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Millionaire Now! by Larry NusbaumThis blog is based on the organizational principles found in my new book, "Millionaire Now! - A Financial Toolbox with Seven Steps to Wealth". |
The effects of various real estate loan scenarios:
1. 30 Year Fixed at 5.94% = $1787.09 monthly payment
2. 5-1 ARM fixed for first 5 years at 5.69% = $1739.30 monthly payment (fully amortizing)
3. 5 (or 10) year Interest Only at 6% = $1500 monthly payment. No reduction of loan balance and no negative amortization (no higher loan balance when sold or refinanced)
4. 40-year ARM at 5.5% = $1547.31 monthly payment (lower with negative amortization loan)
5. OPTION-ARM with a teaser start rate of 1.6% = payment of $1049.81 per month (first year). Interest payment based on 7.45% would be $1862.50. (the difference of $812.69 is added to the loan balance each month). The house would have to appreciate $9752 per year to keep up with the increasing loan balance (3%). Add about $150 to get to a fully amortizing payment. This program remains a great loan, when handled properly, for the slef-employed, for investors with short time horizons and for bonused employees.
Read A CALL TO A.R.M.s
NOW THE DEVASTATING IMPACT OF HOUSING'S BIG BUST ON MY RENTAL HOUSE IN BERKELEY:
1. Before the bubble -
- Purchased a SFR in 1994 for $120,000
- 2005 Market Value - $670,000
- Original Loan $96,000 (80%)
- Loan Balance today $83,069 (6.64%)
- Original rent $1050
- Today's rent $1900
- Today's PITI $900 ($1000 / mo. net income)
2. After the bubble -
- Purchased a SFR in 1994 for $120,000
- 2006 Market Value $637,000 (if use a 5% drop from high)
- Loan Balance today $83,069
- Today's rent $1900
- Today's PITI $900 ($1000 / mo. net income)
Folks, if bubble enthusiasts continue to tell those who don't sell that your "gains are on paper only", and that's true, then aren't their (short term) losses just on paper as well?
Ben Stein: "Buy at the bottom in real estate (and in everything else -- read on), or as close to the bottom as you can see, and patiently wait for the boom to come back. In the meantime, live in your house and enjoy it. A house is a machine for living, as the famed architect Le Corbusier said. It's not a machine for making money. If it does make you money that's all to the good, but it's not the main function."
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