Skip to content
Give us a call: (415) 927-7504

Posts Tagged ‘homeowners insurance’

Buying a Home to Live in Versus Renting

Buying a Home to Live in Versus Renting

 

A classic question I get when talking to a would-be real estate investor is: “Shouldn’t we buy a home to live in first before buying investment homes?”

The answer is – it depends on where you live.

When considering owning your own residence, there are various layers of reasoning.  Some are logic and numbers-based.  Some are emotional, traditional and familial.

Owning your own home can be associated with safety, security, having “arrived”, satisfying family members’ aspirations, the stability of having a (hopefully) permanent place to live, and so on.

Of course, everyone has a different set of emotional considerations when it comes to owning a home.  These vary from person to person and, needless to say, are hard to quantify.

In this post, I will address the logical, numbers-based approach to the question of whether to buy your own home as your first real estate move, or rent and buy investment homes instead.

The numbers tell the story when considering buying a home

If you are considering buying your own home, the price of the home matters, the rent required to rent that same home matters, the local property taxes matter, the mortgage interest rates matter, dwelling insurance rates matter, and even the new 2018 tax law weighs in.

If you live in a market where property taxes are relatively low (say, between 1 and 1.7 percent of the home price per year), and insurance rates are reasonable, then if you are considering buying a home under about $400,000, that should be a “no-brainer” as your first step.  Between $400,000 and $500,000 would still be a reasonable range to consider buying the home.  In such a market, once you step up to the $500,000 range and above, the math may well start to turn as you climb higher in price, in favor of renting a home in the area in which you live.  Following that, owning rental homes in more optimal markets makes sense.

Watch out for high property tax and high insurance rates

In markets where the property taxes are high (like in Texas and Oregon), and insurance rates are high (Texas again, for example), the “no-brainer” number may shrink to $300,000 or so, while the range above which you may consider renting your own home while buying affordable investment homes in other markets, will likely be $400,000 or above. This is because with high expenses for property tax and insurance, (which as a homeowner you would be paying) the overall numbers and logic “turn the corner” faster.

Certainly, in expensive areas like the San Francisco Bay Area, Los Angeles, San Diego, New York City and others such markets, it is usually far more logical to be a renter, while owning rental properties in affordable markets, where rents are actually quite high as a percentage of the home purchase prices.

Our next quarterly expo is December 1st near San Francisco Airport. Email us at info@icgre.com and add “Read your blog post” in the subject line and come as my guest. We will get back to you with registration information. Learn more about the event at icgre.com/events.

Facebooktwitterredditpinterestlinkedinmail

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.
Facebooktwitterredditpinterestlinkedinmail

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.

Facebooktwitterredditpinterestlinkedinmail

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.
Facebooktwitterredditpinterestlinkedinmail

2016 and the Real Estate Investor

The year is off to a decent start–the fears many investors had that mortgage rates will go up very quickly due to the Fed’s raising the short-term rates recently have not only not materialized, but actually, mortgage rates have gone down twice. I will address it in a separate blog entry but as you can see there is no immediate correlation. Needless to say, mortgage interest rates WILL go up at some point which in part serves to frame the most important aspect of 2016.
During 2016 mortgage interest rates are likely to remain quite low for the entire (or most of the ) year. As single-family homes investors, those of you with decent credit and not a huge portfolio can still qualify and get these coveted 30-year fixed rate loans that you can only get on Single Family Homes (technically 1-4 residential units).

This is the year to focus and be effective in buying solid homes financed by these 30-year fixed rate loans at these incredible interest rates and lock them forever. You will feel like a genius later on after rates have climbed and here you are with an under-5% loan fixed forever, and never changing with the cost of inflation. In a continuous manner, inflation erodes your fixed loan, and the tenant is paying it off one little month at a time.

Do this in 2016. Do this several times. You will be setting up your financial future.

As far as markets, there may not be large appreciation swings in most markets during 2016. In a funny way, the ever-solid Texas is appreciating decently now, but people have some questions about its overall economy.

Oklahoma City with brand-new homes (under 50% of the property tax bite of Texas; it is poised to provide better cash flow on similar rents and home prices – which it has) is a very serious candidate for solid investments.

Jacksonville, Florida is the market least appreciated in the state so far and carries the best appreciation potential. Also in 2016, the Panama Canal project is slated to be finished, potentially generating major large-ship traffic into the Jacksonville port. Will they finish this gargantuan project on time? Will it drift over to 2017? Regardless, it is a dominant event.

Get those good single-family homes and finance them with low 30-year fixed-rate loans. Rinse and repeat. You will very likely be quite happy in the future when you look back at what you have done. We will be discussing this in detail, along with market teams and incredible experts, during our next quarterly 1-Day Expo near SFO on Saturday, March 5th. Everyone citing this blog can attend for free with guests. Just email us at info@icgre.com or call us at 415-927-7504.

Happy New Year!:

Facebooktwitterredditpinterestlinkedinmail