real estate loans

35% Of The US Population Are Renters — Why This Is An Opportunity For You?

Why Inflation Is Your Best Friend When It Comes To Real Estate Investments
In the mid-19th century, life expectancy was about 40 years. In 1950, that rose to about 65 years. Today, that life expectancy has grown to about 81 years, and it continues to go up. We are having longer retirements than ever before in history. Medical science progressing at the rate that it is, those retirement years are going to stretch even further! We are living longer, healthier lives than ever before, so shouldn’t your financial health reflect this? Here’s how you can ensure it.

It is never too late to invest in real estate.

I have in the past connected with Warren Buffet, and we have communicated now and then since. Now this financial whizz isn’t known to be a big investor in homes, but even he saw the wisdom of buying single family homes in the aftermath of the 2012 recession.
If you think that this is something you should have started when you were younger, let me tell you, you can start to invest in real estate at any age. We have had people that have started the process well into their 70s or even later. There is the story of Mindy, a school teacher who bought a rental home in her 50s. She finished paying for her 30-year fixed rate loan in 16 years, so now at 70 she has free and clear ownership of a property that earns her a steady passive income from rent. There is also the story of Brad who lives in the San Francisco bay area. He started investing in the 1990s, ended with 16 homes in the Phoenix area and retired early!

Invest in the Sun Belt states.

About 35% of the US population is renting – that is over 110 million people! A massive potential for passive income right there! For a number of reasons the sun-belt states suggest themselves as the places with the best growth potential right now. In these areas, the larger metropolitan areas with a lot of commercial activity are great choices.
This is where young professionals and their families are coming to work, where they are looking to rent properties, live, study. So if you want to make the wise decision to invest in real estate, I always recommend single family homes in good areas rather than apartments or condos. You are setting up your present as well as your future.

Let inflation be your friend.

Usually inflation is a bad word, but not when it comes to real estate investments. Firstly, I recommend the 30-year fixed rate loan – and that you make the lowest down payment possible. While your outgoing seems high right now, after some years it will be roughly the same as a nice dinner out somewhere. While your loan repayment amounts remain the same, your rental incomes go up over the years because the cost of living (with inflation levels) goes up!
So, what size of home should you buy? New or pre-owned? What type of property is going to fetch you the best rental incomes and what will appreciate over the long term? Who will manage properties so far from where you live? I have the answers to all those questions and more. Check out this video where I answer some of these vexing questions – and more.
inflation and real estate investing

Loan Resets to Start Kicking in – Will Your Payment Jump Up? What Should You Do?

In the period between 2006 and 2008, a large number of interest-only loans were taken. These loans are not really interest-only for all eternity. These are typically loans that were interest-only for 10 years, and then were due to become fully amortized until the end of the loan period. One detail that many borrowers may have missed, is that if the total loan period is 30 years (the most common), and the loan is interest-only for 10 years, then the amortization that follows the 10 interest-only years will be amortization OVER 20 YEARS!

Thus when the loan resets to being fully amortized after the first 10 years, the borrower will experience the high payment jump of going from interest-only to going to a 20-year full amortization. For a lot of borrowers, this will be a shock! Of course, the “silver lining” is that the principal is being paid under the new fully amortized schedule, so the loan balance gets lower every month. However, even when the loan was interest-only, inflation was constantly eroding it anyway.
What is the borrower to do?
If the borrower can afford the increased payment with no problem, there is not much that needs to be done. Let the loan be paid off and just continue as before. If the payment load is too heavy, and the owner’s credit and income are good (especially if the owner has under 10 properties with loans on them), a refinance would a be a logical step – good credit can get 30-years fixed-rate loans at a bit over 4% – fixed for 30 years. The payments will be higher than the interest-only payments from before, but the low-interest rate and the 30-year amortization (as opposed to 20 years), will likely make the payment far lower than the alternative. Another benefit – the old loan is likely NOT a true fixed-rate loan so as interest rates climb in the future (if they do), the already-high payment is only going to get higher still. With a 30-year fixed-rate loan, such a thing cannot happen.
If a refinance is not possible, the next thing to look into is the possibility of selling the house. In some markets, over the past few years, much equity was built as home prices appreciated significantly. A sale will pay off the unpleasant loan, and most likely will generate a profit (perhaps a handsome profit at that).
One thing to do if a sale is not possible, if the house is underwater (can still be the case in some markets), or if the equity is thin so the sales expenses will create a net shortage, is to consider selling to an investor for essentially no-money-down on a contract-for-deed in states that allow it. That investor may be attracted to the no-down (or low down) purchase and may have the resources to pay the 20-year amortization loan while increasing his/her equity via doing so.
Of course, an option of last resort is to simply walk away. There are lots of investors whose credit is still damaged from the aftermath of the recession, so the credit hit is not devastating to an already-low credit score. Nevertheless, such an act will increase the time it will take for the investor’s credit to bounce back and start the count from zero again. This is not a recommended action to take.
Most important is to be aware of the upcoming reset, and prepare before it hits.