In 1991, I made my first attempt at financing an investment prop-
erty through creative means. With a lot of guts and a little knowledge,
I made an offer that was accepted by the seller. I tendered $1,000 as
earnest money on the sales contract, then proceeded to try to make
the deal work. I failed, lost my $1,000, but I learned an important les-
son—a little knowledge can be dangerous. I decided then to become a
master at real estate finance.
Financing has traditionally been, and will always be, an integral
part of the purchase and sale of real estate. Few people have the funds
to purchase properties for all cash, and those that do rarely sink all of
their money in one place. Even institutional and corporate buyers of
real estate use borrowed money to buy real estate.
This book explains how to utilize real estate financing in the
most effective and profitable way possible. Mostly, this book focuses
on acquisition techniques for investors, but these techniques are also
applicable to potential homeowners.
2 FINANCING SECRETS OF A MILLIONAIRE REAL ESTATE INVESTOR
Understanding the Time Value of Money
In order to understand real estate financing, it is important that
you understand the time value of money. Because of inflation, a dollar
today is generally worth less in the future. Thus, while real estate val-
ues may increase, an all-cash purchase may not be economically feasi-
ble, because the investor’s cash may be utilized in more effective ways.
The cost of borrowing money is expressed in interest payments,
usually a percent of the loan amount. Interest payments can be calcu-
lated in a variety of ways, the most common of which is simple inter-
est. Simple interest is calculated by multiplying the loan amount by the
interest rate, then dividing it up into period (12 months, 15 years, etc).
