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Loan

Like all debt instruments, a loan entails the redistribution of financial assets over time, between the lender and the borrower. The borrower initially receives an amount of money from the lender, which they pay back, usually but not always in regular installments, to the lender. This service is generally provided at a cost, referred to as interest on the debt.

Excerpt of 'Loan.' Wikipedia, The Free Encyclopedia. 7 Mar 2006, 18:19 UTC. 12 Mar 2006, 21:22 http://en.wikipedia.org/w/index.php?title=Loan&oldid=42673604

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How to choose the "Right Loan" for all your needs!

You need money – and maybe that’s all you know for sure right now. You may need to buy a car, renovate your home, consolidate your debt, pay a business expense, or fund your tuition to a college.

 It doesn’t matter what your needs are – there are certain guidelines that can help you choose the loan that’s best for you:
  1. Never sign up with the first lender just because they were the quickest to get back to you!
    It’s important to shop around for the best deal. Don’t believe any lender who tells you that everyone will have the same deal – they won’t.
  2. Don’t just pay attention to the big picture – like annual percentage rates!
    You want to ask what your monthly payments will be – including the amount of interest you’ll be paying each month. You also want to know how much interest you’ll be paying over the length of loan in full.
  3. Before signing anything – make sure you read the small print!
    What happens if you miss a single payment or are a couple of days late? You may find your possessions being repossessed or a substantial late payment being tacked onto your bill if you’re not careful.
  4. Don’t take out a loan for more than you can handle!
    You don’t want to get in over your head and add stress to your life. Depending on what kind of loan you need, use our online calculator that will do all of the number crunching for you. Just because someone offers you $100,000 doesn’t mean your income will allow you to make payments on such a loan.
  5. If your credit isn’t up to par, be careful about making blind applications to dozens of lending companies!
    Every time you apply for a loan, it’s noted on your credit history. If you’re turned down several times, it will taint your credit and make it harder for you to get the loan that you need.
Some lenders will help you determine which type of loan is best for you. You may need to disclose what the loan is for. If you take out a debt consolidation loan, then the lender will usually pay the companies you owe directly and you then sometimes have to close your accounts to ensure you don’t rack up further debt in addition to your new loan. Make sure you look at all of the pros and cons of various loan types that could work for you. You may find that a home equity loan is your best bet – or a personal loan would work better. You’re not always pigeon holed into one type of loan for your money needs.

"Real Estate" guidelines!

A real estate investor has to focus on the most important issue: Is this a good deal?

Learning to recognize a good deal takes research, education and, above all, experience. Here're some questions to determine whether a potential real estate purchase is a deal:
  1. Will this property cash flow?
    That depends on a lot of factors, such as the strength of the local rental market, the interest rate on the financing, and how much of a down payment you make. It also depends on whether it is a single-family or multi-family dwelling.
  2. Will this property provide income?
    Now, of course, whether the property will provide income to you begs the question of whether income is important to you. If it is there are mor questions:
    • Do you earn other income?
    • Do you need more income now, or is future equity growth more important?
    There's no right answer to these questions, but are all factors to consider when looking at a potential purchase.
  3. Do you have thought about leverage?
    Leverage is important for investors because the less cash you put down on each property, the more properties you can buy. If the properties go up in value, your rate of return goes up exponentially. However, if the properties go down in value and you have a lot of debt on the property, this can result in negative cash flow (see above). Since real estate is generally cyclical, negative cash flow is only a short-term problem and can be handled if you have other income or a cash reserve to handle the negative. "Nothing down" investing is very attractive for the high-leverage investor, but should be approached with caution. If you are a long-term player, leverage will generally work in your favor if the markets in which you invest appreciate in the long run and your income from the properties can pay for most of the monthly debt service.
  4. How will this property cash flow compared to other potential properties?
    For example, a $450,000 house that rents for $3,000/month has a better income potential than a $900,000 house that rents for $4,800/month. A four-unit building that costs $1,200,000 may bring in $9,000/month in the same neighborhood.
  5. Does the property you are purchasing have equity?
    Equity can take a number of forms, such as: 
    • A discounted price
    • A potential fixer upper
    • A rezoning opportunity
    • A poorly managed property
    • A foreclosure
    There are many ways to create equity, but buying into equity is your best bet.  Find a motivated seller who wants out of his property and is willing to give up his equity for less than full value. Or, buy a property that needs work that can be done for 50 cents on the dollar or less. In other words, if the property needs $10,000 in work, make sure you get a $20,000 discount on the price or better. Appreciation Buying in the right neighborhoods in the right stage of a real estate cycle will result in appreciation and profit. However, timing a real estate cycle is difficult and is speculative. If you buy properties without equity or cash flow solely for short-term appreciation, you are engaging in a very risky investment. Buying for moderate, long-term (10 to 20 years) appreciation is safer and easier. Look at long-term neighborhood and city-wide trends to pick areas that will hold their values and grow at an average 5% to 7% pace. Combine this tactic with reasonable cash flow and buying into equity, and you will be a smart investor.
  6. Have you considered the risk?
    Proove your plans:
    • What if my assumptions are wrong?
    • Do you have a "plan B" if something is going wrong?
    • If you bought for appreciation and the property did not appreciate in value, can you rent for positive cash flow?
    • If you buy with an adjustable rate loan and the rates go up, will this put you out of business?
    • If you have a few vacancies, can you handle the negative cash flow or will it break the bank for you?
Expect the best, but be prepared for the worst. And remember, whenever you look at a property to purchase, think the questions above!