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Stronger Inflation Weakens Buying Power

The Power of the Dollar will be Felt at the Grocery Store

In an article on the front page of the Wall Street Journal on Saturday, August 11th, titled “Stronger Inflation Eats Into Paychecks”, by Josh Mitchell he discusses how rising inflation creates more expenses across the board, lowering the actual standard of living for most people. This is always true. Even in years when inflation is “lower” than it is right now. Inflation constantly erodes the buying power of the dollar and weakens people’s ability to live to a certain standard they may be accustomed to. Inflation is likely to also exist in the United States for the foreseeable future, due in part to the large budget deficit, and is unlikely to abate. In fact, as the article mentions, it is now accelerating.

As I wrote about in my books, mentioned in my upcoming public television special “Remote Control Retirement Riches With Adiel Gorel”, and specifically in my booklet (which is part of the package for pledgers who help support public television stations) called “How to Harness Inflation As Your Ally”, the very act of buying a solid, affordable single-family home in the right market (please refer to the same source materials, including the booklet “Where to Invest?”), and financing them with the incomprehensible 30-year fixed rate loan, which NEVER keeps up with inflation, actually REVERSES the effect inflation has on you.

Instead of eroding your income and buying power, when you have a 30-year fixed rate loan on a single-family home (technically these loans are possible to obtain on 1-4 residential units), inflation keep eroding BOTH your fixed monthly payment, AND the loan balance (which goes down gradually with the 30-year amortization principal payments as well).

When inflation constantly erodes your DEBT, obviously you owe less in terms of real dollars. This is an integral part of why rental single-family homes in the United States (to the best of my knowledge the only country where such loans exist), can improve your financial future, enable you to have a potentially far more powerful retirement, send your kids and grand-kids to college (as many have done using this investment style under our guidance), and actually have a constantly rising average net worth (long term, since local fluctuations both up & down in prices can vary that temporarily). In addition, you are building up to the future when either the loan balance looks so small it can just be paid off (usually well before 30 years are up), or the loan is paid off and now there is one more free and clear home providing income for the rest of your life.

I recently came back from speaking and meeting with investors in a foreign country. They are simply SHOCKED at the fact that United States investors can get the 30-year-loan (which is why I called it “incomprehensible”. Foreigners can’t understand why U.S. investors don’t get and many of these “gifts” as they possibly can. The foreign investor usually cannot get these “miracle loans.” Ironically foreigners can appreciate what these loans really mean and how they turn inflation into your ally, instead of your foe, more clearly than most Americans.

Starting this weekend, on August 18th my Public Television special “Remote Control Retirement Riches With Adiel Gorel” will start airing on various Public Television stations across the U.S. In the San Francisco Bay Area the special will air on KQED. A partial list of the air times in various markets (the list gets updated all the time) is here. For additional air times for KQED click here.

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Increase in Renters Seeking Single Family Homes vs. Apartments

Oaklahoma City

In a blog on RentCafe, by Nadia Balint, from April 2018, this is some of the information shared:

“The U.S. housing market has gone through nothing short of a transformation in the last decade. The number of people renting their abode has increased significantly, in some cities surpassing the number of homeowners. The housing market quickly responded to this shift by adding millions of rental units in just a few years, with many U.S. cities witnessing a frenzy of apartment construction.

The most interesting part of this transformation, however, was the fact that the rental market expanded even faster horizontally than it did vertically. For the better part of the decade ending in 2016, single-family homes for rent were the fastest growing type of rental in the U.S., outpacing the formidable apartment boom seen throughout the country.

According to U.S. Census estimates, the number of single-family rentals (SFR) in the U.S. grew by 31% in the ten year period immediately following the housing crisis (2007 to 2016), while multifamily rentals (MFR) grew by 14%. In net numbers, single-family rentals in the U.S. increased by 3.6 million units in ten years, more than rental apartments, which increased by 3.2 million units. As of 2016, the U.S. Census counted a total of over 15 million single-family homes for rent in the United States and a total of over 26 million apartments for rent.”

10-year increase in single-family vs. multi-family home rentals in U.S.

Oklahoma City leads the 10 Top Metros with the largest share of Single Family Home Rentals:

This is very likely helped by the tendency of many Millennials to rent instead of buy. Millennials have not been valuing home ownership as much as previous generations. Many of them value flexibility and the ability to move. Nevertheless, many Millennials are getting into the family-formation phase of their lives, and thus prefer single-family homes with a yard for the kids, dog etc.

All this dovetails perfectly into our investment philosophy: buy single-family homes in good areas in good large metropolitan areas, finance them with 30-year fixed rate loans (which never keep up with inflation) whenever possible, and hold. That will vastly change and improve your financial future.

We will discuss this and a lot more at our ICG Quarterly 1-Day Expo on Saturday 5/19/2018 near the San Francisco Airport. I will be teaching and holding extensive Q & A sessions. We will have expert speakers on Asset Protection, 1031 Exchanges, and Financial Planning overall. There will be lenders present, 5-star networking, and presentations from market teams from the most relevant markets in the U.S. You can attend free, with a guest by emailing us at info@icgre.com, and mentioning this blog. Looking forward to seeing you!

#real estate, #real estate investing, #interest rates, #single-family homes, #rentals, #retirement, #college costs, #wealth

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Will Rising Interest Rates Ruin Your Future?

Will rising interest rates ruin your real estate investments

Interest rates are rising. In the past year mortgage rates went up by over 0.5%. Homeowner mortgage rates are now about 4.4%; investor rates are always higher, and are currently at about 5.25%. Historically, these are still very low rates. Even in the past 20 years, which saw some of the lowest interest rates in nearly a century, the average rate is about 6%; based on the past 7% and even 7.5% are considered low.

In the 1980’s there were periods where interest rates were over 14%. For many years, rates were in the “double digits.” There was a lot of joy when rates finally got down to a “single digit.” I recall everyone running to refinance to get the amazing new rate of 9.95%!

The single-family home investor

For the single-family home investor, given their ability to get a 30-year fixed rate loan, which miraculously never keeps up with inflation, these recent changes in interest rates should mean very little. I have seen thousands of people’s lives change dramatically over the years buying good solid single- family home rentals. The trick is to hold them for a long time (leaving it be–no refinancing for debt consolidation) and let inflation erode the fixed loan to the point of ridiculousness, while natural average price appreciation happens steadily (that includes booms and busts – on average single-family home prices have appreciated at least 1.5 times the rate of inflation historically).

So why do I talk about interest rate rises potentially ruining your future? 

That has to do with human behavior. I have seen many cases recently, of investors who understood the powerful future benefit of buying single-family rentals, and as it happens, were looking during the period when rates were super low (investor rates were 4.7%). A few months later, when investor rates are now 5.3%, I have been hearing investors saying “Well, I don’t want to invest anymore, since rates went up from 4.7% to 5.3%”.

THIS is how you can ruin your financial future. Over the years, I have seen it time and time again – investors not taking action, not cementing their future by actually investing in a single-family home rental. Rather, they would find a reason not to do it – “interest rates are too high now”, “I read the economy will tank”, “it’s too late”, “I am too old” etc.

Using a minute change in interest rates as an excuse not to move forward, especially at a time when rates, even for investors, are supremely low – like today, is simply not going to let the powerful effect of rental homes change your future for the better.

Take action now to change your financial future

I have seen many such cases in the past, for example: two friends were considering investing in houses, one thought “the interest rates were too high” and didn’t do anything. The other went ahead and invested. Once he saw it was easy and profitable, he invested again, and again. Today, the financial difference between the two friends is staggering. The one who owns the rental homes, bought over 15 years ago, is retired with great ease, has sent his kids to great colleges, and is wealthy. His friend – not so much. It’s almost heartbreaking.

Don’t let these minor perturbations in interest rates ruin YOUR financial future.

We will discuss this and a lot more at our ICG Quarterly 1-Day Expo on Saturday 5/19/2018 near the San Francisco Airport. I will be teaching and holding extensive Q & A sessions. We will have expert speakers on Asset Protection, 1031 Exchanges, Financial Planning overall, as well as lenders, 5-star networking, and market teams from the most relevant markets in the U.S. You can attend free (or with a guest), by emailing us at info@icgre.com, and mentioning this blog. Be sure to give us your name and the name of your guest. Looking forward to seeing you.

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Inflation Helps Single Family Home Investors

Inflation

In an article published in the San Francisco Chronicle from February 7th by Christopher Rugaber (AP Economics Writer), called  “Why Investors’ Fear of High Inflation is Probably Overblown,” Mr. Rugaber explains inflation by going into the pros and cons of higher and lower inflation.  He provides an overall concise glimpse of the situation as it is currently.  The Fed’s dilemma with increasing taxes in the face of strong employment and rising wages is certain to bring inflation to the economy. However, he also discusses how inflation assists borrowers.

ICG educates investors

Of course, at ICG, we constantly talk about how inflation erodes the 30-year fixed rate loan. This, in turn, becomes the borrower’s ally in reducing the real buying power of the loans fixed dollar amount. We will talk about this and many other important topics during our ICG Quarterly 1-Day Expo near SFO on Saturday 3/3/2018.

Topics to be covered

Our expert speakers will cover topics including the new tax law and how it pertains to real estate investors, how to buy rental homes out of a self-directed IRA, and how to use insurance as the first line of defense of protecting your assets.  There will also be lenders available to discuss what they have available and what you can expect over the next several months. Property management, legal expertise, and one-on-one’s can be found as well. And as always, we offer a lot of question and answer time.  Market teams from the most relevant metro areas in the US will be present. Everyone mentioning this blog will receive free entry. Please email us that you read this at info@icgre.com.

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Where to Buy Rental Homes in the United States

We have discussed, in a previous article, why investing in Single Family Homes is a superior investment, especially for the busy professional (which most of us are).
We discussed the benefits of buying single-family homes using the unique 30-year fixed rate financing available ONLY in the United States (foreigners are amazed that we can get loans where nothing keeps up with inflation for as long as 30 years, meaning inflation keeps eroding the real value of our debt while the tenant is gradually paying it off for us). The 30-year fixed rate mortgage is only available on 1-4 residential units, making single family home rental investments even more attractive.
We also discussed how owning a portfolio of single-family rental homes can change everyone’s financial future. It can facilitate sending your kids to a great university, it can retire you sooner and more powerfully, and overall it can create a financial safety net for your future.
Single-family homes are easier to manage than other property and are usually occupied by families with kids, who go to local schools and serve as an anchor of stability to keep the family renting for a longer time. Single Family Homes are also possibly the most liquid real estate since when you put it up for sale your potential buyer pool is essentially everyone in the marketplace. It is still considered the “American Dream”, a dream which is attainable in many markets in the United States.
Where should we buy our single-family home rentals? To begin with, we can focus on large metropolitan areas. Large metropolitan areas are usually comprised of a number of cities (for example the Phoenix metro area includes cities such as Chandler, Mesa, Gilbert, Scottsdale, Avondale, Peoria, Glendale, and others). A large metropolitan area usually has good economic and employment diversity and a large pool of industries and employers. This is likely to create employment opportunities and economic stability. A large metro area also is likely to have a diversity of education, culture, culinary and many other facets of life, which can be attractive to a larger pool of residents and create a stable place in which to live.
Next, it is always instructive to study the demographic trends in the United States. Even before we had the World Wide Web and search engines to facilitate research, demographic information was available through multiple sources, including the US Census. It is evident that as far as overall demographic movements, the Sun Belt States are the states which usually experience net growth in population on an ongoing basis (those states in the sunny, southern part of the US, such as Nevada, Arizona, Texas, Oklahoma, Utah, Colorado, Florida and other southern states.) Not all Sunbelt states keep growing on a net basis, but many of the big ones do, and that would be one criterion on which to base our geographic choice.
We will continue on “Where to Buy Rental Homes” in part 2 of 4 of this article. We will also discuss these subjects and much more during our ICG Quarterly 1-Day Expo on Saturday, December 2nd, 2017 near SFO. We will have experts discuss Asset Protection, Tax planning for year-end, 1031 Exchanges, special loans for investors (including foreign investors and investors who own over 10 properties), and a lot more. To register, please email us at info@icgre.com and mention this blog. You can attend for free with a guest. 
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A Real Life Real Estate Investor Story

As you know we always preach the gospel of buying single family homes, renting them, financing them with 30-year fixed-rate loans and then just holding them long term. We have discussed the benefits of having a 30-year loan which never keeps up with the cost of living (while everything else does!) Thus your loan gets constantly eroded by inflation (and don’t let anyone tell you the United States will have no or negative inflation in the face of the massive fixed debt it is on the hook for), while the tenant makes the payments for you (of course the RENT does change with inflation which makes it all the sweeter).

In the past month I got a call from a financial planner handling the affairs of one of my investors. He had purchased nine single family homes in Phoenix in the mid 90’s. It turns out the he did not even live in the United States anymore, hence the financial planner handling his affairs in the U.S. They decided it was time to sell the homes in light of the 2012-2015 run-up in values that Phoenix has experienced in the aftermath of the recession.

Needless to say his mortgages, while still not completely paid off (they are 30-year loans after all), are essentially as good as paid off after over 20 years. They never kept up with the cost of living and the principal payments whittled them down pretty low – very funny numbers considering the 20+ year inflation which the loan never kept up with.

A few quick CMAs (Comparative Market Analysis) by one of our Phoenix brokers revealed that after selling the nine homes, the investor would NET (after sales expenses and closing), about $1.7M. Considering he bought the homes for an average of $80K each and using 10% down payments (those were the financing terms back in the mid 90’s), his overall return on investment is not only staggering, but the $1.7M is a real, tangible, powerful enhancement for the rest of his life (he is now in his mid 60’s).

As much as this is a satisfying long term result, I know the investor could have easily bought way more than nine homes. Loans were plentiful back then (no up-to-10 limits) and he had the capacity to easily buy three times as many homes. Nevertheless, even with this investment, he has created a powerful effect on his financial future. Alternatively he could have just kept the homes and have the net rent from all nine homes contribute to his retirement income.

During our next 1-Day Expo (tomorrow near SFO – see www.icgre.com for details and if you mention this blog entry, you are invited at no cost – just email us at info@icgre.com with the attendees’ names), we will discuss new loans available to investors who own over 10 homes as well. Loans are now also available to foreigners again, and of course, if you own less than 10 homes there are conventional investor loans available to you from most banks.
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What The Volatile Market Means to Real Estate Single Family Home Investors

The Dow closed down 588 points last Wednesday as worries of a China Slowdown permeate the business community. Even though there was some recovery in the market on Wednesday the market is still volatile. In looking at this from the prism of a single family home investor; there are pros and cons to consider.

On the pro side, it’s already assumed that any interest rate hike by the fed will now be postponed until things feel stable. Since it takes time for a rate hike to translate to mortgage rates, we get more time with our delightfully low mortgages. Of course since most mortgages have yearly caps, it will take even longer (in some cases much longer) for rates to climb in a significant way.

Also on the pro side, people are confused as to where money should operate. The knee-jerk

Great advice.

reaction is to have money sit as cash (with close to zero yield). However when people are scared of stock markets, real estate and (especially) single family homes usually become more interesting as a safe hard asset which produces income, which we tell our clients at ICG as well.

People may also feel this is not a bad time to pull money out of stocks and finally buy a home for themselves, since they might have been planning to do it anyway – this would not be a bad time to deploy that cash, right into locking in a low rate 30-year fixed loan. This of course would boost real estate markets in the single family home sector.

On the con side, obviously what is happening is not engendering a lot of overall economic confidence and more doom-and-gloom messages are circulating. This can create an environment where people “hunker down” which will not help the housing market.

During our upcoming 1-Day Expo, we have invited Dr.Lawrence A. Souzato to discuss this and other important economic waves now manifesting. Don’t miss it!

We will also have Ralph Bunje Jr. talking about reverse and regular 1031 exchanges and how to do them right, and Charles Byrd about using Evernote for business, and total life organization and efficiency. We will have market teams from the best United States markets and lots of Q & A, networking and learning. Anyone mentioning this blog can attend for free with two guests. Just email us at info@icgre.com or call at 415-927-7504. Looking forward to seeing you!

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Higher Rates Possible by The End of 2015

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 which 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 info@icgre.com to register.
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Home Prices Rising and How You Benefit

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 info@icgre.com, 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.

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Financing Now Available for Foreigners And Americans with Over 10 Properties

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 info@icgre.com or call 415-927-7504.
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