"if you mortgage a property for more than your investment in it, you have a built-in profit even if you can't pay the mortgage at maturity."
I don't understand why and how this takes place, can some one explain to me? thanks!
2007-01-19 19:25:21 · 3 answers · asked by micklia 1 in Business & Finance ➔ Renting & Real Estate
gee, whoever wrote that sentence should have his head examined! if you are studying for a real estate exam, that is such an unfair statement. it's very confusing, but this is what he meant:
real estate prices go up. they always go up. it may take a long time for them to go up, but they go up.
therefore, if you place a mortgage against your property greater than your initial investment, by the time that the mortgage reaches maturity, the price of the property will have risen enough that you will still make a profit, and you will be able to pay the mortgage. for example:
you buy a house for $300,000. you put up a down payment as your investment in the amount of $60,000. then the mortgage equals $240,000. let's pretend that the mortgage terms state the maturity date to be 30 years forward. so you live in the house while inflation is raising the cost of housing, for say 10 years. in those ten years, you will have made monthly payments, thereby reducing the initial mortgage balance of $240,000. but in that same time period, that house would most likely be worth a million dollars or more. so then, if you mortgaged the house for another $500,000, at that very time, you would have only put $60,000 into a total investment of $800,000. if the house is worth $1,000,000, then your built in profit is already $200,000.
2007-01-19 20:48:40 · answer #1 · answered by Louiegirl_Chicago 5 · 1⤊ 0⤋
Is that a line out of a 2am infomercial packet?
Here's what I think it's saying:
Buy a house for $100k. Take out a mortgage for $120k. (cash back at closing) Even if you can't pay for it, you profit $20k. Or, if you rent it for less than the mortgage payment, on paper (in their view) you have a "profit". I think that this is how the "investors" who testify on the 2am programs can say "I profited $20k on my first deal! And I don't know anything about real estate!"
2007-01-20 06:11:45 · answer #2 · answered by teran_realtor 7 · 0⤊ 0⤋
Are you quoting that correctly? It is very confusing.
2007-01-20 01:06:37 · answer #3 · answered by Anonymous · 0⤊ 0⤋