Real Estate Investing with John Alexander

How to sell buyers on Higher Payment's or Higher Interest Rates in the NEW MARKET.

This is a technique talked about on one of the recent Level 2 Mentoring Calls.

It is the way you present the payment to a buyer than can make your deal happen sometimes.

If a buyer is currently paying X amount and the new home payment is a higher Y amount, then you want to always include a statement that due to the home payment being tax deductable (due to interest), his payment may seem a few hundred higher etc, but actually starting the first day of closing your home, you will be bringing in more money from your job. This is because, the IRS allows you to take additional deductions against the payment of your home. So you may find that even though you payment rose, so did your income which offsets the higher payment. The IRS even has a online calculator to help you figure out how much this will be so you can instruct your employer to increase your deductions which results in an instant raise (or increase in take home pay). Then give them this web address: http://www.irs.gov/individuals/artic...=96196,00.html

Now, what you should do as RE investors is to research this more so you understand the concept. When we last had higher interest rates, this is what I used all the time to justify a higher monthly payment to my buyers.
The concepts you need to understand going in is that owning a home at any rate is better than renting. That's why when I started in the RE biz, rates were 16-18% for A credit buyers. And they still bought and made money as homeowners when they sold. The only real problem with int rates is when someone can't afford to make the payment... but understand that is not a "rate" problem, that is an income problem and sometimes a lack of understanding how much an ARM loan can go up at the rate change.

So let's look at the core of how this works.

The normal monthly payment is made up of almost ALL interest. The first 5 years it stays (normally) above 95%. That's almost all interest... that means that 90-95% of the monthly payment is TAX DEDUCTABLE. The next part of the picture is that people fall into a TAX BRACKET. Most people who can afford a home will fall into a 28% tax bracket, some will also fall into the 15% bracket, but we will assume things will increase for them once they buy a home anyway... wife goes to work etc. Now if the new homeowner doesn't adjust his monthly deductions. He could get back a massive tax refund at the end of the year and then be really mad he let the IRS use that money when he could have used it to help make his monthly house payment. So what he needs to do is ask a tax person what his tax bracket is and how many more deductions to claim to off set an addition tax deduction of (the amount of a year's worth of interest payments).

Now for your own thought process, here's a math formula to make it fast... Using a 28% bracket and a year of payments of $2,000 as per their new loan.

(2000x90%x12mths=21,600tax deduction x .28%bracket =6,048/12mths= 504.00 monthly Raise)

Now translate it into words that "sell" a higher rate to someone...
Say to your buyer...

So which choice is going to get you what you want?
Continue renting now at $1600 a month and no appreciation/equity growth on the best investment anyone can make... a home. And be forced to live in a small home? And keep your income as is now.

Or Buy a home at $2,000 a month, but get an instant raise of $500 a month from the IRS, offset by the increased home payment, you still earn an extra $100.00 a month. And you move into a bigger and nicer place to live and one that will pay you all your money back that you pay each month when you decide to move. Usually that will provide your next downpayment for your next home in 5 -10 years and pay for your kid's college on top of it all.