (over the long term) a rate of return of 10 percent a year. After 15 or 20 years, your pile of investment funds would outweigh the interest savings and equity build-up that the 15-year borrower receives.

Indeed, many property investors select their financing to maximize their annual cash flows and use of leverage (OPM). These investors try to build portfolio equity, not max out their equity in any one property. This strategy can yield big returns—and in my early days of investing I followed this path. It does, though, create more investment risk.

We go through some calculations along these lines in Chapter 10. For now, recognize that the 15-year benefits shown result without risk. Choose investments that promise yields of 10 percent, 12 percent, or higher and you could end up with lower returns or even lose your principal. Home equity typically offers more security than stocks, bonds, or rental properties (see Mortgage Secret #98).

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