Is Zero Interest Credit Too Good To Be True?

Enjoy this guest article about zero interest credit by business funding expert Ari Page...zero percent interest

The old adage is that if it sounds too good to be true, it probably is. Browsing through your mail, you’ve likely come across no interest credit solicitations from various institutions and wondered how they can do that. In the case of zero interest credit, the adage actually doesn’t apply.

To understand how they can do it, you must consider how banks operate. Modern banks operate through the use of short term financing and interbank loans, which are used for lending and, in turn, profitmaking. In other words, if a bank isn’t lending money, it isn’t making money. Since the great recession hit, interest rates have remained at historic lows and banks have been able to borrow at near zero percent from the Federal Reserve. Banks will then lend funds out through a variety of products, with a variety of terms. Again, with rates at historic lows, banks are able offer better rates to their customers.

But still, borrowing at zero and lending at zero doesn’t make sense, right? If you think about other ways that banks make money, it makes complete sense. Consider what banks do with credit card receivables.

Since 1987, banks have pooled credit cards securities into an asset backed security, which is then sold to investors. With over $200 billion in securities issued, companies, such as Citi, fund upwards of 50% of their credit card loans through asset backed securities using credit card receivables as their asset. Much like their mortgage and auto loan backed securities brethren, they’re sold based upon the creditworthiness of the pool. The ratings range from AAA to D, with AAA being deemed the least risky.

In other words, business owners, and other highly creditworthy borrowers, are pooled together into AAA rated securities, which offer the least risk to the investor and pay a lower rate of interest. Marginal borrowers, or those considered subprime, would be a higher risk and a lower rating, which requires a higher interest payment. The bank subsequently uses the investor’s capital to fund more credit card loans, while the investor earns interest on their investment.

In recent years, banks have tried to make fees part of their “bread and butter.” Not only do they do this to pad profits, but also to make up the difference for lost interest. Want to transfer money from a higher rate card to an interest free card? There’s a balance transfer fee for that. Unlike revolving cards or credit lines with an interest rate, the balance transfer fees may be uncapped to make up for lost interest income. Moreover, some cards also have an annual fee, which is simply you paying for the privilege of having the card or line of credit. Annual fees are most common on rewards cards which, generally speaking, do not offer interest free terms.

Working with a company of such a high caliber as Fund&Grow, which specializes in helping small business owners obtain no interest business credit, can help you sort through the morass of balance transfer fees and annual fees to ensure that your APR is as close to zero as possible.

Although the zero percent interest term may be capped, F&G Corporate Officer, Ari Page, mentioned in a recent radio talk show interview that “If you’re a professional and you know what you’re doing, that’s just not the case. Banks hope you’re not savvy enough to realize that if you know who to talk to and what to say, you can keep rolling over zero interest introductory offers for the foreseeable future” using what he calls “exit strategies.” According to Mr. Page, business owners are the “crème de la crème” in the banking community and can take advantage of special promotional codes and techniques that aren’t available to the regular borrower.

Finally, as a new customer, the bank can also start to broaden the relationship by introducing you to other services through affiliated marketing. As previously stated, small business owners are some of the most sought after clients in the banking community. They oftentimes have significant assets, are extremely creditworthy and are diligent in repaying their debts. If the bank can create a package of services for you, it’s a goldmine for them; whether it be investing, merchant solutions or even liability insurance. This package provides them with the ability to profit in their other business units through simply lending to creditworthy business owners at rates near what they’re borrowing at themselves.

See, it’s not too good to be true; it’s a savvy business move. Banks need to lend money to make money, and you need to borrow money to make money. The banks simply engineer the deal hoping that you’re not savvy enough to realize that they’ll allow you to borrow for next to nothing, while they sow the seeds for their long term benefit.

Do you want to learn how to become a savvy credit user and learn how to leverage zero interest credit for investing/business expenses? Join me for a free informative webinar training with Ari Page on Wednesday February 15. Register Here Now!

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Get Low Cost Funding For Your Deals

One of the questions that I get frequently is: "how can I get low cost funding for my deals?"

While I don't recommend borrowing money to invest in tax liens, since it could take months or even years before you get paid, it is advantageous to have a low cost source of money to borrow for purchasing tax deed properties or for foreclosing on tax liens that are at the end of the redemption period. When you go to a tax deed sale, you have to have money in hand, you don't have time to get a loan. You don't even get a chance to inspect the property before hand, and at many tax sales, you are expected to pay when you are awarded the bid. So it really is helpful to have a source of funding for money that you can take with you to the tax sale.

Also if you are investing in real estate, especially in bank foreclosed properties and HUD deals, even if you have a funding partner, you'll have to come up with earnest money. Wouldn't it be nice to be able to get that earnest money at 0% interest? Well you can, in fact you may be able to larger amounts of money at 0% interest. And next week I'll be hosting a very informative webinar with a couple of financial experts that will show you just how it can be done! But the first step is becoming lendable. So here are some tips on how you can become lendable in 5 easy steps from my friends Ari and Mike at FundandGrow.com... Continue reading

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Meet Me at the Northwest REIA in Portland Oregon!

On Thursday night, February 2, I’ll be giving a presentation about tax lien investing for the Northwest REIA in Portland Oregon. To find out more about the Northwest REIA and how you can attend this meeting contact Dave Metsker at primefinancial@frontier.com.

While I’m in Portland, I’ll be giving some in- person live consultations. If you live in the Portland OR area this is your chance to get some one-on-one coaching with me. Here are just a few of the things I can help you with:

* Find the best place for you to invest
* Find the best strategy for you
* Help you filter a tax sale list
* Help you do due diligence on tax sale properties
* Find the tax sale information
* determine how much bid on properties

The possibilities are endless!

I have availability on Friday. To book a consultation with me go to http://taxlienlady.com/coaching/live-consult.

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What’s Happening to the Tax Lien Investing Market?

Arizona tax salesI am not a real estate, or financial professional. So I'm not going to make any predictions about the stock market, or the economy. However, it doesn't take a genius to figure out that since the stock market has been unpredictable and volatile, real estate and tax lien investing have become more popular with the masses. More institutional buyers have jumped out of the stock market and into the real estate and tax lien investing market in a big way. This has made investing in tax liens, and investing in real estate very competitive. The other factor that has contributed to this phenomenon is that interest rates were kept extremely low for a very long time.

The prime rate is the rate that banks charge each other for borrowing money. This is also the rate that banks base their loans on. Although it is not set by the government, it tends to follow the rate that is set by the Federal Reserve. This rate has been kept close to zero for the last 7 years. Last month the Federal Reserve increased it's benchmark for Federal Funds Rate by a quarter percent to a range between 0.50 and 0.75. This in turn effected loan rates. The Fed has also indicated that there could be 3 more rate hikes this year.

What do the rate hikes mean for the tax lien investing market?

In my opinion, this will help the tax lien investing market for the individual investor. The banks and hedge funds have jumped into the market because they can make more interest with a certain degree of safety with tax liens than they can in most other investments. What they did not count on is the work involved. On top of that they bid down rates extremely low, because it still beat what they could get over lending their money out. But when rates increase they will be able to make more money on other investments and loans.

Hopefully for all of us tax lien investors this will mean less institutional buyers in the near future. But it could take a couple of years. The Fed is likely to raise the rates in very small increaments, so it could be a couple of years before we see a rate increase of more than 1%, and we'll probably need to see even more than that before it has an effect on the tax lien
market.

And what about the real estate market?

Will this rise in interest rates hurt the real estate market? In my opinion, it will actually stimulate the market in some areas and could hurt it in others. In markets where houses are overpriced, and in markets that haven't hit bottom yet, it will hurt. In markets that are
starting to recover, it will actually stimulate the buying of houses. People will want to hurry up and buy their next home before the next rate increase. I see that happening right now in my local market.

What do you see happening in your local market?

I'll be keeping my fingers on the pulse of my local markets and let you know what I find. If you have any feedback in your market, you can always register on this blog and post your comment here. Let us know what's happening in your local real estate, tax lien investing, or tax deed investing market.

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Tax Lien Investing Review and a Look Ahead

tax lien investing reviewHere's my tax lien investing review for 2016 and what's ahead for me and my students in 2017. What's your plan for 2017?

Here is my assessment of what's been happening with tax lien investing this past year, what's ahead for the future of the industry, and what I'm currently doing to insure profitability with my investments. Continue reading

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