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Total Future Cash Inflows =
(Number of Payment Periods Left x Payment Received per Period) + Property Value (If it will be sold)
Visit the Calculating Value in Real Estate Page to learn how to value properties using calculations such as CAPM, NPV, and Capitalization Rate.
Under-Financing & Loan Ammortization
In any form of investing, if you find a niche that you can invest in profitably and consistently, it can be advantageous to leverage your investments to earn more money. Leverage, in this sense, means financing all or part of investments with debt-financing taken out from a bank. The benefit of taking on more debt to finance investments is that the investors can invest in more real estate.
Done properly, the fixed expenses that result from taking on debt to finance investments are more than offset (may not be immediately) by the income generated from the home-buyer/tenant in their property. Under-financing is the strategy of taking out a loan to purchase a property and then selling the property to and investor at a higher interest rate than the interest rate that the investor is paying for their loan. The difference between the two interest rates is the net income generated by the investment. Done properly, the investor can just kick back and pay off his or her loan and generate income immediately.
Investors that invest with Sage Resources’ properties have the following advantages for implementing this type of strategy:
- The unique contracts that Sage Resources’ has with any home-buyers/tenants ensures that the home-buyers/tenants are responsible for all expenses related to the property. This has been proven to be legally enforceable in court on several occasions. This means that the difference between the investor’s loan interest rate and the income earned is truly net income.
- Our company is the only one that pairs property notes with sale/rental contracts and markets them as investments. This means that the investor benefits from our proprietary contracts and can start generating income immediately. They also save on initial marketing expenses and vacant property fees.
Another benefit that investors gain with our contracts is that the interest is paid up front. In the early years of the contract with home-buyers, the vast majority of their payments to the investor is interest. As the payments progress towards the end of the contract, the payments shift to majority principal. This protects the investor because the home-buyer slowly gains principal ownership.