When is the last time you looked at your interest payments you have received from a bank on the money you have saved in there? If you are like most people. You probably rarely do.
It doesn’t matter if you have a lot of money in the bank or very little in the bank. The interest they pay you on holding your money is absolutely negligible.
Here is the dirty secret. Banks have a reserve requirement of 10%, the deposit multiplier means that banks must keep 10% of all deposits in reserve, but they can create money and stimulate economic activity by lending out the other 90%. So, if someone deposits $100, the bank must keep $10 in reserve but can lend out $90.
Read the above again. Banks are lending your hard earned dollars out 9 – 1. And they are getting a premium on that 9 and giving you peanuts of that spread that they are getting in interest on the loans they give to others.
The average savings account right now pays you about is about .16. What a joke.
Look, I am a big believer in saving some cash. But save your cash to invest. Don’t save your cash to have cash because it is useless sitting in a bank account.
Look, I realize that the banks must have some money in the bank to be able to lend, which is what allows me to buy the real estate that I buy. However, not everyone knows this dirty little secret about the banks. Now that you do, you can use this information and learn how to capitalize on it.
Save your money long enough to be able to invest it in something that gives you a great return. It could be 3% or it could be a risky investment that gives you 30%. They key is to save enough money to put it to work for you.
This is the lesson most of us didn’t learn in school. I know I didn’t. Don’t earn to consume. Earn money to invest and let that money multiply. Multiplication is way better than addition and definitely way better than subtraction.
I work with people all of the time that are looking to sell their house. And if they don’t need the money now. I tell them to take a down payment from me or another investor. And become the bank. Allow me or some other investor to pay them a rate of interest to them to buy their home from them over some specified period of time.
How it works…
We agree on a price for their home. Then we determine how much of a downpayment makes sense for myself or another investor to pay the owner. The balance of the amount for the house we agreed on is then set up like any other payment you have ever made.
The balance is amortized over 15-30 years. This makes the payment realistic and doable. And then usually it has a clause that says the remaining balance of the mortgage should be paid in full within 5-7 years (balloon payment).
This works well for both the investor and the seller. The seller gets to earn some extra money during the term of the agreement/loan and the investor gets to own the property.
These scenarios allow both the investor and the seller to win.
It can only work if the seller has a paid off home or whatever kind of property it is.
This is the condensed version of the scenario, but my point in telling you this is for a few reasons.
If you are saving lots of money, STOP it now. Quit allowing the banks to profit so much from your hard earned money. If you are saver type, I get it, at least put it in to less risky investments that are giving you a better return.
If you currently own your home and are looking to downsize, move, or do something else. And you don’t need the money out of your home or investment. Consider being the bank and selling it to someone else.
And if you are a aspiring investor. Consider asking a seller if they are willing to become the bank so you can buy their property from them.
To your success and your future.