Have you given any thought to how banks make money? It really isn’t rocket science. It is actually pretty easy to understand. We all know that banks charge fees for services. Each bank has things that they do for free and other things that they do for a fee. As consumers we call these nuisance charges. They don’t really put a lot of money in the banks’ coffers but they do offset some of their operational costs.
Where banks really make money is through the use of our money. They entice us to bring them our money and they lend it to others. They engage in interbank transactions and they lend money to us. Naturally, they lend the money at rates higher than what they pay us on our deposits. The “spread” is their profit.
The banks lend money to us for personal or consumer loans and they lend us money for mortgages. It is this mortgage lending that provides a vast, safe opportunity to you. How you say? Let’s take a look at this.
You go to the bank and make a deposit. The bank pays you a rate of return. Currently, depending on where you place this deposit, the rate perhaps could be from 2% to 5%. The bank then turns around and lends that money, perhaps combined with other depositors’ money to someone to buy real estate. Perhaps this is for a home or perhaps for commercial real estate. They lend this money money for let’s say 6% or 6 1/2% in today’s market. That would mean that they would make the difference (spread) on each dollar they lend. In this example that would be anywhere from 1% to 4 1/2% on each dollar loaned.
So how do you take advantage of this? What if you became the mortgage lender? What if you could lend your money at 7% or 8% safely? You can. And what’s more, you can do so more safely than the banks. You just need to know how to do so. You need to understand what makes a safe investment. We’ll go into this in future blogs. But for now visit my website at http://landpartners.biz
