Though people have warned investors against using negam mortgages, savvy new real estate pros realize the advantages—and are profiting from these mortgages. Their greatest reason for relying on these mortgages is the increased cash flow they provide and the opportunity to reduce their debt-to-income ratios. Cash, as we cannot say often enough, is king.
You know that getting your hands on money today is far better than having money available tomorrow. The idea is to stop giving money to the bank and give it to yourself instead. Isn't it better to have cash now than somewhere down the road? Of course it is. That's why you should go with the negam mortgage program.
If you have the ability to make a larger mortgage payment, but have the option of paying a smaller one, we say you should make the smaller mortgage payment to the bank, and put the rest of the money aside. In that way, you are paying yourself, not the bank.
The best advice is for new real estate investors to take the money that they save and invest it in any one of a variety of vehicles that, at the worst, will pay a 4% rate of return. At least the borrower is earning something, whereas if he or she gave it to the banks, it would go into what could be called a dead equity account.
Moving through the numbers one last time: If a person has $200,000 in equity in his or her home, how much in interest does it earn every year?
That is not a good rate of return. It's the not the rate of return that a real estate pro is looking for on an investment.
By taking out a negam loan, we are ensuring that our money works for us, not for the bank. We can invest the money that we are saving by putting it into a monthly mortgage savings account; and we can invest that money and earn a compound rate of return.
Let's look at what we call the ''power of compounding'':
With a 30-year $200,000 negam mortgage, if you take the $700 that you would have paid into a monthly mortgage payment and deposit it in a compound account that gives a 4 percent rate of return, you will have accumulated $204,000 at the end of 17 years.
What could you do with that money?
Well, one thing would be to pay off the $200,000 mort-gage—13 years ahead of when it would have been paid off using a conventional mortgage. And there would still be $4,000 in cash left over.
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