We’ve always been of the opinion that it’s pretty swanky to know your way around financial circles. If that’s the case, then banks must be the swankiest of them all. They know their investments cold, in, out, and upside down. There’s not an angle they haven’t calculated or a numerical permutation they haven’t figured. So how exactly can an individual investor turn the economic tables on their favorite national or local lending institution? It’s actually quite easy. Take out a long-term, fixed-rate mortgage tied to a piece of income producing property.
In short, become a landlord.
How does this take financial advantage of the bank? First, we must acknowledge the phrase “take advantage of” is relative. Between interest rates and all the other administrative fees they tack onto a customer, they really won’t be taken advantage of too severely, if at all. But what you can do is arrange your mortgage so that, between your banker and tenant, you will end up paying very little of the final acquisition price for that piece of rental property.
Let’s talk about inflation. Inflation is the economic reality in modern America that devalues our currency over time. Put plainly, rising prices mean our money always buys less next year than it did this year. Look at the equation from the banker’s side of the desk. If inflation makes money worth less over time, it will also devalue the principal part of the mortgage note he holds, making the ultimate effect that the amount of money collected at the end will be worth less, in real terms, than when you first signed on the dotted line.
That means the banker is getting the raw end of the deal! Sweet, sweet revenge. Not really, of course, but we take our (phantom) victories where we can. The real value in this article is to introduce investors to the idea that a rental property investment can be purchased with bank money (except for the down payment), paid for by the tenant’s rent (which should cover the monthly loan amount), and you own it at the end.
In our humble opinion, it would be difficult to structure a better investing opportunity than that. We sincerely hope you take advantage if this in your portfolio (Top image: Flickr | wka).
The Swank Life Team