Provided courtesy of: http://www.mortgagenewsdaily.com/consumer_rates/
This week's economic data included the biggest-ever gain in Pending Home Sales, a leading indicator for the housing market. Meanwhile, mortgage rates pushed down to new all-time lows yet again.
But at what cost?
The most pessimistic way to explain the surge in home sales is to say it was only made possible by the record-setting declines in the past few months.
That's mostly true, but it fails to give credit to what the industry and government officials have been doing to help jump start economic activity. Would sales bounce back like this without all-time low mortgage rates and a stock market recovery (both made possible by emergency intervention from the Federal Reserve)? Would consumers be as comfortable spending money without the promise of additional fiscal stimulus and other support programs already in place?...(read more)
Mortgage rates were generally unchanged today, thus leaving the average lender at all-time lows for conventional 30yr fixed scenarios. It continues to be the case that loan scenarios with additional risk factors have NOT seen nearly as much improvement as those in the top tier. In general, however, things are starting to improve.
When coronavirus rocked the financial markets in March, mortgage rates were particularly hard hit. This had a lot to do with the anticipated inability of millions of homeowners to make their mortgage payments. While the government and the mortgage industry rushed to put programs in place to help those homeowners, there were/are unavoidable consequences for mortgages in the eyes of investors. Simply put, each additional risk factor that makes forbearance (a temporary non-payment agreement) more likely from a statistical standpoint also made the available rates incrementally higher....(read more)
Mortgage rates managed another slight improvement today, which means the average lender is offering new all-time low rates for the 4th time this month. Even if rates had lurched unexpectedly higher today, June still would have gone down as the best month in the history of the mortgage market with many lenders now offering conventional 30yr fixed rates under 3% on top tier scenarios.
The low rate environment has been made possible first and foremost by the economic contraction resulting from coronavirus. In and of itself, however, that still likely wouldn't be sufficient to get rates as low as they are. The rest of the heavy lifting has been done by the Federal Reserve, which stepped in when markets were experiencing the height of their recent volatility in early March 2020. The Fed helped restore liquidity by buying Treasuries and mortgage-backed bonds directly. This helps push interest rates down not only for mortgages, but also for the US government (which needs to borrower more heavily than ever before in order to finance the fiscal response to coronavirus)....(read more)
Are you thinking of buying a rental property as part of your investment strategy? Here are a few things you need to think about.
Real estate can be an excellent part of anyone's investment strategy. However, before you buy your first house, condo, duplex, or apartment building to rent out, you need to have a good idea of what you're getting into.
Here are three things to be aware of before jumping into real estate investing -- and an alternative investment you could use instead.
The income can be inconsistent
When you buy just one investment property, you are effectively putting all of your eggs in one basket, just as if your entire portfolio consisted of stock in one company.
While owning an investment property can certainly be lucrative, it leaves you vulnerable to certain risks.
For example, if you buy a $100,000 investment property, you should be able to earn $1,000 in rental income per month, based on the general rule that properties should rent for about 1% of their value. However, what if you need several months to find your first tenant? Or what if your tenants stop paying rent and you have to evict them (which could take quite a while)?
If such a situation occurs, not only will your investment produce no cash flow, but you're still stuck paying for things like the mortgage, property taxes, insurance, and maintenance.
Do you really want to deal with tenants and maintenance?
The first mistake I made when I bought a rental property was underestimating how much work can be involved in dealing with tenants.
Finding quality tenants can be a challenge in itself, but the real issues tend to come up after they move in. For example, if your tenant is late on rent, do you really want to chase people down to find out what's going on? Do you have the first clue of what to do if you need to evict a tenant? And what if they are making too much noise, letting other people live there, or are violating any other part of the rental agreement?
Don't forget about maintenance and repairs. If you manage your rental property, be prepared for the phone to ring in the middle of the night if the tenants have a plumbing issue.
If you don't want to handle these situations, the alternative is to hire a property manager. This should cost you about 10% of the rental income you bring in. This can be well worth it, but it will cause your profits to take a serious hit.
Make sure that you account for "all" the costs
Speaking of the cost of a property manager, you might be surprised at how much it really costs to own a rental property.
In the example cited earlier involving a $100,000 rental property, let's say you put 20% down on the house and collect $1,000 in monthly rent. By financing the other $80,000, you can expect your monthly mortgage payments to be about $392 at today's rates, which might sound like an incredible profit margin. However, when figuring out the cash flow of your investment property, make sure to account for property taxes, insurance, maintenance costs, and property management.
These costs will vary based on your location and the condition of the property, but could easily add $500 or more to your monthly expenses. Also, bear in mind that many jurisdictions charge much higher property tax rates on investment properties, so make sure you take this into account as well.
you're getting into
I'm not trying to talk you out of buying an investment property. In fact, if you do it right, buying an investment property can produce cash flow and build equity, creating wealth over time without a huge initial investment.
However, just like with any other investment, you need to make sure you know exactly what you're getting into and prepare for all the costs and the risks involved. If these seem like too much trouble, there is no shame in looking into alternatives, such as real estate investment trusts.
Buying an investment property can be a great opportunity.
Whether it be a house, cottage, farm, condo, or plot of land, buying real estate is traditionally a sound and profitable investment, offering both rental income and capital gains. The most obvious advantage of buying any income property is having other people pay off the debt on your investment property. And with interest rates low, there's no time like the present to jump in.
To buy an investment property you will need sound financing information and flexible loan options. When choosing a lender, loan rates are not always the most important. Because investment property mortgages are subject to specific governmental requirements, mortgages are constantly changing. It's a good idea to consult with a mortgage specialist at i Want a Better Mortgage who can bring experience and training to the table, helping you make an informed decision about your investment property mortgage options.