Author: Willard Michlin

Article:
Money does talk! By Willard Michlin When buying something, you
can buy in one of two markets. The first is buying on terms in
the retail market and the second is buying in the wholesale cash
market. This can be illustrated by referring to the biggest
purchase we all make in our lifetime - Real Estate.

In recent years, when you are buying a house it is easy to get
financing of the first mortgage, so the seller is not forced to
finance the whole sale. What I mean is the seller doesn't become
your first mortgage holder, the bank lends the money and the
seller get the cash. Moreover, he will most likely make some
concessions if he doesn't have to carry back a second trust
deed.

Therefore giving the seller all cash, will usually get you a
better deal than asking the seller to let you buy the house with
a very low down payment, with him carrying back a sizable trust
deed. The big savings come when you are buying real estate that
doesn't have easy institutional financing available. The
purchase of vacant land can be the best example.

My father was interested in buying industrial lots in the city
of Montebello, just east of downtown Los Angeles. This was
during the 1960's. In those days it was common for a buyer to
put down 20% and the seller to finance the remaining 80% for 10
years at 8% interest. For example: a $10,000 lot would cost you
$2,000 down with $97.06 payments every month. After 10 years the
total of the principal and interest payments would be
$13,647.45. If you wanted to build on the property you had to
pay off the land loan, first. The sellers then would not have to
wait the whole 10 years before getting all their money.

Many property owners sold their property because they wanted
money and getting the $2,000 wasn't much money to them. So, my
father would offer $5,000 all cash to the sellers. More than 1
out of 5 would take the cash up front instead of waiting for
payments over 10 years. By offering the extra $3,000 cash down,
my father saved $8,647.45 on the sale ($5,000 on the price
reduction, plus the interest on the note). Now that is buying
wholesale!!

Buying cars can be done the same way. When you pay retail, the
dealer talks monthly payments. If he lowers the price, he'll
raise the interest rate. When you are buying for cash, he can
only talk price. When you are leasing an automobile, they don't
even tell you the price!

The major consideration in leasing a car or not, is made by the
leasing company to be all about what the monthly payment is
going to be and how much extra it is going to cost you when you
drive over 12,000 miles per year. Ever financed a used car from
a "no credit check" dealer? He gets you for 36% interest on the
balance you borrow, after getting a 50% down payment from you.
Then if you miss a payment he takes the car and sues you for the
difference. Buy what you can afford in cash and save making the
lenders rich. I read a report once that said that the average
man makes $1,500,000 over his lifetime. Of that amount, he uses
$600,000 to pay the interest on his purchases. Let's look at the
purchase of a home, from a slightly different point of view. A
man who makes $1,500,000 in a lifetime will be earning on
average about $30,000 a year or $2,500 per month.

He can afford to spend 40% of his income on rent or a mortgage
payment. This means that he can afford a $150,000 house. If he
can qualify for a 90% loan he would owe $135,000 at 8% amortized
over 30 years. That means he pays $221,609.58 interest plus the
$150,000 principal to buy this one house and pay it off over 30
years. The interest alone is almost 15% of his lifetime
earnings! Buying anything on credit can cost you more than the
retail price because you must add the interest to the cost of
the item.

My suggestion. Buy for cash and negotiate for the best price you
can get. If you must borrow, pay it off in as short a time
possible. Also, never borrow for personal consumption. Postpone
the purchase long enough to pay cash. If you can't afford to
wait until you save the money, you shouldn't buy the item. It is
just too expensive. To buy on payments raises the cost even
higher than the cash price, so it becomes even more expensive.
So if you cannot afford the cash price, you definitely cannot
afford the financed price. My suggestion is to pay cash and buy
wholesale. BUY THE BEST, PAY CASH

About the author:
Willard Michlin is an Investor, Business Broker, California Real
Estate Broker, Accountant, Financial Distress Consultant, Well
known Public speaker and Administrative/Business Consultant. He
can be contacted at his Ventura, California office by calling
805-529-9854 or by e-mail at kismetrei@earthlink.net. See other
article by Willard at http://www.kismetgroup.com

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