30 year fixed loan

Can We See Real Estate Trends by Media Headlines?

Media headlines have been a pretty good gauge on the overall mood and trends in the real estate industry.  During the big boom of 2005 and 2006, the headlines were screaming, “When is the bubble going to burst?” (A sage point to ponder as it turned out.) During the dark ages of 2008 – 2010, the media headlines took pains to emphasize just how much prices were down in so many markets – a good tip for the savvy buyer.

What does it look like these days?

Within the past couple of months here are a few headlines: October 20th in the Wall Street Journal, the headline to an article by Jeffrey Sparshott says, “Builder Optimism Hits 10-Year High.” I believe you can guess what the article is about. In any case due to the blessed internet – you can just look it up. Another headline, again from the Wall Street Journal, by Anna Louise Sussman and Laura Kusisto, says, “Home Sales Head for Best Year Since 2007.” Again pretty self-explanatory.
The above two articles convey good optimism and strong home sales. For real estate investors this may not always be the best news, as naturally, they hunt for bargains. Nevertheless having a strong real estate market in many cities lends itself to strong occupancy, builder (built) homes (always an attractive investor buy due to builder incentives, and new homes bode well for a long hold with minimal potential repairs, and usually the best financing). Having solid real estate markets is a strong backdrop for our tried-and-true-buy-and-hold-with-a-30-year-fixed-mortgage strategy. Add this to low rates still existing today and you have some very good opportunities to expand your portfolio, lock in super low rates forever and change your financial future.
And about those rates – isn’t the Fed just about to raise rates? Let’s look at this headline from November 24, 2015, San Francisco Chronicle article by Kathleen Pender, “Rate Hike Won’t Hit Too Hard – At First.” I concur—rate hikes will most likely begin by ¼ of a point for short term debt. In addition, this anticipation may already be baked in the current mortgage rates. It will most likely be a while before the needle moves on mortgage rates in a significant manner.
With that being said the Fed’s intention highlight yet again that we operate within a “golden window” of super-low mortgage rates. For new investors, this seems like the norm. For veteran investors, we recognize these rates as the lowest in decades. If anyone has the ability to fix these rates forever in a loan that never keeps up with inflation – now may be the time.
During our quarterly 1-Day Expo THIS SATURDAY – December 5, 2015, we will have a sophisticated asset protection attorney—back by popular demand—Brett Lytle, who will speak on asset protection. Brett always has the most cutting-edge information on protecting our assets and the pros and cons of the type of entities we form.  Ron Stempek, MS-Tax, CPA, will speak on optimizing your taxes for reporting 2015—important must-know information for optimizing tax dollars, and actions to take going into the new year. Christopher Orr, Director of Institutional Products at PENSCO will be speaking on retirement savings goals by using self-directed IRAs, buying properties from a self-directed IRA, and using this vehicle to further your wealth.  As always, we have cutting edge market teams, lenders, networking and lots of Q&A time. 
Anyone contacting us and mentioning this blog can attend free (email to info@icgre.com or call us at 415-927-7504). If you email us, put in the subject “I read your blog on Blogger” and give us your name and phone number so we can confirm with you.
Looking forward to seeing you, and Happy Holidays!

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-’90s. It turns out 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 ’90s), 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.

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

reaction is to have money sit as cash (with close to zero yields). However, when people are scared of stock markets, real estate and (especially) single family homes usually become more interesting as a safe hard asset that 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!

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 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 info@icgre.com to register.

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.

New Homes Begin to Dominate Investor Purchases

Investors who have been buying older homes from bank foreclosures during the recession are now realizing some of the benefits of buying new homes built this year, in 2015 direct from developers (or minimally a massive renovation – like new). The lower future incidence of repairs, the warranties, the potential developer giveaways–possible only in new home purchases (a builder can give the buyer a covered patio which may be a $6,000 option, but only costs the builder $2,000 to build) and the modern amenities and floor plans are starting to attract more investors.

Since buying homes is in its core a long term investment, starting with new homes is a great send-off with many extra years of performance available. Getting loans on new homes is usually one of the easiest procedures, and with today’s low rates, locking in a 30-year fixed rate loan on a brand-new home is an excellent “stake in the ground” for anyone’s future. Of course, investors should not just blindly buy brand-new homes. The locations have to have the numbers – the right rents for the right prices.

There are some excellent markets providing very good numbers and cash flows in good areas.

For more information, you are invited to attend our quarterly ICG Real Estate 1-Day Expo this Saturday. You will not only meet teams from the most relevant markets and see the possibilities for yourself, but there will be expert speakers on important topics such as the new twists in Asset Protection (you must know about this), buying real estate from your Self-Directed IRA, and getting real estate financing for purchases from within your IRA.

There will be information for new investors and established investors on how to move forward powerfully. There will also be lenders to update us as to the ever-improving loan possibilities for investors (domestic and foreign), and lots of great Q&A and networking. The event is near the San Francisco Airport this Saturday, March 7th, from 10 AM to 6:30 PM. You may also register by emailing us at info@icgre.com or call us at 415-927-7504.

Price Gains Slowing; Markets May Stabilize

In a Wall Street Journal article from December 31, 2014, by Kathleen Madigan, it is mentioned that overall in the United States (as per the Case-Shiller 20 City Index) prices were up 4.6% from the previous year by the end of October 2014. The pace of growth has slowed from 4.8% in September and 10% in the first quarter. The article goes on to say this could indicate the markets are moving toward stabilization.
Understandably, in Florida, there is likely to be more price appreciation, as the state as a whole reflects the recession effect due to the ultra-slow judicial foreclosure periods. All in all, however, it’s definitely time to look to the stable markets with great economies and low unemployment. It is time for the classic long term hold of houses, where the tenant pays off the (very low) fixed-rate mortgage while inflation keeps eroding it.
No doubt newer homes will figure more prominently in 2015. The classic investment thesis holds strong in 2015 with an extra HUGE bonus: super low interest rates are still here – but many think they will vanish in the coming years.
Happy New Year!
Below is the article in its entirety for your review:

SLOWING PRICE GAINS SUGGEST STABLER MARKET

By Kathleen Madigan (WSJ)
Updated Dec. 31, 2014 12:41 a.m. ET

Yearly growth in home prices across the U.S. continued to moderate early in the fourth quarter, suggesting the housing market may be settling into a more sustainable recovery.

Prices nationwide increased 4.6% in the year ended in October, according to the Standard & Poor’s/Case-Shiller home-price report released Tuesday. That was down from 4.8% in September and a far cry from the 10%-plus gains in the first quarter. A 20-city measure more closely followed by economists increased 4.5% over the year in October, also down sharply from double-digit gains earlier in the year.

Demand for housing has slowed significantly in recent months despite stronger job growth, a rebound in consumer confidence and falling gasoline prices, which puts more money into consumers’ pockets. Sales of both new and existing homes fell in November. Yet the slowing trend is a positive for the 2015 housing outlook, say economists who follow the industry.

Price appreciation of about 5% is close to a sweet spot where more buyers are able to purchase a home and current owners accumulate housing wealth, but the market avoids a price bubble that could trigger a financial crisis, as happened in 2007.

“It’s a healthier market because first-time buyers feel more comfortable about coming in,” said Bill Banfield, vice president of capital markets at mortgage lender Quicken Loans, adding that the industry needs more first-time buyers to buy smaller homes that allow existing owners to move up into new construction or to an existing house that better suits their needs.

For 2014, however, first-time buyers accounted for only 29% of existing-home sales, according to data from the National Association of Realtors, much less than the historical norm of 40% for sales of primary residences.

Economists at IHS Global Insight agree slower price appreciation is positive for the housing outlook. “Home appreciation at a reasonable pace makes homeownership an attainable dream,” said Stephanie Karol, a U.S. economist at IHS Global. A repeat of the double-digit growth seen in early 2014 “would risk producing a bubble,” she said.

But just as each real-estate market is local, she pointed out the Case-Shiller price index of 20 cities masks the individual pricing experience going on across the country.

“Prices are rising fastest in cities such as San Francisco where geographic or legal constraints limit new construction,” Ms. Karol said. Cities with fewer zoning laws and more space—such as Charlotte, N.C., and Phoenix—are seeing smaller price gains.

Still, the average home-price gain of about 5% is good, she said, and IHS Global is upbeat about home demand and prices in 2015. The forecasting firm projects home prices, as measured by an index compiled by the Federal Housing Finance Agency, will increase 5% over the course of next year and sales of new and existing homes will average 5.92 million, up from 2014’s current pace of about 5.3 million.

Here is a link to the Wall Street Journal U.S. Housing Market Tracker:

Housing Starts Up Sharply

In a Wall Street Journal article from August 19th by Josh Mitchell, it is reported that housing starts are sharply up for the year and have seen a strong uptick in July. Housing starts bode well for a general housing recovery. We have already begun to go back to our old buying style of buying new homes from developers in Oklahoma City.
I am relatively sure in the coming months we will be seeing more attractive opportunities in buying brand new products in other markets as well. It took a long time for the builders to be able to put out a competitive product for real estate investors, as they played a serious “second fiddle” to existing homes, which were priced well below what they could offer.
We are pleased to see the trend as it was always our opinion that a prudent and safe real estate investment certainly includes brand-new homes with a builder’s warranty, with a fixed-rate 30-year loan paid off by the tenant and eroded steadily by inflation (as it is not pegged to the cost of living). This mode of real estate investment serves as the foundation of building a solid financial future and achieving long-term life goals of a solid retirement and sending our kids to college.
Builders have the ability to offer the buyers many “goodies” at a cost to them- that is much lower than the retail cost (an example might be a covered patio which costs $6K but only costs the builder $2K to build). This can create an attractive package for the investor.
We will have builders and new properties available at our upcoming 1-Day Real Estate Expo near SFO on Saturday, September 13th. I am looking forward to seeing you.
I am enclosing the full WSJ article for convenience:
U.S. Housing Starts Up Sharply in July – Renewed Strength in Housing Market Could Boost Economy
By Josh Mitchell
Updated Aug. 19, 2014 11:03 a.m. ET
.

WASHINGTON—Home construction surged in July, a sign that renewed strength in the housing market could boost the economy in coming months.

Housing starts climbed almost 16% last month to an annual rate of 1.093 million units, the Commerce Department said Tuesday. That marked the highest level of construction since November, driven by a pronounced rise in new apartments.

Home construction rose 22% in the year through July, and a rise in applications for building permits last month suggests further gains this year. That could ease concerns at the Federal Reserve of a weak housing sector weighing on economic growth this year.

”With housing starts up 22% over the last year, the Fed’s concern about a ‘slow’ recovery in the housing market looks misplaced to us,” Economist John Ryding of RDQ Economics said in a note to clients. But details within Tuesday’s report raised questions about whether the construction gains will be sustained. Last month’s rise appeared to be due partly to a rebound in construction in the South after rainy weather caused delays earlier this summer.
Such rebounds are typically temporary. Also, the bulk of the increase was due to surging apartment construction, a volatile category that can mask underlying strength in the market. And it’s unclear whether the housing market will be able to maintain momentum if mortgages rates rise, as many economists expect them to as the Federal Reserve moves toward raising its benchmark short-term interest rates from near zero.
Amid the prospect of higher costs and weak income growth, Fannie Mae’s economics group downgraded its forecast for home sales and construction on Monday. It now expects construction of 1.43 million single-family units this year and next combined, down from an earlier forecast of 1.61 million units.
A measure of affordability, which takes into account interest rates, home prices and median household income, hit its lowest level in six years in June. That reflects a run-up in home prices.
Interest rates have fallen back to year-ago levels in recent weeks after rising late last year. The average rate on a conventional 30-year mortgage stood at 4.12% last week, down from 4.53% in the first week of the year, according to Freddie Mac.
But overall the report boosted hopes of a stronger housing recovery. In July, applications for building permits, a construction bellwether, climbed 8.1% to a 1.052 million rate. That suggests construction could pick up further in coming months. Sales of previously owned homes have picked up in recent months, buoyed by historically low interest rates, mild weather, and stronger job growth in the U.S. But sales of new homes have moved sideways. The latest pickup in home construction could signal builders are gaining confidence that overall sales will rise as the broader economy gains momentum.
From a year ago, home construction was up 21.7%. The home-construction market has steadily recovered from the depths of the recession but has yet to regain its strength from the levels that preceded the boom years in the 2000s.
At the height of the housing boom in 2005, just over 2 million homes were built. After the crash, housing starts fell to 554,000 in 2009, during the recession. Tuesday’s report showed that starts on single-family homes, which reflects the bulk of the market, climbed 8.3% in July from June.
Construction of multifamily units—mostly condominiums and apartments–rose 33% to a pace of 423,000 units, the highest level since January 2006. That category is more volatile. Other recent signs point to a strengthening housing sector.
A measure of home builder optimism rose two points to a reading of 55 this month, the National Association of Home Builders said Monday. Existing-home sales rose in June to the highest level since October, the National Association of Realtors said last month. The trade group is expected to release July’s data Thursday.
Write to Josh Mitchell at joshua.mitchell@wsj.com

Mortgage Rules Set to Ease

An article in the Wall Street Journal dated May 14, 2014 – right on the front page, is an article by Nick Timiraos and Deborah Solomon. The article is about how, after a few years of tight mortgage lending, the U.S. government is set to ease the criteria to get home loans. Needless to say, this is music to our ears. As more buyers can enter the marketplace, demand is likely to increase and so are prices.

The housing sector will get a much-needed shot in the arm and for investors, there will be many more potential buyers upon liquidation. Will easing bring us closer to another mortgage meltdown? Possibly, but I think lessons have been learned during the recession which will prevent a wholesale catastrophe as we have seen before. My opinion is that for us as real estate investors this is an excellent bit of news. And remember – get your own 30-year fixed rate mortgage as soon as you can at these rates, which likely will increase in the coming years. We will discuss this and much more at our quarterly 1-Day Real Estate Expo Saturday, June 14th near SFO. Please see more details and to register, click here. Looking forward to seeing you!

The U.S. Backs Off Tight Mortgage Rules

In Reversal, Administration and Fannie, Freddie Regulator Push to Make More Credit Available to Boost Housing Recovery

By Nick Timiraos and Deborah Solomon

The Obama administration and federal regulators are reversing course on some of the biggest post-crisis efforts to tighten mortgage-lending standards amid concern they could snuff out the fledgling housing rebound and dent the economic recovery. Nick Timiraos reports.

WASHINGTON—The Obama administration and federal regulators are reversing course on some of the biggest post crisis efforts to tighten mortgage-lending standards amid concern they could snuff out the fledgling housing rebound and dent the economic recovery.

Click here for the rest of the article.

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