Finances are one of the biggest hot topics for most Americans. The majority lives paycheck-to-paycheck and they seem to keep looking for ways to get out of the rat race, so they call it. Real estate investments are often talked about because of their high rewards. Purchase a home through a mortgage and collect rent. Easy! But is it that simple?
When Dave Ramsey talks about debt, he says the last thing to pay off is your home because it is an investment. Paying your mortgage is investing so that one day you can sell your home for more than you paid. At least, that is the hope. Acquiring a traditional mortgage is a way to purchase one piece of property or home and begin making an investment in it. But what if your ambition is a little higher?
Real estate investors, house flippers, and developers would need a mortgage for each home or property, which would far outweigh their cost of investments. What they would need is are private blanket loans. Think of a giant blanket covering all the properties these individuals would have and now think of the blanket as one mortgage. This singular mortgage would be able to cover multiple properties under one mortgage plan. If a house sells, that portion of the mortgage is taken off.
Blanket loans do come with some higher disadvantages, as well. They often come with higher down payments and rates, while that might not be a deal-breaker, but the borrower would have to put a balloon payment down. This is when they pay half of the loan within 5-10 years. If they default on any property, they could risk having the lender intervene. Blanket loans typically have a 10 to 15-year term but i’s possible for this type of loan to have a 30-year term, and it makes one wonder if the high-risk is worth the high-reward?