Investing Your Equity - Most people leave money they could use for investing sitting in their house in the form of equity. Thats right, you can refinance your house and place your cash in a growth fund. Did you know that you can actually gain weatlh faster by doing this even if you are only receiving the same return on your money as you are paying in interest on your mortgage due to tax write-offs on mortgages?If you invested in and only make 1/2 more than you are paying, you will have accumalated ehough in your side account to pay your home off years early. Or continue to contribute for thiry years and you will have hundreds of thousands more the the pay off of your home. Of course everyones scenerio will be different. Consult your financial pro.
When investing with your home's equity you are in a sense becoming a bank. Think about what it is that a bank does. It borrows money at one rate and invests it at another, hopefully higher rate. Keep in mind that banks are operated by highly trained and skilled investment managers and risk evaluators. It would be advised that you have a solid plan and work in conjunction with skilled investment professionals before becoming "a bank" with the equity in your home.
Historically, investing in real estate has had the highest rate of return on average. Many homeowners have discovered that they can build wealth much faster by cashing out the equity in their current residences and purchasing investment properties. Lets assume an investment of 20% on a property (20% down payment), and that the property increases in value at an average rate of 4% annually, that translates into a 20% annual rate of return for the amount invested. With property value increases in the double digits as we have seen in recent years, it is not uncommon to see annual rate of return on investments above 50%.
As with any other investment strategies, there are risks associated with cashing out home equity. However, one can minimize some of the risks. By making certain that he can afford the new, increased mortgage payments without depending on the income from the investment, the homeowner would not be in a financial tight spot regardless how his investment performs in the short term.
Equity in a home does not make you money by just sitting there. In fact, if the value of your property decreases, your equity is lost. By cashing out the equity and placing those funds in an investment with a higher return than the interest you are paying, you will make money from your equity.
Always contact an accountant to make sure a scenario works in your best interest.
Lenders sell money. That's their business. They provide money to people who need capital. They charge interest, but you dont have to make the assumption that interest is your foe. Many major coprorate, financial and even church institutions use debt managment to accomplish their goals, even though they may have plenty of assets earmarked to cover their liabilities For these institutions, debt is a wise and prudent money-managment tool. It's easy to see if a bank can borrow money from the Federal Reserve at 4 or 5 percent then turn around and lend that money at 8 percent, the can make a handsome profit, especially on large sums. By separating the equity from your home, you can accomplish the same thing.
There are programs that allow you to transfer your equity into other investments without paying any taxes.
Second Homes and Vacation Homes Investing - 2005 was one of the hottest years on record for people buying second homes with over 21% of all purchases being second homes. Driving this trend is the availability of capital for baby boomers from harvesting the swelling equity from primary residences as home values soared over the last few years.
Some areas like Destin, Florida averaged over 25% appreciation in 2005 alone. Hot areas are, as suspected, homes near the beach, like the Destin area, mountains and other recreation areas. According to the National Association of Realtors, for markets where over 10% of the homes are seasonal, there was a 59% increase in value from 2001 to 2004.
Also helping in the growth is the publicity given to the real estate investment industry with infomercials like Carlton Sheets focusing on the low down payments required. In some cases 5% or less is all that is required to get you interest rates that rival those for primary residences.
Lastly the popularity of low payment loans like the interest only and cash flow option arm have joined the low down payment programs so that the homes are cheaper to get into and cheaper to hold, at least on the short term.
Also helping in the growth is the publicity given to the real estate investment industry with informercials like Carlton Sheets focusing on the low down payments required. In some cases 5% or less is all that is required to get you an interest rates that rival those for primary residences.
Lastly the popilarity of low payment loans like the interest only and cash flow option arm have joined the low down payment programs so that the homes are cheaper to get into and cheaper to hold, at least on the short term.
Condos in beach resort and/or ski resort locations are often purchased as second homes. There are different kinds of condos projects and each project type must adhere to specific loan guidelines.
Knowing the difference between a second home and an investment is important. It is clear that financing for second/vacation homes is more relaxed and cheap. To claim an investment property is acutally a second/vacation home is treated as loan fraud by federal agencies. And though it may be tempting to try to qualify your home as a vacation or second home, even though it really is intended for an investment property; it is best to not try and fool the lender's underwriter. The borrower is not the only person who could be implicated for loan fraud.
To be considered a 2nd home you are not allowed to own more than two second/vacation properties. Any more than two second/vacation properties and you may have to consider it an investment property.
Appreciation is still very high and should stay that way in many vacation hot spots
You may be asking yourself why real estate is such a good investment. Let's look and see why it is such a good investment. You average home's appreciation rate is around 5% per year.
The numbers look like this:
Year 1 - 100,000 home value when you buy
Year 2 - 105,000
Year 3 - 110,250
Year 4 - 115,762
Year 5 = 121,550
As you can see it doesn't take long to build up some equity in your house. If you bought a 200K home then those numbers would be double. This example is not even taking in into acount that you are paying down the principle balance on your loan. If you have your home on an interest only or payoption loan then you are probably cash flowing each and every month too.
Option ARMs are excellent tools for investors seeking rental income, particlarly on seasonal properties. You have the option to keep your payments low when the property is empty, and manage your cash flow while the property is booked or rented.
Keep in mind that if it is a second home or investment property, there may be loan to value restrictions.
Some of the factors that lenders look at when qualifying a home as a "second home" are:
1. Distance from primary residence
2. Location
3. Is the home being used for "personal" use
Whether you live in CA and are looking for a second home, vacation home or investment property elsewhere or live elsewhere and are looking to buy a second home, vacation home or investment property in CA, I can help you obtain financing.
When looking to buy investment properties and vacation properties the loan program that you select for your financing can be crucial. Interest only loans and pay option ARM's are very good options to help with self-employed and commissioned employees. Also interest only and pay option ARM's can help a borrower to maximize cash flow on a monthly basis by providing the lowest possible payments so that you are not as financially tapped for money each month. Utilizing these loan programs can free up money for months when repairs may be needed or for months when these properties sit vacant with no tenants. Discuss all of your financing options with a mortgage consultant when considering buying a 2nd home or a rental property.
The first step for obtaining a second home is to speak with your mortgage broker and discuss financing options and determine the amount of money you can affords to spend. Be sure to remember the added maintenance costs of a second home, alot of routine work needs to be done to maintain it and keep it in enjoyable condition. This may be work that you may not be able to do yourself do to distance or time limitations.
If the property that you are buying is for the purpose of a legitimate vacation or second home, many lenders offer loan terms that are comparable to those offered on a primary residence. To qualify, the lender will need to be comfortable that the property is being used as a second home, not as investment (rental) property.
Lenders offer more favorable terms on second homes than investment properties. Underwriters will want to know for sure if the home is being used as a second home or as an investment property. Most people purchase second homes in resort areas for vacation purposes or near relatives and family members.
Lending banks post more stringent underwriting requirements for second homes and vacation homes, because if the homeowner should suffer a financial crisis, he would almost always first default on the vacation home and try to save the primary residence. In addition to ensuring that the homeowner is able to afford payments for both the primary and the second home, most banks also require higher down payment for the second residence.
Investing In Real Estate - I would like to start buying houses to rent out, so how do I get into real estate investing? I hear stories about many people making lots of money from investing in real estate, how do I get started? Is investing in real estate really that safe? Can anyone become a real estate investor? These are some of the most common questions asked about investing in real estate and they are asked by everyday ordinary people just like yourself. Real estate investing can be very rewarding and provide for a great retirment down the road if done properly. You must put some time and effort into a successful real estate campaign just like anything else you would like to succeed in. You have to first research the properties and their values, be able to accurately estimate how much if any work and money will need to be put into the property to make it acceptable to rent out, and you will also need to go through the task of finding good, responsible renters for your property(s).Consult your CA mortgage broker to find out how to get started into buying rental properties and how you can begin qualifying for non-owner occupied properties.
A very important step in investing in real estate is to find a loan officer who will help you obtain financing for your investments. You need to work with somebody who shares your goals, and wants to help you succeed. You should develop a long-term relationship with a loan officer you trust. Call me today at 888-275-6788 to discuss what I may be able to do to help.
When searching for investment properties to purchase remember these guidelines -
- the rent you collect should cover your mortgage payment plus maintenance and have enough left over that you can afford if your property is vacant 2 to 3 months per year, on average.
- the property should be in an area that is appreciating in value.
- any investment property you choose should not be one of the most expensive in a neighborhood. With other things being equal, the lowest price property in a neighborhood will appreciate more quickly that the most expensive.
Don't quit your day job. If you plan on obtaining financing for your rehab/investment properties, remember lenders are going to want to verify your employment. Once you decide to start investing, establish a Limited Liability Company. In two years, you will be able to verify self employment.
Investing your Self Directed IRA in Real Estate - Most banks will not lend on real property that will be purchased by an IRA, because the IRS forbids the IRA owner to personally guarantee the loan. A Non-Recourse loan allows an investor to use funds from their IRA and gives the lender to satisfy its "recourse" by limiting it to the property and its rental income.
Investing in Real Estate - Is there really a lot of money to be made by buying and selling houses? Can I make a lot of money by buying houses and renting them out? What are the best types of houses to buy for rental properties? Should I buy a single family home, a duplex or possibly even a 3-4 unit property? Are there any differences for financing a 1 unit versus a 2 unit home or a 1 unit versus a 3-4 unit home? How do I get started with investing in real estate? Should I go to my local bank or work with a mortgage broker?
These are just samples of some of the very common questions asked by consumers looking or considering getting into real estate investing. With real estate investing you really need to put in a good amount of time and do your homework on the properties that you are considering buying. The better the deal you can find the more money you will be able to make on the property. If you jump into buying an investment property without doing your homework, you can actually end up losing money instead of making money. For example, lets say you buy a home that needs some work. You figure out that you will need only roughly $5,000 to get all of the work done and you will be able to sell the property for a $30,000 profit after the work is completed. Once you start doing the work, it ends up costing you $18,000 instead of the initial five thousand you were thinking and you went way over budget. Now you are ready to sell the house and you discover that what you thought you could sell it for is actually much less than what you had planned. Homes in the area might have been going for the price you thought you could get however, you may have forgot to take in account that those more expensive homes had garages and basements and your home does not. Therefore, this is just one simple example of some things that could go wrong with an investment property and that is why you must do your research on the neighborhoods, on the houses themselves and maybe even bring a contractor into the home to get an accurate idea of how much it might cost to fix the homes up. If you buy investment properties the right way and research everything carefully, buying investment homes can be a very profitable and rewarding experience. It can also help to put you in a much better financial situation for retirement.
Consult a mortgage broker to find out what your financing options are when buying an investment property as they will have the biggest array of mortgage programs available for you to use. Also, a good mortgage broker may be able to help you do some of the research on the property you are looking to buy.
Real Estate investments can be negatively or positively "geared".
A positively geared investment property will throw off positive cash flow every month, meaning the rental income is greater than the cost of ownership, and is used by investors seeking to generate income through their properties. Many first time investors are seeking positively geared opportunities.
A negatively geared investment is when the cost of ownership is higher than the rental income, producing losses every month. You may ask why anyone would want to lose money in real estate, however this is a very popular tool for individuals who want to offset their income or capital gains with running losses from a real estate business for the purposes of gaining tax deductions (remember mortgage interest is generall deductible, as are operating losses). And because the negatively geared investor also owns the property, they still enjoy one of the most important benefits of ownership, capital appreciation, or the increase in valueof the home over the time they hold it.
Make sure you have an exit strategy for your property once it's complete. Due to many lenders' anti-flipping rules, it can be hard to sell a property within the first 90 days for more than you paid for it.
Investing in Real Estate takes careful planning to be successful. There are many ways to invest in real estate. Every segment of real estate investing has its own benefits and pitfalls that need to be carefully examined.
Depending on your investment strategy, whether to buy and rent or to flip, you will need suitable financing. An experienced mortgage broker can often guide you through different mortgage loan programs that are designed for various investment purposes. Using a wrong mortgage for the right property can be costly. A mortgage with a "pre-payment penalty" should never be used for a property that is to be sold in a short period of time, because it can add to the financing costs.
One popular mortgage choice for serious investors is the pay option ARM. The pay option ARM has various payment choices which may be useful for investors with sporadic income. The minimal payment is especially interesting for investors because only part of the interest portion is required. The lower payment means increased cash flow for other investments. Any unpaid interest is deferred and actually increases principle balance.
There are a lot of reasons to invest in real estate, especially a home that you use as a primary residence. The tax code provides homeowners with some of the biggest tax breaks around. If you use a mortgage to buy your home, you leverage your investment, putting up a little of your own money to make a major purchase, and increasing your ownership share of the property as you pay the loan off. Best of all, real estate is an investment you can live in.
Don't forget the importance of working with a Realtor you trust when searching for suitable investment properties.
It will be helpful to remember real estate is a "long term" investment. Short term fluctuations should not affect an over-all investment strategy when you estimate the length of ownership to be within a realistic time frame.
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