Freddie and Fannie stuff scaring me - what to do?

Question

what does this government bail out mean to us?  Should I put a hold on looking at property?  Should I stop trying to pay down my house?  Should I consider pulling out the 25k+ equity i have in it already?  What do you all think???

Account Closed · Answer

It's not a good time to sell our personal residence if you don't have to.

It's probably a good time to take out a fixed rate mortgage. Rates are still low, and if the inflation rate gets out of hand, which I suspect is very likely, you will pay back that mortgage with cheaper dollars.

John Trenton · Answer

The smart thing to do now is to pay off debts as quickly as possible and to start saving as much as possible. It's going to be a rocky ride ahead.

Michael LeClerc · Answer

If the mortgage giants go away, either new company's will move in or the giants will be reorganized in a new way. there is too much money in that business(25 Trillion) for that business to go away.
its a good time to buy.

Ingrid Nagy · Answer

I agree with Michael's strategy as well.  It works.  I began 20 yrs ago with one condo using OPM and am now at 54 units.  My part-time job became a full-time steady income.  If I go back that 20 yrs and bought each unit with cash earned as a legal secretary with a high school education I don't think I would be in the same place today.

Ken and Laurie F. · Answer

We agree and utilize Michael's strategy as well.  We believe if a person(s) become efficient at intelligently using OPM and OPR the rewards will be greater and faster than most people can fund using only their individual "employee income".

We have learned to get our "OPM" $$ back within a short period of purchasing RE so our returns are also infinite...

If a house costs $0 out of YOUR pocket to purchase/ rehab/ rent and this same house earns a cashflow of  $200/ month (utilizing tenant's funds), shouldn't that be a deal we all want to be part of?  Leverage, leverage, leverage!

Using OPM (i.e. the bank's) is a great deal if used properly.....

Dave P. · Answer

"Be fearful when others are greedy and greedy when others are fearfulâ€
            -Warren Buffett
                        
                        When has this been more true? With all the fear mongering going on, it's just as easy to get caught up in the doomsday scenario as it was to get hyped about the "boom" years.
                        
                        If the sum of all fears does occur, stocking up on beans and bullets won't do any good.

Account Closed · Answer

I agree with Michaels strategy because I've seen investors make it work for themselves over and over again.  It works, but it can also get very complex to keep all your ducks in line and I've seen many of the best entrepreneurs lose control due to their own success.  I also understand Daniels frustrations at seeing some of the biggest speculators on credit get bailed out.  Best of both worlds, take advantage of the rules of the game, (and take a risk occasionally with your money or the banks), and you will succeed.  But let the market work properly and thin the herd a bit, all the irrational exuberience of the ineffecient investors using other peoples money is killing my investment chances.

Daniel Macris · Answer

The bail out means that we get to pay for the greed and bad decision making of other people.  Once again, intelligent and responsible people are being punished because our government seems to protect the lazy and stupid.

Michael Shadow · Answer

Yes my income is higher while in the partnership with my bank.  I didn't have enough cash to buy the property outright so I needed help from the bank.  And the real number we're trying to get to the bottom here is ROI.  So the goal is to put the least amount of money into your investment and get the most back out.

Since I bought the properties at the right price then after I fixed all the management and maintenance issues they had I had them re-appraised and did a cash out refi and got all of my cash back in less than 6 months.  I got 100% of my invested capital back, my ROI went to infinity and my properties still have positive cash flow.  None of this would have been possible with out the bank.

Every person you work with in your REI business (be it flipping, rentals, wholesaling, etc) is your partner and they need to be treated that way.  If you don't view them that way then you won't have near the growth you could have if you helped those that are helping you to create money for themselves also.

-Michael

Michael Shadow · Answer

Both parties make money off the same stash all the time, it's called partnerships.  I'm doing it right now.  My tenants are covering all my expenses and putting money in my pocket (read: I am making money off of the property).  I in turn pay the bank the mortgage payments to the bank and they make money from the interest.  I am in a partnership with my bank and every single day (including weekends and holidays) both of us are making money off of the property that I own.  It's called arbitrage, the bank is loaning me money and making 6% APR on it and I am using that money along with my cash (20% of the purchase price) to earn 45% ROI on the property.

I don't care if I'm renting the money from my bank for the first 12 years, the people that are renting my apartments from me are paying that rent and paying for the up keep of the building, and paying the utility expenses, and paying the taxes, and paying the insurance, and paying me money for my time to work on it, and leaving cash in the bank called profit that I can use to grow the business.

-Michael