Archive for the ‘mortgages’ Category

Silent Wealth Generation with Rental Properties

Thursday, January 12th, 2012

When you own a rental property, two silent forces at work to increase your wealth:

1.) principal reduction, and

2.) increasing equity.

With each mortgage payment, you decrease the amount that you owe on a home loan as you reduce your principal. When your property is rented out, your tenant pays your loan for you. At the same time, equity goes up as property values appreciate over time.

Let’s assume that the original mortgage (loan) for a property is $150,000, which is also the original value of the house. As time goes by, the value of the house may increase to $300,000, due to appreciation. At the same time, the amount owed on the mortgage is reduced to $20,000, due to the mortgage being gradually paid down. At this point, the amount of equity (or value) that you have in the house would be $280,000.

If we don’t allow periodic dramatic rises and falls in home values to shake our confidence, we can count on steady, long-term, profits from our investment properties.

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Why You Should Not Pay Down Your Mortgage

Friday, November 11th, 2011

Tired of making those monthly housing payments?

Are you tempted to pay a little extra on your mortgage to speed up the pay off time and own the property free and clear.

Then, think twice, because that may not be the best idea.

Check out my guest post, “Why You Should Not Pay Down Your Mortgage” over at Louisville Gals Real Estate Blog

Money for buying rental houses

Tuesday, August 10th, 2010

A good question came up today during my radio interview with Dave Kebler of WRNJ Radio in Hackettstown, New Jersey.

I was asked if it was now impossible to get a loan, either to refinance a house or to purchase a fixer upper rental  house.

The answer is no, it is not impossible to get a loan. Granted, it requires more paperwork and squeaky clean credit, but loan money is still available and at great 4.5% rates for 30 year loans.  I have taken out 3 loans in the last 12 months.

Is it worth it to take out loans for investment properties?

The economy is still as flat as Rush Limbaugh’s trampoline, but there has never been a better time to invest.  From the perspective of mortgage interest rates and low real estate  prices, this is a time of great opportunity.

When I was a Peace Corps Volunteer in Central America,  people would ask me if the streets of American were paved with  gold. I said, they’re not paved with gold, but they are paved with opportunity. And they still are.

Upcoming radio interviews

Aug. 11, 8:10 am, Mark Wayne show, WICH 1310 am, Norwich, Connecticut.

August 17, 6:50 am, Jason Mansmith show, WRPN 1600 am, Ripon, Wisconsin.

August 20, 8:30 am, I will be on David Sutton’s show, KSRN 1490 am, Los Alamos, New Mexico.

August 25 at 8:08 am,  I will be on Jeff Anderson’s show, KSDR 1480 am, Watertown, South Dakota.

There is still loan money available for purchasing investment property

Monday, October 27th, 2008

With all the bad news about Wall Street and the credit market, with banks unwilling to loan money even to each other, what hope is there for the average fixer upper house investor? The situation may not be as bad as you may think!

Here’s why:

1. There is plenty of money available for home mortgage loans, either to purchase or refinance a house. This is because the American home mortgage market has been federalized. Ninety percent of all loans are being made through the Federal Housing Administration (FHA), plus Fannie Mae and Freddie Mac. FHA is owned by the federal government and Fannie and Freddie are operating under federal conservatorship, so all three have complete access to global capital at low rates because their borrowings are guaranteed by the Treasury Department.

2. Despite tougher credit standards, you can still get a loan for 3 percent down
with FHA, or 5 percent down on Fannie Mae and Freddie Mac programs.

3. Interest rates are still at historic lows.

4. Home prices, dragged down by foreclosures and short sales, are at 2003 and 2004

For more details see Kenneth Harney’s article Crises Aside, Would-be Buyers Can Still Get Reasonably Price Loans.

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Time to Refinance?

Wednesday, January 23rd, 2008

With interest rates dropping to 5.5%, have you thought about refinancing your principal residence? You’re not the only one. Since November last year, refinance applications have risen 92%, and up 16% over the last few weeks, according to the Inman News article “Refi applications climb 16.9%.”

According to Jay Brinkmann, the Mortgage Bankers Associations vice president of research and economics. “With tighter credit conditions we do not know how many of these applications will become loans, but it is clear that borrowers are responding to the 40- to 80-basis-point drop in rates we have seen since Nov. 2 across products.”

I refinanced several of my properties when the interest rates were hitting historical lows a couple of years ago. Now the rates are even lower than when I refinanced before. Is it worth it to refinance? It depends on what your present interest rate is, and on what you use the money for. If you re-finance to buy another property, you’re on the right track. Of course, you have to balance that against borrowing too much and over leveraging your real estate investments.

Time to refinance? Maybe not, but it might be worth thinking about.

For more insightful perspective on mortgages see:

The Mortgage Crises Has a Silver Lining (and other truths you won’t hear on cable news this week) at Bigger Pockets.

Info on Terry’s Book

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Don’t Pay Down Your Mortgage

Tuesday, December 11th, 2007

I know it’s good advice to never say “never,” or you inevitably wind up doing the very thing that you said you would never do. But, as long as I am investing in real estate properties, I won’t shoot myself in the foot by making additional payments to my mortgages. Here on some reasons why:

1. Don’t drink your liquid assets. If you increase monthly payments to a mortgage, you are reducing your liquid assets, one of the most precious resource that investors have. Most real estate investors are property rich and cash poor. We need cash for unexpected repairs, or to replace broken refrigerators or furnaces, or to make the mortgage payments between tenants. Of course, there are techniques for greatly reducing the cost of replacing high-ticket items, like buying ahead of time, as mentioned in the earlier post Maximize Rental House Profits — buy ahead of time and install yourself, and utilizing construction equipment recycle stores, but we still must be prepared for inevitable financial jolt.

2. Live in the future, not the present. Why use present-value dollars to pay off your present-value debt? As real estate investors, we want a situation where we put in a little effort and get a big payback. Let inflation work for you. After 10 to 20 years of owning a house, the value of the dollar goes down as the price of your house goes up. Think back to when you were younger, and how much more you could buy for a dollar than you can now. Remember 5-cent packages of chewing gum, gasoline for 15 cents a gallon, a steak dinner for 30 cents? I don’t either, but we know it was true.

The point is, you can pay your mortgage with future dollars, which will be worth a fraction of today’s dollars. Once you have a mortgage locked in, the relative value of that loan will continuously drop.

3. Let tenants be your new best friends. Why spend your money when someone else is eager to pay it off for you? Provide a nice place to live at a fair price and you can keep tenants in a place for as long you want. And, the longer they live there the closer you are to having that mortgage paid off. In fact, tenants are better than friends. How many friends do you have who don’t always tell you how smart their kids are, and they actually help make you rich?

4. Time your pay off. Rather than make additional payments, it’s best to wait and just pay the whole mortgage off early. It’s useful to pay off a mortgage, if you wait until you have a relatively small amount left to pay, and you pay it all off with a chunk of money that falls in your lap. Or, when you sell a house and use part of the money you receive to pay off an existing small amount that you still owe. This way, you actually increase your cash flow.

Don’t drain you wallet making extra payments on your mortgage. Why do the casinos make so much money? Because the odds are always in their favor. Put the odds in your favor, by letting time, and tenants, do the heavy lifting for you.

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Mortgages easier to come by than we thought?

Monday, October 1st, 2007

Nationally syndicated columnist Kenneth Harney argues that its not as difficult to get a mortgage as people think. Interest rates are lower now than they were in the summer and mortgage money is plentiful. However, Harney concedes that while money is mortgage money is plentiful, underwriting standards are stricter than they were a year ago, and some larger loans require two appraisals. Also, FICO score standards are higher than they were a year ago.

Not that it matters, but Kenneth Harney did not respond to my request for comments on my upcoming book, “Fix ’em Up, Rent ’em Out”.

Does Kenneth Harney have a busy schedule? Suuuure, he’s busy. How long does it take to write one or two columns a week? Maybe 2 or 3 hours, tops. How does he spend the rest of his day? Combing his hair in front of the mirror, taking naps, clipping his fingernails? One thing’s for sure, he doesn’t have time to write comments book for my book.

He probably doesn’t realize how busy my days are. It’s not easy spending all day jumping to conclusions and splitting infinitives, but somebody has to do it.

Not that it bothers me.

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