Guest Post: The Perfect Real Estate Investment | Zero Hedge

Submitted by Ramsey Su of Acting-Man blog,

You want to invest $100,000 in agency paper but find the yield to be too low. How can you increase your yield without assuming additional risk? Easy, here is how. You do not have to send me $19.99 for the tapes (plus shipping and handling) or spend $5,000 for my weekend seminar. This is a freebie.

First, go buy a house with your $100,000. Then sell the house to someone who has no money and only a marginal credit history, taking a loan of $120,000 in return. In real estate terms, this is called a 120% LTV loan (loan-to-value).

Instead of receiving interest on your $100,000 capital, your interest is now based on the $120,000 loan amount. For example, if? agency paper is yielding 3%, your $100,000 would normally pay you $3000 interest. With this perfect investment scheme, you would in addition receive the 3% of $20,000, increasing your yield to 3.6%. Furthermore, if the house appreciates in value, you will receive the first $20,000 in addition to getting your $100,000 principal back. There is no risk because your rich Uncle Sam said he will guarantee the loan.

There is an even better way to monetize the loan. Brother Ben, who is as rich as Uncle Sam, said he will buy $45 billion of these notes at face value every month.? Just sell the note to Brother Ben and pocket a $20,000 profit, all with no risk.

Honestly, this is more a scam than an investment strategy. The victim is the sucker who is paying interest on a 120% LTV loan on a house that may never be his unless the value appreciates by at least 20%.

In real life, this scheme is known as HARP. It is the Government that is victimizing borrowers by offering them this terrible deal, somehow convincing them that it is in their best interest to become a mortgage slave.

In closing, this short outburst is a byproduct of my other recent rants.? I simply do not see how we can have a genuinely recovering real estate market before these wild schemes are removed.

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Source: http://www.zerohedge.com/news/2013-06-10/guest-post-perfect-real-estate-investment

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