How to NEVER Worry & Conquer Rising Rates In Any Real Estate Market”
Jumping Loans – America’s Best “Take Over Payments” System
Once again, all of the major news outlets are reporting the Feds will raise interest rates again by another 1% this week. The Feds have reported they will continue to raise rates 6 more times this year.
This reminds me of the book “Who Moved My Cheese?” and you must try to stay two steps ahead in our rapidly changing market. You can conquer these rising interest rates by adjusting your business strategies.
The June 2, 2022 chart below shows you what your payment when borrowing $200,000. The rate for owner-occupant 30 year fixed rate is 5.236% and the Feds are expected to raise this by another .5% this week! Next week, owner occupant rate will be teetering around 5.75%.
As a rule of thumb, if you can find a lender who offers a 30 year fixed rate loan on investment property, your rate is usually about 2 points above the owner occupant rates. Next week, your rate would be in the ball park of 7% or more.
Most of us have benefited from the crazy real estate market over the last 5 years or so; but, times are already changing. Outrageously fast rising market values along with super low fixed rate loans allowed folks to “buy more house.” Do you think these rising interest rates will affect our real estate market? Absolutely and it will affect a lot more.
Plus, you must factor in the insane inflation because this greatly affects all of us. It affects me, you, tenants, home buyers and business owners. The cost of everything is up – gas, eggs, utilities, meat, restaurants, and business owners have all raised their rates including rents.
You cannot have an attitude of doom and gloom or the good times are over. The good times are still here, but they have changed. You must quickly learn how to identify all of the brand new opportunities brought on by this rapidly changing market.
Right now, we still have the “not enough houses for sale” and “too many buyers” making this a seller’s market. You have already seen changes and the market will repeat history and is heading towards a “too many houses for sale” with “not enough buyers.” When this happens, you will be in a buyer’s market. Prices will not rise like the last 5 years and they may even drop a little.
To conquer the rising interest rates, you must quickly learn how to buy without banks, money, credit, private lenders or partners. Imagine never going to a bank again to buy an investment property. My best buying strategies is to create killer deals. Very creative seller financing and Jumping Loans are my best buying strategies.
Yes, you can still go to a bank or credit union and get investor loans; but, not the 30 year fixed. Take a look at all of their adjustable rate loans. You can get decent market rate loans that are fixed for the first 5 years or more. Many investors back in the day re-financed into these fixed for 5 years loans, but always do your best to get 30 year amortization.
One of my Platinum Members, Tom Olmsted, 25 year investor in Illinois, went to his local bank he has done business with for years. Tom wanted to get a loan for his recently purchased super nice home on a lake complete with a boat dock. His banker offered him a 15 year loan at 4.25%. This happened right before the Feds raised the rates. He was borrowing $250,000 and he would have a pretty steep monthly payment of $1880.70.
We did a coaching call and I told Tom to go to his banker and tell the banker you wanted 30 year amortization with a 15 year balloon. Tom was shocked because his banker said he had to run it by his board of directors and they said they would do it! Now his monthly payment went down to $1,229.85 Saving Tom $650.85 Every Month!
Tom is polishing up his lake house and do short term rental like his other lake house using VRBO. Think about this, he just increased his monthly cash flow by $650 just by asking his banker for a 30 year amortization with a 15 year balloon.
You might ask but Mike, what about the 15 year balloon? Yes, Tom will have a 15 year balloon, but he also has 15 years of making payments like a 30 year loan. If history repeats itself as it has done over the years, the value of his lake house will increase greatly, his balance owed in 15 years will be a lot lower and Tom will plenty of options to choose from at that time. He could pay it off, he could re-finance it (his banker would love that) and/or somebody might want to buy his lake house. FYI, Tom bought it for $220,000 and before he touched it, it appraised for $410,000 by his banker. Tom’s lake house has million dollars homes as his neighbors on this huge lake. Needless to say, Tom hit a Grand Slam on this one.
As Rue McFarland says and practices, “Borrow As Much As You Can For As Long As You Can.” Following Rue’s rule, if a lender offered to loan you $1 million dollars at 3% fixed for 30 years, would you do it? Be honest with yourself, what was your first mental knee-reaction? Did you hesitate or pause because your “fear factor” kicked in? Don’t beat yourself up, this is normal to have this knee-jerk reaction.
You might have fear of making payments on a million-dollar loan. But, you must realize you have $1 million dollars in your bank account! You can go several or many months making these payments. Your challenge is to invest this money wisely.
Example: You could become a private lender and loan money to investors at 12%. Hmm, let’s see, you purchased your money at 3%, sold it at 12%, leaves you a 9% profit! Do the math, that is $90,000 profit, in your pocket, because you invested wisely. What if you declined to buy that money at 3%? You would make zero profit. Rue is right. Learn how to buy money cheap.
Do not allow yourself to jump on the doom and gloom bandwagon. Motivated Sellers are created every day in every market. Think about it, will people continue to get divorced, die, lose their job, downsize after kids move out, upsize when having kids, moving into assisted living, burned out landlords, and much more. This stuff continues to happen every day in any market.
Now is time to get ready and learn how you can make some adjustments on how you can Continue to Find and Buy Great Deals in Any Market!
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