Announcement 1: The Secret Life Of Michael Ross

Posted by SteveSki
On my own I would take it easy and only do one or two shoots a week and goof off at the beach the rest of the time.

Posted in response by Jim
And what the hell would be wrong with THAT?!?!

Jim, if that's what you Want to do and get Satisfaction doing that, then nothing's the hell wrong with it. BUT, if doing this is Not Satisfying and you want to do something else but lack the Drive to, then there's plenty wrong with it.

An associate "made it" Online. Was able to generate all his income online, 24/7, without handling any physical product. He had achieved what most so-called Internet Marketers fantasize about. Problem was, he was Miserable.

After 6 months he decided to go back to work. And he went back to his happy self. Happy and satisfied and fulfilled working offline - as opposed to miserable and unfulfilled making money for nothing online.

If working one or two days a week and then goofing off works for you and you are happy doing that, then do it. But know that not everyone is satisfied with that and they need to be fulfilled in other ways and must do what's right for them. And if that's working a job, then so be it.

Michael Ross

Steve,

You and I are both very fortunate to have wives that "noodge" us to keep on track. If my spouse did not have the experience of developing systems in the corporate world, I'd be in a real mess.

As to working a real job and doing something on the side, there is real value to that. When I started out in the performing business, I worked a full-time job and performed on the side.

The money I made allowed me to buy equipment, learn my craft, go to conventions, and have PLENTY of walking around money.

Sometimes, that's all some people need.

Cheers,

Millard

Man, thanks for this post and it is a real pleasure to be a part of this community.Thanks for accepting me a new member in this forum.




.

Hi Michael,

Thanks for sharing:

A couple of thoughts.

1. You did not see yourself doing what you are currently doing 18 months prior. Reminds me of a quote "You create your universe as you go along"

2. I like your idea of leverage to get the funds that you need. 3 paychecks, just over a month or two and you could have your large cash sum. Those that may have been opposed to Debt would have tried to save the cash. Which would have taken forever if they used their job as the vehicle to get the cash.

3. You are in the POWER position in your world. Where you can Choose to Create whatever lifestyle you want to. Power in life is having more than ONE option

4. You Increase your skills, to Increase your value to an employer to get the job that you wanted, at the income YOU wanted, to get the Loan that YOU wanted. Shows Clarity of your End Result, and you invented the means to get there ...ON YOUR TERMS

5. Your EGO did not get in the way of you getting a J.O.B. Seems to be an ANTI JOB sentiment amongst business owners and entrepreneurs. Specifically when they use terms like "wage slaves" etc. etc.

6. You used your marketing skills to analyze the Market ie. the Job Market to get the Job you needed. You took ACTION as well.

7. Jobs and Business are just means to get to some end, but most see the vehicle as the end in itself.

Lots of insights can be garnered from your post, especially those that have been here for a while and have read your other posts.

Thank You for sharing.

Infact I was actually SURPRISED that you were getting a loan. Surprised becasue there was a discussion a while back about a "FOREIGNERS SECRET TO WEALTH" and the discussion of debt.

That thread alone was easliy worth $20,000 to me back in 2004 I believe... But THAT is a story for another time :->

Thanks Michael

Duane Adolph

Duane,

Thanks for your sharing your discoveries.

I was actually SURPRISED that you were getting a loan. Surprised becasue there was a discussion a while back about a "FOREIGNERS SECRET TO WEALTH" and the discussion of debt.

I don't think it's counter to that discussion. That discussion is still as valid as it ever was. As is the discussion about Socializing being Bad for your Wealth. You are far more likely to Get Ahead if you are Debt Free and don't spend your money on Living It Up and Being Seen or General Unproductive Socializing.

My Debt is an Investment Debt. A Debt that makes me more money (rent and value increase) than it costs me (interest and maintenance). A Going Forward debt. As opposed to a Going Backwards debt as would be the case with loans for a Big Screen TV, Flashy Car, HiFi, Furniture and so on. And as would be the case with putting things onto the Plastic.

But even with an Investment Debt you MUST Know Your Numbers.

Too many people get the Real Estate Bug and invest like this...

1. Buy where property has Just gone up to top dollar.
2. Borrow the Maximum they are allowed to borrow.
3. Use All their deposit in doing so.

As such, they are a few years away from any Value Growth and the rent gets them nowhere near close to even just interest payments. And any slight interest rate increase sees them in Massive Financial Trouble. (They'll struggle for a few years then kiss off the property and RE as a bad joke, not realizing it was just their approach that was wrong.)

E.g. Guy buys a place for $350k at 7% interest with 10% deposit. Borrows $315k. Interest alone is $22,050. Rents it for $240 per week or $12,480 for the year - a shortfall of $9,570 per year ($184 per week).

If interest goes to 8% it will cost him an Additional $60 per week $3,150 a year. A total weekly outgoing of $244 which Must come out of his pocket. Anything that needs fixing is gonna really put the squeeze on him if the extra $60 hasn't already.

His basic return on Sales price is rent/price x 100... $12,480/$350,000 x 100 = 3.56% and he's hurting bad.

My Approach is different...

1: Buy in a Future Growth Area (rents will be higher compared to prices)
2: Do not borrow to your maximum capabilities - borrow less than you can afford.
3: Do not use All your deposit - keep some in reserve in case of little emergencies and have that Reserve fund invested, even in a term deposit, so you are making some money on it too.

With the same $35k deposit at the ready and the same borrowing power, a Future Growth area might have a place for $180,000 which rents for $180 per week ($9,360 per year) a return of 5.2% (Any weekly rent which matches the asking prices in thousands - 180 thou, 180 week - gives 5.2%. Weekly rent Above the asking price in thousands gives greater than 5.2%, less gives less than 5.2%. It's handy to know this.)

With a 10% deposit the borrowing is $162,000. At 7% interest the interest is $11,340. Rent brings $9,360 for a shortfall of only $38 per week. An amount my $17,000 in left over deposit can easily handle for 447 weeks (8+ years).

If I'd used $25k deposit I borrow $155k and have interest of $10,850 a shortfall of $1,490 ($28 per week). My left over $10k can pay that for 357 weeks (6+ years). (If I used all my deposit my shortfall is only $15 per week.)

If, with the first number, I put my $17k in a term deposit at 4%, I'll get $680 a year. I can use that to offset my shortfall by $13 a week. Meaning I just need to find $25 a week.

The thing is, I was probably Saving more than $38 a week anyway to acquire my $35k deposit. So even without my Reserve and any interest I get from it I am capable of holding onto the property no matter what. And can acquire two such properties.

(BTW, on this property, interest would have to go to 19% before I faced the same $184 a week shortfall as the first property. If I could afford it before, I'd still be able to afford it now. With 19% interest on the first property I'd be short by $47,370 a year and would most likely have declared bankruptcy by then as there would be few people around capable of affording to buy my problem from me.)

Also, I have a better chance of the rent increasing and covering any shortfall in the next couple of years when I buy this way. (The above does not include any Tax Refund I get from Interest paid or Depreciation of internal items. They are nice but I need to financially survive until that refund comes in.)

I haven't done anything Creative in the examples. All I did was Buy Smarter.

And the foreigner who is unable to get into debt, will likely think this way too if/when they are able to borrow to invest (or acquire their own home). If for no other reason than that's how they've been forced to live up until that moment - making sure they always had money left over.

By going out to the max borrowing power and using all their deposit, they are skating on thin ice and just one interest rate rise away from disaster. (Most people do it this way. No wonder it doesn't work.)

Borrowing less than they can afford and buying cheaper places with higher rent ratios and not using all their deposit, enables them to weather any financial hiccups. (This keeps you financially stable all the time.)

Michael Ross

[Ankesh]

DNO = Do Not Open

Michael,

THANKS for sharing the DETAILS of your mindset with the an example.

I particularly got a lot from the Contrast that you see in your method vs what you see other real estate investors doing.

It also cleared up that question in regard to the "Foreigners Secret to Wealth" I had alluded to in my previous post. Thank you.

I actually found your method "Bright and Exciting," because it demonstrates what can be done in real estate or any investing while minimizing your financial risk.

Lessons Learned

1. Be Conscious of your numbers (KEEP SCORE)
2. Buy smarter
3. Use debt wisely ie. borrow less than you need

Thanks Michael I will add this one to my BRILLIANT POSTS file folder :->

Originally Posted by MichaelRoss

Duane,

Thanks for your sharing your discoveries.



I don't think it's counter to that discussion. That discussion is still as valid as it ever was. As is the discussion about Socializing being Bad for your Wealth. You are far more likely to Get Ahead if you are Debt Free and don't spend your money on Living It Up and Being Seen or General Unproductive Socializing.

My Debt is an Investment Debt. A Debt that makes me more money (rent and value increase) than it costs me (interest and maintenance). A Going Forward debt. As opposed to a Going Backwards debt as would be the case with loans for a Big Screen TV, Flashy Car, HiFi, Furniture and so on. And as would be the case with putting things onto the Plastic.

But even with an Investment Debt you MUST Know Your Numbers.

Too many people get the Real Estate Bug and invest like this...

1. Buy where property has Just gone up to top dollar.
2. Borrow the Maximum they are allowed to borrow.
3. Use All their deposit in doing so.

As such, they are a few years away from any Value Growth and the rent gets them nowhere near close to even just interest payments. And any slight interest rate increase sees them in Massive Financial Trouble. (They'll struggle for a few years then kiss off the property and RE as a bad joke, not realizing it was just their approach that was wrong.)

E.g. Guy buys a place for $350k at 7% interest with 10% deposit. Borrows $315k. Interest alone is $22,050. Rents it for $240 per week or $12,480 for the year - a shortfall of $9,570 per year ($184 per week).

If interest goes to 8% it will cost him an Additional $60 per week $3,150 a year. A total weekly outgoing of $244 which Must come out of his pocket. Anything that needs fixing is gonna really put the squeeze on him if the extra $60 hasn't already.

His basic return on Sales price is rent/price x 100... $12,480/$350,000 x 100 = 3.56% and he's hurting bad.

My Approach is different...

1: Buy in a Future Growth Area (rents will be higher compared to prices)
2: Do not borrow to your maximum capabilities - borrow less than you can afford.
3: Do not use All your deposit - keep some in reserve in case of little emergencies and have that Reserve fund invested, even in a term deposit, so you are making some money on it too.

With the same $35k deposit at the ready and the same borrowing power, a Future Growth area might have a place for $180,000 which rents for $180 per week ($9,360 per year) a return of 5.2% (Any weekly rent which matches the asking prices in thousands - 180 thou, 180 week - gives 5.2%. Weekly rent Above the asking price in thousands gives greater than 5.2%, less gives less than 5.2%. It's handy to know this.)

With a 10% deposit the borrowing is $162,000. At 7% interest the interest is $11,340. Rent brings $9,360 for a shortfall of only $38 per week. An amount my $17,000 in left over deposit can easily handle for 447 weeks (8+ years).

If I'd used $25k deposit I borrow $155k and have interest of $10,850 a shortfall of $1,490 ($28 per week). My left over $10k can pay that for 357 weeks (6+ years). (If I used all my deposit my shortfall is only $15 per week.)

If, with the first number, I put my $17k in a term deposit at 4%, I'll get $680 a year. I can use that to offset my shortfall by $13 a week. Meaning I just need to find $25 a week.

The thing is, I was probably Saving more than $38 a week anyway to acquire my $35k deposit. So even without my Reserve and any interest I get from it I am capable of holding onto the property no matter what. And can acquire two such properties.

(BTW, on this property, interest would have to go to 19% before I faced the same $184 a week shortfall as the first property. If I could afford it before, I'd still be able to afford it now. With 19% interest on the first property I'd be short by $47,370 a year and would most likely have declared bankruptcy by then as there would be few people around capable of affording to buy my problem from me.)

Also, I have a better chance of the rent increasing and covering any shortfall in the next couple of years when I buy this way. (The above does not include any Tax Refund I get from Interest paid or Depreciation of internal items. They are nice but I need to financially survive until that refund comes in.)

I haven't done anything Creative in the examples. All I did was Buy Smarter.

And the foreigner who is unable to get into debt, will likely think this way too if/when they are able to borrow to invest (or acquire their own home). If for no other reason than that's how they've been forced to live up until that moment - making sure they always had money left over.

By going out to the max borrowing power and using all their deposit, they are skating on thin ice and just one interest rate rise away from disaster. (Most people do it this way. No wonder it doesn't work.)

Borrowing less than they can afford and buying cheaper places with higher rent ratios and not using all their deposit, enables them to weather any financial hiccups. (This keeps you financially stable all the time.)

Michael Ross

Hi Michael,

Since we are on the topic of real estate. A long time ago there was a lady that had posted on Sowpub stating that she needed to raise $10,000 for a house. ( the amount may be off).

You had asked her a very important question which was "What specifically do you want? The $10,000 cash or to GET the house?"

She said "The HOUSE"

I looked for this post a while ago but was unable to locate it.

In that thread you had mentioned this website www.nobankredtape.com as a means for her to acquire the property based on her situation.

I think your words were "Talk To Manny" or something like that.

I have this site bookmarked in my files.

I was wondering if you had any comments on their program good or bad. From the Sales letter it appears to be a decent program to acquire property around the world without going to a bank even if you have bad credit.

Do you or anybody you know have any experience with "Manny"?

I've read the sales letter but would love to hear any personal experiences
as I will be branching into this area (Real Estate) in the near future.

Thanks in advance Michael

Duane Adolph

Originally Posted by Duane Adolph

Michael,

THANKS for sharing the DETAILS of your mindset with the an example.

I particularly got a lot from the Contrast that you see in your method vs what you see other real estate investors doing.

It also cleared up that question in regard to the "Foreigners Secret to Wealth" I had alluded to in my previous post. Thank you.

I actually found your method "Bright and Exciting," because it demonstrates what can be done in real estate or any investing while minimizing your financial risk.

Lessons Learned

1. Be Conscious of your numbers (KEEP SCORE)
2. Buy smarter
3. Use debt wisely ie. borrow less than you need

Thanks Michael I will add this one to my BRILLIANT POSTS file folder :->

Duane,

Thanks for asking about Manny.

Basically what Manny offers in his Program is a Contract For Deed (CFD). Manny can help with Negotiations (A big plus as far as I see it) and Drawing Up the Contract.

The idea he proposes is this...

Get the house on a CFD, with an agreed upon sales price Above the current asking price. Don't be concerned about this as the payments you make come off of this price and Add to the price at the same time. (It's all done with Math and Interest rate. I'll show you this further down the page.)

After a couple or five years - whatever the deal was for - you Then approach a bank to Refinance and Cash Out the seller. The bank is less likely to make you jump through hoops because...

1. You have proven your ability to afford the property thanks to your payments.

2. The amount you paid over the course of the contract is deemed as Deposit already paid.

3. The amount being financed is Less than the property is now worth.

Now. Before you say "No one will go for this" you need to now some more...

The properties being targeted for acquisition are Vacant. They are NOT the Primary Residence (PR) of the owner. And this is important because...

If the property is the PR the owner wants to be Cashed Out so they can either downsize and have cash left, or upgrade and so they need the cash.

A dwelling that is Not a PR is not needed to be cashed out right away. The owner had Probably been renting it or something. So they are More Likely to go for it.

Manny gives you some ads to use to have people with vacant homes Call You. And those ads do work!

I ran a few ads and had maybe a dozen callers offering me their place. And even though the ad specifically said Vacant I had people call who said they could Move Out to elsewhere.

My problem was... the people who called all wanted ridiculous amounts for their places. Like one guy who had a duplex pair and wanted over $400k Each! I could buy an entire home elsewhere for less than that.

And I was faced with this because the city I was living in at the time was going nuts. A real estate client I had at the time remarked to me that in all the years they had been selling real estate in the city (over 25) Nothing was like this. Homes would sell within days, literally. Another real estate client said about townhouses, a year or so ago we couldn't give them away at $145k, now we can't hold any at $285k.

In other words, no-one was hurting to sell. Any listing was virtually guaranteed a sale within 30 days. Longer than that and the ASKing price was total fantasy land. And that's who was calling me. I was advertising at the height of a boom so my timing was off - though I was still getting calls. I was getting calls from people who had a vacant home and who were willing to sell it to me on Terms. (Remember the three rules - buy at future growth area, borrow less than you can afford, keep money in reserve. Buying these places would have broken those rules.)

One thing to be aware of with a CFD... some jurisdictions consider them a Sale at the time the Contract is signed. So whatever Taxes the jurisdiction associates with a Normal sale are applicable on the signing. So don't go into something like this thinking you don't need Any money - you'd be committing the Leaving Yourself Short mistake. Think of it in all ways Like Borrowing From A Bank, as far as your numbers go. This point is so important I'll repeat it...

When buying with a Contract For Deed, think of it in all ways like borrowing from a bank, as far as your numbers go.

Let me give you an example...

If a bank says... you need 10% deposit PLUS an additional $5k for closing costs, then you know, if you want to buy a $200k place you'll need $20k deposit and $5k closing for a total of $25k. You'll be borrowing $180k which, at 7% interest gives you Interest of $12,600 ($242 per week).

If all you have is $25k and the $180k is the maximum you can borrow, acquiring this place could ruin you. You have no reserve money and a slight interest rate rise does you in.

The same rules should be applied to any places you acquire via CFD. The Payments MUST be affordable and you MUST have money left over after the signing. You may or may not - depending on what you negotiate - pay a deposit. And depending on your jurisdiction you may or may not need to pay closing taxes, levies and fees.

Here's how it Could work with Manny...

ASKing $200k. You agree to pay $218,500 and it breaks down like so...

Home Price $190k
Interest at 5% is $9,500
Contract Term is 3 years (total interest is 3 x $9,500 = $28,500

Total thus is $190k + $28,500 = $218,500.

If the property increases in value at 5% per year, after 3 years is it worth $231,500k. All you are borrowing is either $190k (if you were paying interest only) or a little less (if you were paying principal too). Either way, it's worth $41,500 more than the $190k you'll be borrowing. That's almost 18% equity to be considered a deposit - just about double the deposit the bank would have required from you to buy now.

This is how you pay more for the place - the owner Gets more than they asked for, they just have to wait a while to get it all. Tricky, eh?

Anyway. Manny's Program is good for people who banks want to make jump through hoops - such as business owners and those who may not have a full 10% deposit. But just because you can acquire a place without that hoopla does not mean you should forget your numbers. They are even more important because of the tendency to forget about them.

Paper (contracts) are Powerful things. They can help you - or - can make your life a misery if you mishandle them.

Currently in Australia, interest rates are around 7%. And those who broke the three rules and bought at the top of the market with little growth potential, borrowed the maximum they could afford and used all their money to do so, are now scared the rates will jump a quarter of one percent. In other words, a rate of 7.25% will do them in.

Heck, years ago I was paying 14% for a property investment loan! - and that was the cheapest money I could find at the time!! So it boggles my mind when I hear these people biatch about 7.25%, they just don't know how good they really have it. Of course, if they'd borrowed less than they could afford, kept money in reserve and bought places with as close to 5.2% return as possible (or greater) they wouldn't have the concern they now have.

Here's how that tiny rate rise does them in...

They borrow $400k for a place - this is the average in a lot of suburbs in this city now. At 7% their interest is $28,000 ($538 per week)! They rent the place out at $300 a week (about standard for such a place). The rent gives them $15,600 a year. Leaving them with a shortfall of $12,400 ($238 per week).

An extra quarter percent rate rise means an additional $1,000 a year about $20 a week ($80+ per month). As they were borderline already an extra $80 a month sinks them. Maybe they could handle half of that but not the full lot. This then forces them to live a bit on Credit Cards and pay the interest on the card (going further in the hole). At least until rates either come down - or - the lease expires and they can raise the rent.

BUT, if they raise the rent the tenant might leave to go elsewhere and the place is vacant - something they Really cannot afford.

If they had just bought a place 10% cheaper for $360k the interest would only be $25,200 and their shortfall would only be $9,600 ($184 per week). Leaving them with room to breathe before it got up to the $238 per week they could afford. And a rate rise of one quarter of one percent would only be $75 a month, $17 a week and would just take them to $200 a week shortfall and still give them a $38 a week buffer zone. Not to mention the extra money they would have in reserve thanks to using less deposit.

Anyway. That's the gist of Manny's program and why it's still good to go with your numbers even if having him help you. Hope this helps.

Michael Ross

Hi Michael,

Thanks again. Your help is greatly appreciated.

I can see the benefit to the seller.
I can see the benefit to the potential buyer.

2 Questions:

#1 I may have missed something, but where does Manny make his money? ( a fee for negotiating the contract perhaps?)

#2 I'm curious if you have any specific criteria or benchmarks you look for in regard to your rule #1 i.e "Buy in a Future Growth Area (rents will be higher compared to prices)"

Seems to be the most Important key element in your system.

I will obviously have to do my own due diligence with the Real Estate Investing bus.
But other than the obvious things like a new development, or new shopping malls contructions etc. etc.

How else can you determine Future Growth Areas? or

Future Growth Areas in Older neighbourhoods?

Quick Brainstorm of ways to determine Future Growth Areas:

- You could go to the government to see their planning zones for future construction

- Drive around town and notice New construction/development sites

- A real Estate Agent "says" that it is booming

- Look in real estate magazines specifically for Phase One time products

- Follow the government money for urban renewal ie. Trump is building a hotel in downtown Toronto here. The city has been tearing up and revamping the downtown core.

Anybody else have any ideas as to where one could look or how to determine the Future Growth Potential of an area?

Thanks Again

Duane Adolph

Originally Posted by MichaelRoss

Duane,

Thanks for asking about Manny.

Basically what Manny offers in his Program is a Contract For Deed (CFD). Manny can help with Negotiations (A big plus as far as I see it) and Drawing Up the Contract.

The idea he proposes is this...

Get the house on a CFD, with an agreed upon sales price Above the current asking price. Don't be concerned about this as the payments you make come off of this price and Add to the price at the same time. (It's all done with Math and Interest rate. I'll show you this further down the page.)

After a couple or five years - whatever the deal was for - you Then approach a bank to Refinance and Cash Out the seller. The bank is less likely to make you jump through hoops because...

1. You have proven your ability to afford the property thanks to your payments.

2. The amount you paid over the course of the contract is deemed as Deposit already paid.

3. The amount being financed is Less than the property is now worth.

Now. Before you say "No one will go for this" you need to now some more...

The properties being targeted for acquisition are Vacant. They are NOT the Primary Residence (PR) of the owner. And this is important because...

If the property is the PR the owner wants to be Cashed Out so they can either downsize and have cash left, or upgrade and so they need the cash.

A dwelling that is Not a PR is not needed to be cashed out right away. The owner had Probably been renting it or something. So they are More Likely to go for it.

Manny gives you some ads to use to have people with vacant homes Call You. And those ads do work!

I ran a few ads and had maybe a dozen callers offering me their place. And even though the ad specifically said Vacant I had people call who said they could Move Out to elsewhere.

My problem was... the people who called all wanted ridiculous amounts for their places. Like one guy who had a duplex pair and wanted over $400k Each! I could buy an entire home elsewhere for less than that.

And I was faced with this because the city I was living in at the time was going nuts. A real estate client I had at the time remarked to me that in all the years they had been selling real estate in the city (over 25) Nothing was like this. Homes would sell within days, literally. Another real estate client said about townhouses, a year or so ago we couldn't give them away at $145k, now we can't hold any at $285k.

In other words, no-one was hurting to sell. Any listing was virtually guaranteed a sale within 30 days. Longer than that and the ASKing price was total fantasy land. And that's who was calling me. I was advertising at the height of a boom so my timing was off - though I was still getting calls. I was getting calls from people who had a vacant home and who were willing to sell it to me on Terms. (Remember the three rules - buy at future growth area, borrow less than you can afford, keep money in reserve. Buying these places would have broken those rules.)

One thing to be aware of with a CFD... some jurisdictions consider them a Sale at the time the Contract is signed. So whatever Taxes the jurisdiction associates with a Normal sale are applicable on the signing. So don't go into something like this thinking you don't need Any money - you'd be committing the Leaving Yourself Short mistake. Think of it in all ways Like Borrowing From A Bank, as far as your numbers go. This point is so important I'll repeat it...

When buying with a Contract For Deed, think of it in all ways like borrowing from a bank, as far as your numbers go.

Let me give you an example...

If a bank says... you need 10% deposit PLUS an additional $5k for closing costs, then you know, if you want to buy a $200k place you'll need $20k deposit and $5k closing for a total of $25k. You'll be borrowing $180k which, at 7% interest gives you Interest of $12,600 ($242 per week).

If all you have is $25k and the $180k is the maximum you can borrow, acquiring this place could ruin you. You have no reserve money and a slight interest rate rise does you in.

The same rules should be applied to any places you acquire via CFD. The Payments MUST be affordable and you MUST have money left over after the signing. You may or may not - depending on what you negotiate - pay a deposit. And depending on your jurisdiction you may or may not need to pay closing taxes, levies and fees.

Here's how it Could work with Manny...

ASKing $200k. You agree to pay $218,500 and it breaks down like so...

Home Price $190k
Interest at 5% is $9,500
Contract Term is 3 years (total interest is 3 x $9,500 = $28,500

Total thus is $190k + $28,500 = $218,500.

If the property increases in value at 5% per year, after 3 years is it worth $231,500k. All you are borrowing is either $190k (if you were paying interest only) or a little less (if you were paying principal too). Either way, it's worth $41,500 more than the $190k you'll be borrowing. That's almost 18% equity to be considered a deposit - just about double the deposit the bank would have required from you to buy now.

This is how you pay more for the place - the owner Gets more than they asked for, they just have to wait a while to get it all. Tricky, eh?

Anyway. Manny's Program is good for people who banks want to make jump through hoops - such as business owners and those who may not have a full 10% deposit. But just because you can acquire a place without that hoopla does not mean you should forget your numbers. They are even more important because of the tendency to forget about them.

Paper (contracts) are Powerful things. They can help you - or - can make your life a misery if you mishandle them.

Currently in Australia, interest rates are around 7%. And those who broke the three rules and bought at the top of the market with little growth potential, borrowed the maximum they could afford and used all their money to do so, are now scared the rates will jump a quarter of one percent. In other words, a rate of 7.25% will do them in.

Heck, years ago I was paying 14% for a property investment loan! - and that was the cheapest money I could find at the time!! So it boggles my mind when I hear these people biatch about 7.25%, they just don't know how good they really have it. Of course, if they'd borrowed less than they could afford, kept money in reserve and bought places with as close to 5.2% return as possible (or greater) they wouldn't have the concern they now have.

Here's how that tiny rate rise does them in...

They borrow $400k for a place - this is the average in a lot of suburbs in this city now. At 7% their interest is $28,000 ($538 per week)! They rent the place out at $300 a week (about standard for such a place). The rent gives them $15,600 a year. Leaving them with a shortfall of $12,400 ($238 per week).

An extra quarter percent rate rise means an additional $1,000 a year about $20 a week ($80+ per month). As they were borderline already an extra $80 a month sinks them. Maybe they could handle half of that but not the full lot. This then forces them to live a bit on Credit Cards and pay the interest on the card (going further in the hole). At least until rates either come down - or - the lease expires and they can raise the rent.

BUT, if they raise the rent the tenant might leave to go elsewhere and the place is vacant - something they Really cannot afford.

If they had just bought a place 10% cheaper for $360k the interest would only be $25,200 and their shortfall would only be $9,600 ($184 per week). Leaving them with room to breathe before it got up to the $238 per week they could afford. And a rate rise of one quarter of one percent would only be $75 a month, $17 a week and would just take them to $200 a week shortfall and still give them a $38 a week buffer zone. Not to mention the extra money they would have in reserve thanks to using less deposit.

Anyway. That's the gist of Manny's program and why it's still good to go with your numbers even if having him help you. Hope this helps.

Michael Ross