3 Super Smart Reasons to Buy/Invest in Real Estate Despite Higher Interest Rates.
Despite higher current mortgage rates and potential rate hikes coming later in the year, NOW is the time to ramp up your buying and investing in real estate!!
BUT WAIT ONE HOT DAMN F'NG MINUTE 😕!!!
Interest Rates are rising, we're headed towards a recession, a depression, a housing crash and hair on fire days aren't we???!!
Nope!!! And here's why: 1- There will NOT be housing crash so you should buy/invest NOW while your competition remains paralyzed with fear.
Yep you heard it hear first folks. Despite the media's clamoring for a big ole housing market crash like that of 2008; that is NOT going to happen for the following reasons. -There is still a GREATER Demand than Supply for homes which is keeping prices and valuations relatively higher. We will need to build our way into greater housing inventory and that will take time; 2-3 years at the very least but realistically 5 or more years. -There are no mass foreclosures on the horizon due to the federal government's intervening and working with banks to provide borrowers payment relief during the pandemic. People are KEEPING their homes not losing them. -Home buyers and their loan products of recent years are higher quality and were vetted with much more scrutiny than the pre-2008 home buyers who applied and received exotic and outrageous loan products.
So while potential buyers and amateur investor are heading for the hills, you jump in and dominate your local market!!
2- It's the Perfect Time to Refinance Your Other Debt via HELOC So You can Qualify for More Investment Properties!! If you own your primary home you probably experienced a significant boost in your home's equity (i.e. Home Market Value $500,000 minus What You Owe $200,000). In this example the equity is $300,000. By borrowing against this equity you can pay off your other high interest debt (i.e. Credit Cards, Cars, Personal Loans, etc.). For simplicity sake, let's just assume you owe $50,000 in additional debt at an average 18% interest rate scheduled to be paid off over the next ten years. That is $900.93 a month. By using a Home Equity Line of Credit (HELOC) you're able to pay off the entire amount by refinancing it at say a rate of 7% by tapping into your home's equity. In this example your home's equity would now be $250,000 ($300,000 Equity - $50,000 Refinanced Debt).
The beautiful part about this is that your monthly cash outlay reduces from $900.93 to $580.94 a month. This reduction of $319.99 a month reduces your debt ratio (Total Liabilities/Total Income) thereby potentially qualifying you to purchase that investment home/2nd Home/Vacation/Airbnb Rental that you really want. And when mortgage rates go back down again, you can refinance that purchase and save even more money!! 3- Use ARMS, Interest Only Loans and DSCR Loans until rates go back down then Refinance
Adjustable Rate Mortgages are great tools to use when interest rates rise. Your mortgage is locked at a lower market rate for 3,5 or 10 years. And at the end of that introductory phase your rate adjusts upward based on market indictors at the time. You can refinance the loan if rates go down before the initial period is up, sell the home or pay the increased amount. Interest Only Loans are making their way back. By paying only the interest on a mortgage you maximize the amount of your return on investment property and you keep your debt lowered until its time to refinance into a traditional mortgage. DSCR (Debt Service Coverage Ratio) loans are perfect if you intend to exclusively rent the property and also buy it under an LLC or other company designation. The factor that counts most heavily is the ability to pay the mortgage based solely on the revenue generating from the asset and NOT your personal income or debt ratio. For example you receive $2,000 in rent (gross revenue) but you payout $600 for management, taxes, maintenance costs (expenses). The remaining $1,400 is called Operating Revenue. So let's assume your mortgage payment on the property is also $1,000. Your DSCR is 1.4 ($1,400 Operating Revenue/$1,000 Mortgage). Your property operating income exceeded the amount needed to service your mortgage debt. Now let's assume your monthly expenses are MUCH higher, say $1,000 a month. Your Operating Revenue would be $1,000 ($2,000 Rent/Gross Revenue - $1,000 Expenses ).
So now your DSCR is .76 ($1,000 Operating Revenue/$1,300 Mortgage) This means your property does not generate enough operating income to pay or service your monthly mortgage debt. You would not qualify for this loan. Renowned investor, Warren Buffett once said it's wise for investors to be “fearful when others are greedy, and greedy when others are fearful.” I'm advising you to be GREEDY while others are currently shaking in their boots with fear over rising interest rates!!! Herndon Davis Mortgage Broker, NMLS #161587 - Call Text: 754-264-0564