Janet Yellen, The Federal Reserve Chairwoman, said that if the economy is on track with job market improvement and inflation climbing closer to its target rate, the fed will start raising interest rates by the end of 2015. This is a move most have been expecting.
I presume rates will rise very gradually, and it will be a while before it translates to higher mortgage rates, but the process seems closer than its been in many years. Those of us who have been around real estate for a while know that the super-low rates we see today are not the norm. For most of real estate mortgages’ history, rates have been much higher than they are now.
Thus it seems quite likely that in the coming years we will see rates that could climb back into what we used to see in the past few couple of decades. Mortgages reaching 8%, anyone? It’s possible but will not happen quickly. Of course, some veterans remember mortgage rates being higher than that – much higher. Assuming mortgage rates will indeed rise in the coming years, it only drives home the tried-and-true message even stronger: buy a good home in a decent area, finance it with a 30-year fixed-rate loan and you have put an excellent “stake in the ground” towards your financial future.
A 30-year fixed-rate loan has always been amazing. To foreigners they seem like an impossible miracle: how can the loan payments and remaining balance NOT be pegged to the cost of living? That seems like a fairy tale. How could everything else rise with inflation, on average, except for one and only one item: the mortgage rate on a fixed-rate loan?
Once people realize how absurd this is, it becomes crystal-clear: it’s amazing for the BORROWER.
As a borrower – go ahead and get these incredible loans. You don’t have to wait 30 years for the loan to pay off. After some time – perhaps 10 years, perhaps 12, 15 or so – the loan, while still having time remaining on it, will likely look like a joke – VERY low payments and very low balance – as good as paid off in essence. (Down to almost a rounding error as the years advance.)
Inflation AND your tenant pay the loan off. Inflation makes it lower in real dollar value and the tenant makes the payments for you (and leaves extra for you in the form of cash flow which increases as the years go by since the loan payments are fixed, but rents are not). This message is always true – regardless of what interest rates might be.
However when interest rates are so incredibly low as they are now – it behooves real estate investors to go out and buy homes, finance them with 30-year fixed-rate loans, rinse and repeat. This is a window in time that may not repeat itself for many decades. Take advantage of it.
In our ICG 1-Day Expo coming up NEXT SATURDAY 5/30/2015 near SFO, we will discuss this point and many others. There will be lender guests who will teach us about loans for people with over 10 loans in place, loans for foreigners, and other special loan types. There will be market teams for the best real estate markets in the nation. There will be special real estate deals and special houses that can start the process we discuss above for you.
As always, we will also have experts on insurance, credit, financial planning, and other topics, plus a lot of networking. Anyone mentioning this blog can attend free with two guests – please email us at email@example.com to register.
In a Wall Street Journal article (front-page) by Laura Kusisto, May 12, 2015 titled “Home Prices Start to Heat Up” we learn that home prices rose year-over-year in 148 out of 174 metro areas in the United States, as measured in the first quarter of 2015. Fifty-one of these metro areas increased by double digits.
There is no doubt that most U.S. markets, including essentially all the markets real estate investors are investing in, are on an upwards trajectory. (If you are not a real estate investor… you may want to take advantage of as many opportunities as you can to learn about this market and determine what might work for you as an investment in your future.) The reasons are many, including low interest rates and loans becoming even easier to obtain over the past year (and this trend continues). Buyers (no doubt) know that the low rates will not be there forever, and feel compelled to jump in. And they are doing just that. A better employment picture also helps.
Needless to say, the phenomenon of price appreciation by itself can create upwards price pressure, as buyers prefer jumping in sooner rather than later, to get a better price. As I have always discussed and predicted, retiring baby boomers are starting to be a major force in some of the sunbelt states as they seek homes for retirement in warmer climates and friendly tax situations.
For the investor, new and seasoned, what is happening now is not strong enough not to invest. Learning how to take advantage of all of this is optimal at this time. It is a reminder that buying with a fixed-rate 30-year loan that never changes with inflation – and I cannot emphasize that enough – is one of the best financial moves one can make for their financial future! The tenant and inflation will bring the loan balance down as the years go by. Home prices AND rent are NOT fixed, only the mortgage payments are (the loan balance is also fixed and in fact is paid a bit off each month, even nominally due to the amortization).
I will discuss this in greater detail as well as many other factors critical to our real estate investing strategies, during our ICG quarterly 1-Day Expo near SFO airport on Saturday May 30, 2015. We will have market teams from the best markets in the U.S. at the Expo with vendors present for one-on-one discussions. Lenders will tell us about the new loans we can get, including new loans for foreign investors and U.S. investors with over 10 homes. We will also have experts on insurance, credit optimization and repair, and overall financial planning. For more detail on these experts, visit us at ICG Real Estate Investments and click on the button about our upcoming event. To register you may email us at firstname.lastname@example.org, and mention where you saw this blog, to attend for free with two guests. If you would rather register through Eventbrite, feel free (although ticket price applies).
See you soon; I look forward to learning from our experts right along with you.
There are lenders seizing an opportunity by operating outside of the restrictive FNMA guidelines. In the past year, we have seen loans improving for foreigners. It started with 50% LTV (loan-to-value) loans and now loans are up to 65% LTV for foreigners. The minimum loan amount is $100,000. Interest rates are not far off from the excellent rates American investors can get – mostly in the five percentile. Sometimes with a long fixed-rate period, perhaps just passing the six percentile.
Loans can be fixed for 5, 7 or 10 years (the latter ones touch a bit over 6% but the two former ones are well within 5%+). Americans can now also get 65% LTV loans with similar terms for properties between 10 and 20 (!). As we know, FNMA caps the number at 10, a restrictive barrier not enabling markets to fully engage investors. Will Bill Gates also be limited at 10 residential loans? Apparently yes, according to the FNMA guidelines.
In any case, having the ability to borrow at 65% LTV can enable a good contingent of veteran experienced investors, to continue investing and take advantage of the great rates prevailing in today’s markets. As someone who has seen rates be well in the teens, I can appreciate what it means to borrow on property number 16 at a rate that is a bit above 5%.
I am impressed with these advances. As a result, I have invited the lender to speak at our quarterly ICG 1-Day Expo on Saturday, May 30th. There will also be solid conventional lenders and loans featured prominently at the event.
In addition, there will be experts to teach us critical issues for investors: Scott Gerlis Founder and CEO of SAG Credit Consultants will speak about credit repair and enhancement and how to maximize everyone’s credit and avoid the pitfalls. Lucian Ioja, Financial Designer with Integrity Wealth Management, a respected financial planner, will teach us the overall way to look at arranging and optimizing our finances, not just via real estate, to secure a powerful retirement and other goal accomplishment. Joyce Feldman, Founder, and CEO of Joyce Feldman Insurance Company (Farmers Insurance) will teach us about how to use insurance correctly as the first and possibly the most important line in protecting our assets, common mistakes and how to avoid them, and a comprehensive look at our protection.
Needless to say, teams from the best markets in the United States will be there to update us on their marketplace, interact with us, and tell us about special deals in their markets. We have been holding these events for about 25 years now and I keep learning a lot during each and every event. Mention this blog post and you can attend free – just email us at email@example.com or call 415-927-7504.