Doug Quance over at BrokerFirstRealty.com in Atlanta asked me the other day if I’d do him a favor, and agree to be interviewed. He wanted me to consult with him on two of his real time clients looking to invest. The first installment was published today under the title, Investing In Atlanta Real Estate – A Tale Of Two Investors – Part One.
I think this will be interesting on many levels, not the least of which is developing behind the scene. More on that as it rolls out. This first installment opens the interview by way of introducing the two clients Doug wishes me to advise. It evolves into a short explanation of why investors might make use of negative amortization loans.
Besides taking care of his own blog, Doug is also a frequent contributor at the well known and much read BloodhoundBlog.
Take a look, and while your there, read some of Doug’s posts. He’s a very intelligent guy who often is able to see what many miss. It’ll be well worth the trip. Plus, at least for San Diegans, you’ll be able to view empirical evidence of a brick duplex for sale for considerably under $200K. In SD that picture would onlly be found in Grandpa’s photo album. 
Jeff that was a good explanation of the use of neg ams. Lately they are putting allot on the backend, however.
Any news that short term money will be less expensive in the near future?
The lenders are indeed getting just a tad greedy on the margins. There is a new loan on the market that is more or less a hybrid neg’am. I’m taking a close look at it and expect to have some comments soon. The payment is slightly higher, but the neg’am portion is about half giver or take of a normal option ARM.
That sounds great. But I think if you use the money from a re-fi to create more money, it is probably six of one half a dozen of another.
I sure wish they would lower those margins. Giving up those old margins is hard to take.
Oh well, you have to get used to heart break and being uncomfortable and heartbreak to be a good investor.
Cher – An astute observation.
The new loan, if the lender comes through, is actually superior to traditional neg-ams in every way except payments. And the payments are not so much higher that the investor, at lieast in the majority of cases, would care.
The ‘neg-am’ portion is about half the amount.
Wow…that sounds great.
This way if the property turns out to be a cash generator, one could hold on to the property and feel like they had to sell or refinance in a few yrs.
I’d like to do the numbers to see where you would be if the difference in payment were invested wisely (ala Doug Andrew’s software calc’s)
Also, as the yrs go by, the backend added is also accurring interest, so I wonder when these margins are up what I am REALLY paying for the interest…you know interest on interest…this could result in a bad scene like the credit card companies to you.
Cher – Let me address your last comment first.
I’ve been using neg-ams since their inception back in the ’80′s, and the interest on interest hasn’t been a problem. The reason? When the investor is able to take advantage of such high leverage while maintaining either cash flow or breaking even, the ability to experience capital growth based upon a figure 5-10 times their actual invested capital so over powers the neg-am affects, as to render them relatively, but not quite, neutral.
I’ll email you with some numbers on the hybrid.