Do I only need to repay interest for loan if secured by property?

[Liam Bartlett]

Hey everyone :) I'm new to BP so sorry for stupid questions

So I'm 16 and want to start my research into real estate investing, and right now I'm looking into funding an investment. My dad told me the if you get a loan, the bank only wants you to pay back annual interest on that loan. The actual loan amount is secured by the property, so when you sell if you'll need to give the loan amount back. Is this true? If so, is it a smart way to finance a first investment?

Thanks

Liam

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Originally posted by @Liam Bartlett:

Hey everyone :) I'm new to BP so sorry for stupid questions

So I'm 16 and want to start my research into real estate investing, and right now I'm looking into funding an investment. My dad told me the if you get a loan, the bank only wants you to pay back annual interest on that loan. The actual loan amount is secured by the property, so when you sell if you'll need to give the loan amount back. Is this true? If so, is it a smart way to finance a first investment?

Thanks

Liam

 Liam, there are no stupid questions. Your question is perfectly legit.

The way that it works is as follows: you establish credit worthiness (credit score, income, paying all bills on time and such). You apply for a loan. The bank asks what you are using the money for. If it is to buy a car, they put a "lien" against the car. If it is to buy a house, the put a "lien" against the house. You make payments on time and when the last payment is made, say 2 years on a car or 30 years on a house, then they remove the "lien". If you stop paying on the loan for any reason, they notify you in writing and if you don't bring the loan current (make up the missed payments), they auction off the property to pay off the remaining amount of the loan. 

Almost ALL payments have to be made monthly, not annually. A bank is looking for two things when it comes down to it, 1) The ABILITY to pay (you make enough money) and 2) The WILLINGNESS to pay. (You always pay on time.) Banks follow what is called an "amortization schedule") that means that each month a little more of your payment is applied to the principle and eventually you have paid enough to actually pay off the loan and all of the interest. 

On a $100,000 loan you will pay about $200,000 in interest along with paying back the $100,000 you borrowed. That's $300,000 to borrow $100,000. Not a good investment (banks know how to make money) but people foolishly do it all the time. That is how most people buy real estate regrettably. Do research on "creative financing", Subject To, Wraps, Lease Options. You will be light years ahead.

Borrowing for college is even worse. Don't EVER borrow money for college. Pay as you go or you will certainly regret going to college. I just read of someone going to jail for not paying off his student loans. It's a bad thing to get wrapped up in. Go to an affordable college and take a subject you can actually get a job in (high tech, medical field, business) or don't go at all. Join the military if you must and let them train you for free. Debt is a terrible thing.