Inmates Can Make Money Just Like A Bank

Find Out Who Makes the Most Money and Do What They Do

I call these Rhinoceros Financial Facts because they are like a rhinoceros in the kitchen; once it has your attention it becomes impossible to ignore.

Who do you think makes the most money? Do you think it’s the brokerage firms that sell stocks, the insurance companies who invest your money in the stocks, real estate owners or banks? The answer is the banks.

 The conventional wisdom is banks make their profit off of lending out money and charging a fixed interest rate. Well, that is only partially true. For you see banks do not really care what the interest rate is. Banks make the same profit off of interest rates no matter if the rate is high or low. Banks make the same amount of money charging 3.5% as they do charging 9%. I know that’s counterintuitive. I mean how can that be? If you think about it your common sense will tell you that banks make money off the margin. Let me try to make it clear how they really make their money. If the bank is charging 3.5% interest on a loan, it paid ½ % interest for the money and it is making 3% interest. If the bank is charging 9% interest it is because they paid 6% for the money and they’re making 3% interest. Banks make a 3% margin on the interest and that’s not bad but they didn’t get as big as they are by making no stinking 3%.

 Banks make money on something most of us have never even thought of as a profit generator. This huge profit generator that banks have hidden from even the financial experts is called amortization; that’s right. The way we pay the banks back is how they make the biggest part of their profit. Banks use the 3% to cover their fixed costs like employees, buildings, 401(k) s and interest on their deposits. So throughout history banks have been able to hide what is possibly the most secure and profitable method of making money.

Now let’s look at “the man behind the curtain” and understand where the big money is made. To understand amortization let’s look at a typical 30 year mortgage of $50,000. Don’t let the math scare you. This is simple stuff. Here is how a mortgage is broken down into easy to understand simple math.

A typical 30 year:

·       $50,000 Mortgage

·        6% Interest

·       $300 Payment

$300 Payment Breakdown:

·       $250 went to interest (bank’s profit)

·        $50 went to principal (bank ‘s cost recovery)

To calculate interest (divide principal into the interest) $50 divided into $250 = 500%. Let’s break down those $300 payments. The $50 that went to principal is the bank recovering their cost. Over the next 30 year they will get their $50,000 back. The $250 is interest which represents their profit. So let’s do some simple math. If your cost is $50 and your profit is $250, your profit is 500%. For every $1 the bank collects in principal it collects $5 in interest.

A Mighty Fine Return on Investment

 That is a mighty fine return on investment especially because it is guaranteed by a hard asset at a great LTV (loan to value). The longer the borrower keeps the note the worse the banks return gets. The average owner refinances or moves every 5 to 7 years so the banks still make over 300% profit. Don’t worry even if the note goes for the whole 30 years the bank makes 116% not 6%.

I’m not saying there is anything illegal or immoral about the way banks make money. What I’m saying wouldn’t it be great if you could make money that way?… fixed interest and payments backed by real collateral.

 I mean let’s look at it using our common sense. Banks don’t invest in the stock market; it’s too risky. They don’t buy annuities or life insurance policies because they see no financial logic in those investments. They don’t buy real estate because they don’t like the contingent liability of paying property taxes, maintenance or property insurance.

 In fact banks hate real estate so much they don’t even refer to it as real estate. They call it REO (real estate owned). Banks do something very simple; they lend people money at a fixed interest rate with a fixed payment and term. They guarantee themselves against loss with collateral at a good LTV (loan to value) of 80 to 90%. So if the property is worth $100,000 they will only lend 80 to $90,000.They get their payments or they take the collateral. That’s what I call guaranteed.

Wouldn’t You Like To Make Money Like a Bank?
YOU CAN!

This will surprise you but it is very easy to make money just like these banks. In fact, you can make quite a bit more money than the banks by buying mortgage notes at a discount. A mortgage and a mortgage note are the same thing. If a house is financed through a bank, the loan is called a mortgage.  If the previous owner of a house sells the house and finances it himself, the loan is called a mortgage note. There are no differences other than who owns it. Someone who owner finances a house understands how much money they can make being the bank. At some time in their life they need some money and offer the mortgage note for sale at a discount (example: $35,000 balance for $30,000)

  Buying mortgages at a discount is a great way to make your money grow and create a secure income.

The Upside to the Downside

Since notes are bought at a discount, if the homeowner defaults, the note holder gets the house at a great LTV.

   The note holder can either sell the property at a discount, which still makes money, or owner finance the house and sell it for whatever amount desired. If he sells the house using owner finance there is usually a down payment and higher payments than the original note. There are two rules in real estate about owner financed property:

·       It is very easy to sell an owner financed house because the new buyers do not have to go through the normal deal killing red tape with all the federal regulations.

·       2. You can get a premium for the property because you are the bank and you decide how much to charge. There are no appraisals needed.

Go to Google and find a Discount Mortgage Broker and ask him how you can make money like a bank.