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Clients also should know about the power of leverage and how it can make a solid ROI more likely. The simple formula is to divide real estate’s appreciation by its equity. For example, if a client has a $400,000 home with 20-percent equity, that client has $80,000 invested. If the home appreciates at 5 percent, the appreciation will be $20,000. Dividing $20,000 by $80,000 yields a 25-percent return.
Even more amazing is the ability to leverage further. Say the aforementioned client took an option ARM loan at 90-percent loan to value. A 5-percent appreciation could yield a return of 50 percent, with the same appreciation divided by $40,000 equity. This helps create wealth with low risks.
By putting more money in the clients’ hands — along with a quality education on how to create wealth — you can help them accrue wealth and avoid mortgage payments after retirement. Once clients learn the principles of the time value of money and leverage, they can commit to an investment plan quickly.
This is why we, as loan officers, should do more than just fill in the blanks on the 1003 Uniform Residential Loan Application. We can flounder in this profession and attempt to fight the competition. Or we can establish more credibility and provide better service. Exceed your clients’ expectations, and you will earn their business and your fees. Times have changed — so should the way we do business and advise our clients.
D. Jed Wunderli has been in the mortgage industry for more than 11 years and in the financial-services industry for more than 14. He is the vice president of USA Lending Group, based in Salt Lake City, and runs its Nevada operations. Mr. Wunderli is a graduate from the University of Utah and was Series 7-licensed with Fidelity Investments. He recently released The Wealthbuilder Financial Analysis System (www.mortgageloantools.com) to show clients how to create wealth by managing equity in their homes.
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