Borrow the cash from yourself!
A few years ago there was a hit movie with actor Danny DeVito titled “Other Peoples Money.” He made a statement in the movie that he never invested his own money in a deal; he used other people’s money. That in a nutshell is what a mortgage is, other peoples money. But in the changing world of mortgages that we have today some times it seems that if other people’s money is not available the deal may be dead.
This is not true as there are ways to borrow the money from yourself to pay cash for that real estate deal. In fact, borrowing the money from yourself can even speed up the purchasing process. So what is this magic program that allows you to pay cash for that perfect real estate deal?
The process is simply based on your own assets, more specifically your equity investment accounts. If you have an account being held with a stock brokerage account or you have tucked away in your safe deposit box stock certificates you should be able to borrow on those assets.
As an example here in the High Country we are seeing more and more retirees. These retirees have worked hard for years to accumulate substantial assets from their company stock program and they depend on such assets for the dividend or just selling a few shares each year to supplement their income. These stock owners were limited to those two options only. Well times have changed.
Let us take the example of John Q. Shareholder. John worked for the Worldwide Widget Company for thirty five years. Each year John would set aside Five percent of his earnings and place it in his company’s retirement plan. In addition to John’s five percent contribution the company matched his contribution, so ten percent was put in an account in John’s name. On retirement from Worldwide Widget John transferred all of those assets into an account which he and his stockbroker manage today. This account is in the seven figures but unfortunately the dividend has dwindled to almost nothing. So each and every year John sells a few thousand dollars of his stock to supplement his income.
Now comes the time where John decides to move out of that home he has owned for years, buy a new home, rent his previous home and he hits a road block. John’s income is enough to support his lifestyle but it is no where near enough to offset a new mortgage payment for his retirement dream home. What to do?
John and I meet and review his assets and liabilities. His stock portfolio is still performing well but he does not want to sell most of the stock as it would cut into his dividend income and the Capitol Gains taxes would ruin the real estate deal. So why not just borrow on that stock account. John would not have to supply past Federal Taxes statements to prove his income. No appraisal will be required and not credit report will be necessary. John can keep his stock account intact and he can buy that dream home by borrowing the funds necessary to pay cash for the home.
With all the hoops that this tough mortgage marketplace requires many borrowers to jump thru has just been eliminated. John closes on the home in days, he keeps his stock in the Worldwide Widget Company, he gains income from renting his former home and his problem is solved.
So if you have substantial equity investments this may be the way for you to buy real estate in today’s strict mortgage marketplace.
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