Should Real Estate Investors Refinance Now?
With the state of the mortgage market being what it is, how important is it for real estate investors to consider refinancing their properties? 2014 is expected to begin rolling out a set of interest increases, so how important is it for real estate investors to refinance now? How much of a difference will it make in their wallet? More importantly, are there really loans that can benefit investors in their particular situation? Mortgage bankers have been warning of interest rate increases for years, but they really haven’t come to fruition. This has resulted in many home buyers, homeowners and real estate investors holding off on taking out new loans. We may not see a massive lift in rates right away, but higher home loan rates will come. They will probably continue to rise much faster than many expect. It’s just a part of regular cyclical housing and finance markets. Many fail to realize just how much of a difference interest makes. Even for a mid-range home today, a couple of percentage points can add six figures to the cost of a home over the life of a loan. Surely most homeowners could find something better to spend $100k on, especially when it can be compounded in their favor over decades. Even saving $200 to $300 a month, compounded over 30 years could add around a quarter of a million dollars to individual’s nest eggs at a modest 5% return. Multiply that for investors by the number of properties they own and are acquiring. Both monthly cash flow and total returns for buy-and-hold real estate investors will see increases. However, it is crucial to carefully weigh all of the figures. How much will the closing costs be? How long will it take to recoup those costs compared to the time an investor plans to hold onto a property? Even those that don’t desire more cash flow or higher rates from their investment properties may later regret not creating the extra cushion. It’s not just handy for emergencies and soaking up unexpected property repairs, but also to combat rising prices on other items. What happens when you go to get a new car and the rates mean a huge spike in monthly payments? Do you think it’s possible you’ll need new appliances or want a boat or another high ticket item in the next 10 to 30 years? Contemplating a refinance doesn’t only apply to those that currently have mortgages. There are literally millions of rental properties in the U.S. which are being held free of loan debt. There really isn’t a better time for real estate investors to expand their portfolios. Cashing them out with a loan and using that for down payments on additional properties has the potential for massive wealth building. While a lot of noise has been made about tough underwriting in recent years, there are now a number of new mortgage lenders and loan programs hitting the market to help rental property investors with portfolios of single family homes. Take a look around, and you may find incredibly attractive long term interest rates on non-recourse loans from lenders that actually want to work with investors.