PEWAUKEE — Although she’s thousands of miles away from home, Ammu Cherian has found a clever way to connect people with heritage back in India.
“The appreciation l have of Indian l textiles has been ingrained in me,” said Ammu.
After moving from Bangalore, India where she worked as a business analyst for years, Ammu chose to fulfill her childhood dream of owning her own fashion brand when she came to Milwaukee with her husband in 2016.
“I decided land of America, land of opportunities. I’m going to start my own creative business.”
And thus her businessHouse of Amuwas born. Originally focusing on clothing, Ammu realized her true passion was creating home decor. With the help of a local seamstress and artisans in India, she makes breathtaking designs for throw pillows, table runners, and more.
“I come from the South of India where we love textures and hand embroidery,” said Ammu. “The pieces that I design are not just for Indian homes it’s for everyone. It makes your home full of character and personality it’s so unique.”
In every stitch of her designs, a story of India’s history is told.
“If you look through my website, you will see that I have mentioned the stories behind each fabric, which region of India it belongs to, and how those fabrics came to life,” said Ammu. “The state that I’m from is Kerala in India and we have the kasavu saree which is white and gold which was worn by royalty.”
Now, she’s preparing for one of her biggest debuts yet, partnering with Nordstrom to have a three-day pop-up event inside the store at the Mayfair Mall this weekend starting on Friday, May 21.
“I am absolutely thrilled.”
And she wants aspiring designers who have dreams just like hers to know this:
“You’re going to constantly evolve, that’s okay,” said Ammu. “The beauty is enjoying the journey of it and being okay with the journey taking time.”
And it’s a journey that keeps sewing new opportunities for Ammu.
To visit Ammu’s website, click here. You can also check out herFacebook, Instagram and Pinterest.
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It’s nearly 2023, which means it’s time for a fresh batch of mortgage and real estate predictions for the new year.
My assumption is everyone wants 2022 to come to an end as quickly as possible, as it hasn’t been kind to anyone.
Much higher mortgage rates have completely derailed the housing market, leading to lots of layoffs and closures across the industry.
And there remains a lot of uncertainty about what next year will bring, though I’m somewhat optimistic.
Read on to see what I think 2023 has in store for the housing market and the mortgage industry.
1. Mortgage rates will move lower in 2023
Let’s start with the elephant in the room; mortgage rates.
They’ve been the story of 2022, without question. Sadly, because they increased at an unprecedented clip and derailed the hot housing market’s decade-long bull run.
Of course, this was by design as the Fed believed the U.S. housing market was in bubble territory and unsustainable.
However, I believe interest rates overshot the mark and are due to see some relief in 2023.
The 30-year fixed has already fallen from its 2022-highs, and could continue to drop back in the 5% range and even the high-4% range.
So that’s something to look forward to. See my 2023 mortgage rate predictions for more details on that.
2. The housing market won’t crash in 2023
Related to lower mortgage rates is the health of the housing market. Ultimately, the housing market only really stalled because of much higher mortgage rates.
It’s not struggling due to questionable mortgage underwriting, dubious loan programs, or massive unemployment.
Ultimately, the Fed saw that demand for housing was too strong and took measures to address it.
If you remove the mortgage rate piece from the equation, we don’t have a big drop in home prices.
So if mortgage rates continue to improve, or even stay flat, home prices don’t plummet and there isn’t a housing crash in 2023.
At the same time, areas of the country that saw massive home price increases may be more susceptible to price declines.
The good news is home prices increased so much in the past couple years that even a 20% decline is just a paper loss for most homeowners.
In other words, your home is still worth way more than you bought it for, but perhaps not as much as it once was.
3. But we’ll see more consolidation in the mortgage market
Sadly, there have been tons of mortgage layoffs and lender closures in 2022, pretty much all thanks to the sharp rise in mortgage rates.
It was the perfect storm of record low mortgage rates meeting the highest mortgage rates in decades, all within half a year.
Simply put, lenders hired and hired to deal with unprecedented refinance demand, but once that ran dry, had to let a lot of staff go to cut costs.
Demand is down so much that many lenders have had to close down permanently, especially those focused solely on mortgage refinances versus purchases.
While more companies exit the mortgage space, we’ll see consolidation at the top as the big players get bigger and gobble up market share.
This means fewer lenders to choose from and a more commoditized product.
4. Home prices will be mostly flat in 2023
While there’s been a lot of doom and gloom lately, there have been bright spots, like a positive CPI report and an easing in inflation.
Perhaps home price declines will also slow as we enter the new year. If the damage already done is enough to re-balance the housing market, we could see falling home prices steady.
After all, we’ve already experienced a big drop in prices from spring until now, so the ice-cold housing market could warm if rates drop and prospective buyers renew their interest.
While I’m not convinced of the NAR (Realtor) prediction of a 5.4% increase in home prices next year, I do believe flat or nearly positive prices is a possibility.
Zillow’s prediction of home values posting 0.8% growth by the end of October 2023 sounds right. The MBA also puts YOY home prices up 0.7%.
Of course, price movements will be local, as they always are, with some markets faring better (or worse) than others.
Get to know your local market to determine the temperature if you’re in the market to buy or sell.
5. The spring home buying market will actually be decent
Despite a lot of recent headwinds, the 2023 spring home buying season will be alright.
No, it’s not going to be riddled with bidding wars and offers above asking. Nor will total home sales be as high as they were in 2022, and certainly not 2021.
But I do think a combination of lower asking prices and improved interest rates will bolster the market.
Remember, there are a ton of prospective, coming-of-age home buyers out there who want and need a house.
If mortgage rates were 7% in 2022, and fall to the high-5% range, that, coupled with a 20% haircut on price could re-energize the stalled housing market.
So much so that home prices could steady in 2023 after seeing some pretty big markdowns in the second half of 2022.
6. Buy downs and ARMs will become more common
As mortgage rates remain elevated, mortgage buydowns and adjustable-rate mortgages will gain in popularity.
The ARM share is already around 9%, but there’s a lot of room for it to grow if lenders continue to offer products like the 5/1 ARM or 7/1 ARM.
That’s the rub though – if lenders don’t offer ARMs, or don’t extend a significant discount on the ARM, most borrowers will be forced to go with more expensive fixed-rate mortgages.
To offset some of the pain related to higher-rate 30-year fixed mortgages, buydowns will become more and more commonplace.
A lot of home builders are already offering buydowns, and even big lenders like Rocket Mortgage have their so-called Inflation Buster.
These buydowns provide payment relief for the first year or two before reverting to the higher note rate.
The question remains whether that’ll be enough time to bridge the gap to lower interest rates.
7. The underwater share of mortgage holders will rise
Because home prices have been under intense pressure lately, there will inevitably be more underwater homeowners soon.
Black Knight recently noted that 8% of those who purchased a home in 2022 “are now at least marginally underwater.”
And nearly 40% of these home buyers have less than 10% equity in their home, which if property values fall a bit more would plunge these folks into negative equity positions.
It’s most pronounced with FHA and VA borrowers, with more than 20% of 2022 of home buyers in negative equity positions, and nearly two-thirds having less than 10% equity.
This illustrates one of the problems with ARMs, buydowns, and other ostensibly temporary financing solutions. They work until they don’t.
If these homeowners are underwater, it’ll be difficult to refinance aside from leaning on streamline refinance programs that allow high loan-to-value (LTV) ratios.
8. Foreclosures and other distressed sales will continue to be rare
Those looking to snap up a bargain will need to be patient. Despite decelerating appreciation and markdowns on existing inventory, prices remain historically high.
At the same time, mortgage defaults and foreclosure starts remain very low, despite recent increases.
Per Black Knight, the national delinquency rate rose to 2.91% in October, well below the 4.54% average seen between 2000-2005.
And the 19,600 foreclosure starts in October were a full 55% below “pre-pandemic norms.”
It’s not to say homes won’t be lost, especially if home prices plummet and unemployment worsens, but it’s not 2008 all over again.
In short, today’s homeowner has a lot more equity to work with and there are better loss mitigation options that were born out of the prior mortgage crisis.
They may also have the option to rent out their property and cash flow positive.
9. Home equity lending and the home improvement trend will stay hot
One bright spot in the mortgage financing space might be home equity lending, including home equity loans and lines of credit (HELOCs).
This plays into the trend of keeping the property instead of selling it, since selling isn’t nearly as sweet as it once was.
There’s also the issue of where to go next if you sell. And because first mortgage rates are so high relative to levels a year ago, most will opt to finance improvements with a second mortgage.
While not a 2-3% interest rate, home equity rates will still be better than most other options, and allow homeowners to freshen things up while enjoying their ultra-low first mortgage rate.
This should be a boon to banks, mortgage companies, and fintechs that are able to sell a compelling product.
It may also benefit the likes of Home Depot and Lowe’s as more folks stick with what they’ve got and make improvements.
Of course, it’ll mean fewer home sales, which is a clear negative for real estate agents.
10. iBuyers will offer you lowball prices for your home
In case you’re not aware, your home isn’t worth quite as much as it was.
Of course, you may have never noticed if you didn’t attempt to sell earlier this year. Or obsess over your Zestimate or Redfin Estimate.
What you might see in 2023 is more bargain hunters, especially iBuyers trying to make up for perhaps paying too much in 2022 and earlier.
These companies will give you a cash offer on the spot (basically) for your home without having to jump through hoops or use an agent.
The tradeoff is that the price will likely be a lot lower than what you might fetch on the open market.
This is probably how these types of businesses should operate in theory, but we didn’t see that in a rising home price environment.
You might see more realistic offers from iBuyers and other companies/agents that approach you to buy your home in 2023.
It’s ultimately a reinforcement of the new reality in the housing market. There’s more of an equilibrium where neither buyer or seller have much of an upper hand.
But those who must sell in 2023 might get a raw deal with uncertainty in terms of which way the housing market is headed.
Ask any financial advisor about 72t and I’ll bet you’ll see them cringe.
It’s not a popular planning method, mostly because it comes with lengthy restrictions that, if violated, can lead to severe penalties.
Clients don’t like paying penalties. Advisors don’t like when their clients pay penalties. 72(t) has the potential if done wrong, for the clients to pay a huge chunk of penalties. See why we cringe about 72(t)?
Some of you may have no clue what 72(t) is. If you are not planning on retiring early (before the age of 60), then skip this post and come back another day. 🙂
If you are in the financial position to retire early and have a bulk of your assets in retirement accounts, then 72(t) may be of help to you. Let’s take a look at the 72(t) early distribution rules.
What in the Heck is 72(t)?
Most often when you take money from your retirement account before you turn 59 ½, you are assessed a 10% penalty on the top of ordinary income tax. One exception (others include: first-time home purchase, college tuition payments, disability) to that is a 72(t) distribution that is a “substantially equal periodic payments”.
Clear as mud? I thought so. Moving on……
Read more on How to Withdraw From Your IRA Penalty Free
How Does the IRS Consider 72(t)?
The IRS calculates your “substantially equal periodic payments” by using one of the three methods that the IRS has determined and then take your payment on a set schedule for a specific time period.
It is required that you take those payments for either 5 years or when you turn 59 1/2, whichever comes later.
For example, if you start taking your payments at the age of 52, then you must do so for 8 years. Someone who starts at 57, must do so till the age of 62.
72t tables
72(t) Real Life Example
In the 10 years I’ve been a financial planner, I’ve only executed 72(t) a handful of times. The concern is having to lock in your withdrawal rate for a minimum of 5 years is longer than most advisors are comfortable with- myself included.
Recently, I had a potential new client that was getting an early buyout from his job and was considering using 72(t) for a portion of his IRA. Here’s are some of the details (name and some of the data have been changed for privacy concerns).
Paul born 8/21/55 and $720,000 that he will receive in a lump sum distribution from his employer. He would like to do a 72(t) from age 57.3-62.3. He needs about $2,000 a month until 63.5 where he will have the remainder in an IRA. Paul also had $140k in his 401k.
How 72(t) Distributions Work
The 72(t) plan must not be modified until 5 years have passed from the date of the first distribution for those who will reach 59.5 before the 5 year period is completed. However, it is not clear whether Paul plans to take the 72t distributions from the employer plan or from a rollover IRA.
If the 72(t) plan is needed, the best approach is to do a direct rollover from the plan to a rollover IRA, determine what IRA balance is needed to generate 24k per year using the amortization plan, and then transfer that amount to a second IRA and start the plan.
The original rollover IRA can be used for emergency needs to prevent the 72t plan from being broken if he needs more money. Employer plans do not provide 72(t) support and may not offer flexible distributions. They also will not allow funds to be rolled back in the event too much is taken out due to an administrative error.
Note: that if Paul separated from service from the employer sponsoring the qualified plan in the year he would reach 55 or later, distributions taken directly from the plan are not subject to penalty, and a 72t plan could be avoided.
But for that to be practical the plan must allow flexible distributions until the 5 year period ends. If the plan required a lump sum distribution, even though the penalty would not apply, a distribution of 120,000 in a single year would inflate his marginal tax rate and that might well cost more than the 10% penalty.
If a lump sum is required, then a direct rollover to an IRA should be done before starting a 72(t) plan.
Some of you may be considering initiating 72(t) distributions. 72(t) distributions take careful planning and consideration.
Before you lock in those payments, there are some alternatives that you may want to explore:
72(t) Distribution Alternatives
Just because you can, doesn’t mean you should. Definitely look to see if there are other things you can (should) do first.
Here are a few examples.
Leave Your Job Early
If you leave your job January 1st of the year you turn 55 (50 for certain government agencies), you are allowed to pull out lump sum distributions out of your company retirement plan penalty free.
Notice I said retirement plan and not IRA. Once you roll over into an IRA, you lose out on that opportunity.
Consider leaving a portion of money in the retirement plan as a precautionary. Or you can just take a lump sum distribution out of the plan and pay the tax and park it in a high-interest savings account for emergency purposes. Do remember that you will pay ordinary income tax on that distribution.
Don’t Forget About After Tax Contributions
You can also tap into after-tax contributions to your 401k, non-deductible IRA contributions, or after-tax contributions to your Roth IRA. Consider these penalty-free options first prior to locking in your payments.
Net Unrealized Appreciation
Even a bigger secret than 72(t) is NUA. What is Noo-uhh you ask? Well, it is the acronym for Net Unrealized Appreciation. Get it yet? Didn’t think so. NUA pertains to employer stock that you have in your retirement plan that may have an extremely low cost basis.
You may be one of the lucky ones that started working for the company prior to them going public and you’ve seen your company stock double and split more times that you can count.
If you utilize the NUA on your stock you will just be penalized on the basis, not the total value of the stock.
For example, if you have company stock that is valued at $100,000 but your basis in the stock is only $20,000, you would be only penalized on the $20,000 if you took it early if you are under 59 ½.
The remaining gain ($80,000) would be taxed as a long term capital gain when you decided to liquidate it, not ordinary income. That could be the difference between 15% and 35% in taxes, depending on your tax bracket.
Warning!Once you roll over your employer stock into the IRA, you forfeit your NUA.
These are just a few of the alternatives that one can explore before committing to the 72(t) distribution rule.
The Final Call
The verdict is still out whether the client and I are going to do 72(t). Since he has a good amount in his 401k and his wife has a nominal 401k, as well (not mentioned above); I suggested using that money first.
Since he’s retiring early, he can avoid the 10% early withdrawal penalty so as long as the money is distributed from his 401k. Once you do a 401k rollover to an IRA, you lose that option.
Out of curiosity, I went to Bankrate.com and used their 72t calculator to see how much we could get with his retirement account. Below are some of those results.
72t calculator
Here’s a sample amount that one could withdraw from your IRA using 72(t). Note the interest rate of 2.48%. That amount was already entered in on Bankrate’s calculator.
You have the ability to choose your own interest rate but be careful. You want to choose a rate that is normal and sustainable based on current market and economic conditions.
Have you retired early? Would you be comfortable executing 72(t) distributions for 5 years?
The FHFA determines the conforming loan limit each year, basing it on the average U.S. home value over the past four quarters.
They utilize their own Federal Housing Finance Agency House Price Index (FHFA HPI®) to determine how much home prices have risen in the preceding 12 months.
This captures home price movement from the third quarter of 2021 to the third quarter of 2022.
Their latest HPI found that property values had risen 12.21% over the past four quarters, which allowed them to raise the conforming loan limit by the same amount.
As such, home buyers and those looking to refinance will be able to get a mortgage backed by Fannie Mae or Freddie Mac (conforming loan) as large as $726,200 for a one-unit property.
Typically, conforming loans are easier to qualify for than jumbo loans, those which exceed the conforming loan limits.
Additionally, mortgage rates are often lower on conforming loans, though lately it’s been a bit mixed due to adverse conditions in the secondary market.
We’re actually lucky the conforming loan limit for 2023 rose as much as it did, as home prices have decelerated immensely.
Despite experiencing positive annual appreciation each quarter since the start of 2012, home values were up just 0.1% in the third quarter from a quarter earlier.
That meant the 12.21% increase was significantly lower than the 18% increase in loan limits seen a year prior.
And the way things are going, we could see a negative number in the fourth quarter from the third.
As noted, the high-cost loan limits are, well, even higher, exceeding $1 million for the first time ever.
This means existing homeowners and prospective home buyers in places like Los Angeles, the Bay Area, New York City, and even Park City will be able to obtain Fannie/Freddie-backed mortgages for seven figures.
Specifically, the new ceiling loan limit for one-unit properties in these areas will be $1,089,300, which is 150 percent of the 2023 baseline limit of $726,200.
And if we’re talking about a four-unit investment property, loan amounts can exceed $2 million, which is bonkers.
Additionally, in Alaska, Hawaii, Guam, and the U.S. Virgin Islands, the baseline loan limit matches the high-cost loan limit of $1,089,300 for one-unit properties.
The FHFA noted that because of rising home values, the loan limits will be higher next year in all but two U.S. counties or county equivalents.
Prior to this announcement, several mortgage lenders increased their conforming loan limit in anticipation of the higher loan limits.
For example, the nation’s top mortgage lender, Rocket Mortgage, began accepting loan amounts as high as $715,000 back in September via their wholesale division Rocket Pro TPO.
And the nation’s new top mortgage lender (as of the third quarter of 2022), United Wholesale Mortgage, did the same shortly thereafter.
It appears they played it safe, knowing home price appreciation would be sufficient to keep their speculative loan limits below the official ones.
Real estate is a popular investment for several reasons, including the ability to generate online cash flow through rental income and the possibility for appreciation to increase the value of the investment over the long run.
When you think about investing in real estate, you probably think about owning rental properties and becoming a landlord.
Unfortunately, managing rental properties can require a lot of work and headaches, so many people choose not to go down this path.
Thankfully there are other ways to invest in real estate and get the perks without requiring you to become a landlord.
These hands-off real estate investments can be perfect for adding some diversification to your portfolio, or for serving as an introduction to the world of real estate investing.
If you’re interested in real estate as an investment but you don’t have the time or desire to manage properties and deal with tenants, here are 4 options that you can consider.
1. REITs
Through a real estate investment trust (REIT), investors can buy shares in real estate portfolios. REITs may own office buildings, retail properties, apartment complexes, hotels, and any other type of property. Most REITs specialize in a particular type of property, so there is a great deal of variety that is available to investors.
The REIT collects rent from tenants and then distributes the income to shareholders in the form of dividends.
REITs can be:
Publicly traded – listed on a national securities exchange where shares can be bought or sold, and regulated by the SEC.
Public but non-traded – not traded on a national securities exchange, but registered with the SEC.
Private – not traded on a national securities exchange and not registered with the SEC.
There are some significant differences between these types of REITs. One of the most important issues to consider is liquidity. Publicly traded REITs can be bought or sold easily, so liquidity is not an issue. However, non-traded REITs lack liquidity and you may need to hold the investment for at least few years. The specifics will vary from one REIT to another, but liquidity is something that should be considered when you are researching your options.
Although non-traded REITs may lack liquidity, they can make up for the lack of flexibility with higher returns. Of course, the performance will vary from one REIT to another, but the main reason to consider a non-traded REIT over a publicly traded REIT would be for the possibility of higher returns.
If you decide that a REIT may be the right type of investment for you, you’ll have plenty of options. See this list of the best REITs for 2019.
2. Real Estate Crowdfunding
Real estate crowdfunding was made possible by the passing of the JOBS Act in 2012. Like investing in a REIT, investing through a crowdfunding platform allows you to get many of the perks of real estate investing without the responsibilities of owning or managing property.
There are many different types and varieties of crowdfunding platforms, but they all allow investors to have an ownership interest with much smaller investments as compared to buying properties on your own.
Many crowdfunding platforms are open only to accredited investors, but there are several that are open to all investors.
To qualify as an accredited investor, you will need an annual income of at least $200,000 ($300,000 for joint filers) or a net worth of at least $1 million, excluding your primary residence.
It’s important to know if you qualify as an accredited investor because it will determine which crowdfunding platforms are available to you. But don’t worry if you’re not an accredited investor, there are still several good options, and we’ll look at them in just a minute.
Like REITs, crowdfunding platforms also tend to specialize, and there are platforms for all different types of real estate.
Some crowdfunding platforms allow you to invest in individual properties, where you can choose the specific investments, and others involve investing in a portfolio of properties.
Here are some of the leading real estate crowdfunding platforms.
Fundrise
Fundrise is one of the most popular crowdfunding platforms and it is open to all investors, regardless of whether you are accredited or non-accredited.
There is a minimum investment of $500, and it’s very quick and easy to get started. With the $500 investment, you can invest in their Starter Portfolio, which includes investment in apartment complexes, single-family rental homes, and commercial properties. Some of their projects are renovations and others are new construction.
Aside from the Starter Portfolio, Fundrise also offers 3 different Core Plans: Supplemental Income, Balanced Investing, and Long-Term Growth.
Fundrise lists historical annual returns of 8.7% – 12.4%.
Learn more in our Fundrise review.
Groundfloor
Groundfloor is a very unique platform. It is one of the only options for non-accredited investors to invest in individual projects, as opposed to the portfolio approach used by others, like Fundrise.
Groundfloor allows house flippers to get loans in a peer-to-peer lending style. As an investor, you can choose the exact projects that you want to invest in.
The investments through Groundfloor are short-term, typically 6-12 months, and they claim to produce 10% returns on average.
The minimum investment is just $10, which makes it accessible to anyone. All you need to do is pick the projects that you want to invest in, and get started.
You can view the details of each project, like the grade, interest rate, projected term, and loan to value.
To learn more, see our Groundfloor review.
DiversyFund
DiversyFund provides investors with the opportunity to diversify their holdings into a sector that has traditionally done very well, commercial real estate.
The minimum investment is only $500, and the fact that non-accredited investors can invest with them is a definite bonus.
DiversyFund is different from most other real estate crowdfunding platforms in that their REIT actually owns the multi-family apartment properties held in the trust. They buy, manage – and when necessary – sell properties in the trust.
You can expect a 7% preferred return before DiversyFund receives any profit split. Then investors earn 65% of the cash flow profits above the 7%. Once investors have made 12% per year, any remaining profits are split 50/50 between investors and DiversyFund.
To learn more, read our full DiversyFund review here.
RealtyMogul
RealtyMogul offers a few different types of investments, including individual properties and public non-traded REITs.
You’ll need to be an accredited investor in order to invest in the individual properties. These investments typically range from 3-7 years and require minimum investments from $15,000 – $50,000.
However, the REITs are open to all investors, but they do require a minimum investment of $5,000.
To learn more, see our RealtyMogul review.
Rich Uncles
Rich Uncles may be a great option for getting started with real estate because it is open to all investors, and because they have an incredibly-low minimum investment of just $5.
Like Fundrise, Rich Uncles takes a portfolio approach. You can invest in Rich Uncles through one of their REITs. They currently have two different REITs available, the BRIX REIT (student and multi-family housing, restaurants, convenience stores, and fitness centers) and the NNN REIT (single-tenant office, industrial and retail properties).
The BRIX REIT has an estimated annualized dividend of 6% and the NNN REIT has an estimated annualized dividend of 7%.
PeerStreet
Unlike the other platforms we’ve covered so far, PeerStreet is available only to accredited investors.
PeerStreet allows you to invest in private real estate loans with historical returns at 6-9%, with 6-36 month terms.
You’ll be able to pick the specific loans that you want to invest in, and you can invest a minimum of $1,000 per note.
To learn more, see our PeerStreet Review.
EquityMultiple
Like PeerStreet, EquityMultiple is an option only for accredited investors. Through EquityMultiple, you will be able to invest in commercial properties, and you’ll choose the specific projects that you want to invest in.
The investments will be in commercial real estate, with a minimum investment of $5,000. You can invest in syndicated debt, preferred equity, or equity.
Read our full review of EquityMultiple.
FarmTogether
FarmTogether is also only for accredited investors. It’s a bit different from the others in that it allows you to invest specifically in farmland properties.
Based in San Francisco, California, the company is relatively new but already has over $1 billion invested in farmland through their platform.
Farmland is a true alternative investment, one that is an actual physical commodity and that is an uncorrelated asset. It often maintains it’s value while stocks, bonds and real estate show sharp drops. Since 1972 it has outperformed every other major asset class!
FarmTogether aims to have annual returns of between 8%-15%, including yearly cash payouts of between 3%-9%.
The investments in farmland have a minimum investment of anywhere from $10,000-$25,000.
Read our full FarmTogether review here.
For a more in-depth look at the subject of real estate crowdfunding, please read Kevin’s Ultimate Guide to Real Estate Crowdfunding.
Crowdfunding Site
Fees
Account Minimum
Accredited Investor
Review
* Groundfloor
None
$10
No
Review
* DiversyFund
None
$500
No
Review
* Fundrise
1%/year
$500
No
Review
* RealtyMogul
0.30% – 0.50%/year
$5,000
No
Review
* stREITwise
3% up front fee, 2% annual management fee.
$1,000
No
Review
* FarmTogether
Intake fee of between 0.5% and 1.0%. 1% annual management fee.
$10,000
Yes
Review
CrowdStreet
None
$10,000
Yes
Review
Yieldstreet
1-4%/year
$2500
No
Equity Multiple
0.5% service charge + 10% of all profits
$5,000
Yes
Review
PeerStreet
0.25% – 1.0% setup fee
$1,000
Yes
Review
Sharestates
0-2% setup fee
$1,000
Yes
Patch of Land
0-3% of loan total
$1,000
Yes
Modiv
None
$1000
Yes
Review
RealCrowd
None
$5,000
Yes
Cadre
Intake fee of between 1-3%. 1.5-2% annual management fee.
$25,000
Yes
Review
3. Mutual Funds And ETFs
While REITs invest in real estate, there are mutual funds and ETFs that invest in REITs, which essentially allows you to spread your investment across several different REITs.
Likewise, there are also ETFs that invest in REITs.
Because mutual funds and ETFs are quick and easy to buy and sell, this presents a very easy option for getting started quickly. If you already have account somewhere like Vanguard or Fidelity, you can easily find a number of options.
This article covers a number of the best real estate mutual funds, and this article covers the best real estate ETFs.
4. Invest In The Industry
The last option that we’ll look at is to invest in the industry. This may be considered an indirect way to invest in real estate, but it could be a good option, depending on your situation.
You can buy stock of business in construction and other real estate types of industries. It’s a different approach than investing in rental properties or commercial properties, but your investment will be influenced by the real estate market as a whole.
There Are Lots Of Real Estate Investing Opportunities
Real estate presents plenty of different investment opportunities.
If you’ve never really considered investing in real estate because you don’t want to own rental properties or be a landlord, you may want to look at these options discussed in this article.
The options listed can provide an excellent introduction to real estate without putting any extra burden or commitments on yourself.
This is another guest post from JoeTaxpayer. On my blog, I’ve shared several articles that discussed the Roth IRA conversion event of 2010 in great length and detail. While this is can be a great opportunity for many, there are several instances that a conversion does not. I looked to JoeTaxpayer to share some pros and cons of the Roth IRA conversion and for unforeseen consequences that could result.
There’s been much hype regarding the ability for anyone to convert their retire money to Roth regardless of their income. Many professional planners and writers of financial blogs have offered compelling reasons why one should convert. Today, I’d like to share some scenarios where you might regret that decision.
You don’t have a crystal ball
All signs point to higher marginal rates, this is one factor that prompts the advice to convert, but who exactly would that impact, and by how much? Let’s look at the first risk of regret. You are single, and an above average wage earner, just barely in the 28% bracket. (This simply means your taxable income is above $82,400 but less than $171,850, quite a range). Any conversion you make now is taxed at 28%, by definition. You get married, and start a family quickly, your spouse staying home. That same income can easily drop you into the 15% bracket as you now have three exemptions, and instead of a standard deduction, you have a mortgage, property tax and state tax which all put you into Schedule A territory and a taxable income of less than $68,000. Now is when you should use the conversion or Roth deposits to take advantage of that 15% bracket, before your spouse returns to work and you find yourself in the 25 or 28% bracket again. It’s then that you should convert enough (or use Roth in lieu of traditional IRA) to ‘top off’ your current bracket.
Life isn’t linear
It’s human nature to expect the next years to be very similar to the past few. Yet, life doesn’t work quite that way. The person who makes more money year on year, from their first job right through retirement is the exception. For more people, there are layoffs, company closings, major changes in family status, disability, and even death. Except for permanent disability or death, the other situations can be considered opportunities to take advantage of a full or partial Roth conversion. If one should become disabled, the ability to withdraw that pretax money at the lowest rates is certainly preferable to having paid tax on it all at your marginal rate.
Transferring your 401(k)
The Roth conversion is available for holders of 401(k) (and other) retirement accounts as well as holders of traditional IRA accounts. Back in October 07, I cautioned my readers on a somewhat obscure topic they need to be aware of when considering a transfer from the 401(k) to their IRA and the same caution exists for conversion to a Roth. Net Unrealized Appreciation refers to the gains on company stock held within your 401(k). The rules surrounding this allow you to take the stock from the 401(k) and transfer it to a regular brokerage account. Taxes are due only on the cost of that stock, not the current market value. The difference up to the market value at time of sale (thus the term Net Unrealized Appreciation) is treated as a long term capital gain. Current tax law offers a top LT Cap Gain rate of 15%. A loss of 10% or more if you are in the 25% bracket or higher and convert that company stock to a Roth.
Taking Money At Retirement
Given the low saving rate of the past decades, all projections point to fewer than the top 10% of retirees coming close to ‘retiring in a higher bracket.’ Consider how much taxable income it would take to be at the top of the 15% bracket in 2010. For a couple, the taxable income needs to exceed $68,000. Add to this two exemptions, $3,650 ea, and an $11,400 standard deduction. This totals $86,700. Using a 4% withdrawal rate, it would take $2,167,500 in pretax money to generate this annual withdrawal. What a shame it would be to pay tax at 25% to convert only to find yourself with a mix of pre and post-tax money that puts you toward the bottom of that bracket. Whose marginal rates do you believe will rise? Couples making less than $70,000? I doubt it. What’s the risk? That you should be in the 25% bracket at retirement? That’s still break even in the worst scenario.
What About Your Beneficiaries
While a tax-free inheritance might be great for the kids, a properly inherited, properly titled Beneficiary IRA can provide them a lifetime of income. Consider, if you leave a portion of your traditional IRA to your grandchild, a 13 year old, his first year RMD (required minimum distribution) will only be about 1.43% of the account balance. For a $100,000 account left to him, this RMD falls shy of the current $1900/yr limit before he is subject to the kiddie tax. To insure that he doesn’t withdraw the full remaining amount at 18 or 21, consult a trust attorney to set up the right account for this purpose. If left to your own adult children, the advantage can go either way depending on their income and savings level.
Are You a Philanthropist?
If you don’t have individual heirs you wish to leave your assets to, the ultimate poke at Uncle Sam is to leave your money to charity. No taxes at all are due. Leaving Roth money to charity just means that our government already got its piece of the pie.
Avoiding Roth IRA Conversion Regrets
Today, I’ve shared with you some scenarios that are cause for regretting a conversion. As I always caution my readers, your situation may differ from anything I addressed here, and your unique needs are all that matters. If you have any questions on when or if a conversion makes sense for you, post a comment and we’ll be happy to discuss.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Please see a tax professional before implementing any sort of IRA conversion. Joe TaxPayer is not affiliate or endorse by LPL Financial.
In Best Low-Risk Investments for 2023, I provided a comprehensive list of low-risk investments with predictable returns. But it’s precisely because those returns are low-risk that they also provide relatively low returns.
In this article, we’re going to look at high-yield investments, many of which involve a higher degree of risk but are also likely to provide higher returns.
True enough, low-risk investments are the right investment solution for anyone who’s looking to preserve capital and still earn some income.
But if you’re more interested in the income side of an investment, accepting a bit of risk can produce significantly higher returns. And at the same time, these investments will generally be less risky than growth stocks and other high-risk/high-reward investments.
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Determine How Much Risk You’re Willing to Take On
The risk we’re talking about with these high-yield investments is the potential for you to lose money. As is true when investing in any asset, you need to begin by determining how much you’re willing to risk in the pursuit of higher returns.
Chasing “high-yield returns” will make you broke if you don’t have clear financial goals you’re working towards.
I’m going to present a large number of high-yield investments, each with its own degree of risk. The purpose is to help you evaluate the risk/reward potential of these investments when selecting the ones that will be right for you.
If you’re looking for investments that are completely safe, you should favor one or more of the highly liquid, low-yield vehicles covered in Best Low-Risk Investments for 2023. In this article, we’re going to be going for something a little bit different. As such, please note that this is not in any way a blanket recommendation of any particular investment.
Best High-Yield Investments for 2023
Table of Contents
Below is my list of the 18 best high-yield investments for 2023. They’re not ranked or listed in order of importance. That’s because each is a unique investment class that you will need to carefully evaluate for suitability within your own portfolio.
Be sure that any investment you do choose will be likely to provide the return you expect at an acceptable risk level for your own personal risk tolerance.
1. Treasury Inflation-Protected Securities (TIPS)
Let’s start with this one, if only because it’s on just about every list of high-yield investments, especially in the current environment of rising inflation. It may not actually be the best high-yield investment, but it does have its virtues and shouldn’t be overlooked.
Basically, TIPS are securities issued by the U.S. Treasury that are designed to accommodate inflation. They do pay regular interest, though it’s typically lower than the rate paid on ordinary Treasury securities of similar terms. The bonds are available with a minimum investment of $100, in terms of five, 10, and 30 years. And since they’re fully backed by the U.S. government, you are assured of receiving the full principal value if you hold a security until maturity.
But the real benefit—and the primary advantage—of these securities is the inflation principal additions. Each year, the Treasury will add an amount to the bond principal that’s commensurate with changes in the Consumer Price Index (CPI).
Fortunately, while the principal will be added when the CPI rises (as it nearly always does), none will be deducted if the index goes negative.
You can purchase TIPS through the U.S. Treasury’s investment portal, Treasury Direct. You can also hold the securities as well as redeem them on the same platform. There are no commissions or fees when buying securities.
On the downside, TIPS are purely a play on inflation since the base rates are fairly low. And while the principal additions will keep you even with inflation, you should know that they are taxable in the year received.
Still, TIPS are an excellent low-risk, high-yield investment during times of rising inflation—like now.
2. I Bonds
If you’re looking for a true low-risk, high-yield investment, look no further than Series I bonds. With the current surge in inflation, these bonds have become incredibly popular, though they are limited.
I bonds are currently paying 6.89%. They can be purchased electronically in denominations as little as $25. However, you are limited to purchasing no more than $10,000 in I bonds per calendar year. Since they are issued by the U.S. Treasury, they’re fully protected by the U.S. government. You can purchase them through the Treasury Department’s investment portal, TreasuryDirect.gov.
“The cash in my savings account is on fire,” groans Scott Lieberman, Founder of Touchdown Money. “Inflation has my money in flames, each month incinerating more and more. To defend against this, I purchased an I bond. When I decide to get my money back, the I bond will have been protected against inflation by being worth more than what I bought it for. I highly recommend getting yourself a super safe Series I bond with money you can stash away for at least one year.”
You may not be able to put your entire bond portfolio into Series I bonds. But just a small investment, at nearly 10%, can increase the overall return on your bond allocation.
3. Corporate Bonds
The average rate of return on a bank savings account is 0.33%. The average rate on a money market account is 0.09%, and 0.25% on a 12-month CD.
Now, there are some banks paying higher rates, but generally only in the 1%-plus range.
If you want higher returns on your fixed income portfolio, and you’re willing to accept a moderate level of risk, you can invest in corporate bonds. Not only do they pay higher rates than banks, but you can lock in those higher rates for many years.
For example, the average current yield on a AAA-rated corporate bond is 4.55%. Now that’s the rate for AAA bonds, which are the highest-rated securities. You can get even higher rates on bonds with lower ratings, which we will cover in the next section.
Corporate bonds sell in face amounts of $1,000, though the price may be higher or lower depending on where interest rates are. If you choose to buy individual corporate bonds, expect to buy them in lots of ten. That means you’ll likely need to invest $10,000 in a single issue. Brokers will typically charge a small per-bond fee on purchase and sale.
An alternative may be to take advantage of corporate bond funds. That will give you an opportunity to invest in a portfolio of bonds for as little as the price of one share of an ETF. And because they are ETFs, they can usually be bought and sold commission free.
You can typically purchase corporate bonds and bond funds through popular stock brokers, like Zacks Trade, TD Ameritrade.
Corporate Bond Risk
Be aware that the value of corporate bonds, particularly those with maturities greater than 10 years, can fall if interest rates rise. Conversely, the value of the bonds can rise if interest rates fall.
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4. High-Yield Bonds
In the previous section we talked about how interest rates on corporate bonds vary based on each bond issue’s rating. A AAA bond, being the safest, has the lowest yield. But a riskier bond, such as one rated BBB, will provide a higher rate of return.
If you’re looking to earn higher interest than you can with investment-grade corporate bonds, you can get those returns with so-called high-yield bonds. Because they have a lower rating, they pay higher interest, sometimes much higher.
The average yield on high-yield bonds is 8.29%. But that’s just an average. The yield on a bond rated B will be higher than one rated BB.
You should also be aware that, in addition to potential market value declines due to rising interest rates, high-yield bonds are more likely to default than investment-grade bonds. That’s why they pay higher interest rates. (They used to call these bonds “junk bonds,” but that kind of description is a marketing disaster.) Because of those twin risks, junk bonds should occupy only a small corner of your fixed-income portfolio.
High Yield Bond Risk
In a rapidly rising interest rate environment, high-yield bonds are more likely to default.
High-yield bonds can be purchased under similar terms and in the same places where you can trade corporate bonds. There are also ETFs that specialize in high-yield bonds and will be a better choice for most investors, since they will include diversification across many different bond issues.
5. Municipal Bonds
Just as corporations and the U.S. Treasury issue bonds, so do state and local governments. These are referred to as municipal bonds. They work much like other bond types, particularly corporates. They can be purchased in similar denominations through online brokers.
The main advantage enjoyed by municipal bonds is their tax-exempt status for federal income tax purposes. And if you purchase a municipal bond issued by your home state, or a municipality within that state, the interest will also be tax-exempt for state income tax purposes.
That makes municipal bonds an excellent source of tax-exempt income in a nonretirement account. (Because retirement accounts are tax-sheltered, it makes little sense to include municipal bonds in those accounts.)
Municipal bond rates are currently hovering just above 3% for AAA-rated bonds. And while that’s an impressive return by itself, it masks an even higher yield.
Because of their tax-exempt status, the effective yield on municipal bonds will be higher than the note rate. For example, if your combined federal and state marginal income tax rates are 25%, the effective yield on a municipal bond paying 3% will be 4%. That gives an effective rate comparable with AAA-rated corporate bonds.
Municipal bonds, like other bonds, are subject to market value fluctuations due to interest rate changes. And while it’s rare, there have been occasional defaults on these bonds.
Like corporate bonds, municipal bonds carry ratings that affect the interest rates they pay. You can investigate bond ratings through sources like Standard & Poor’s, Moody’s, and Fitch.
Fund
Symbol
Type
Current Yield
5 Average Annual Return
Vanguard Inflation-Protected Securities Fund
VIPSX
TIPS
0.06%
3.02%
SPDR® Portfolio Interm Term Corp Bond ETF
SPIB
Corporate
4.38%
1.44%
iShares Interest Rate Hedged High Yield Bond ETF
HYGH
High-Yield
5.19%
2.02%
Invesco VRDO Tax-Free ETF (PVI)
PVI
Municipal
0.53%
0.56%
6. Longer Term Certificates of Deposit (CDs)
This is another investment that falls under the low risk/relatively high return classification. As interest rates have risen in recent months, rates have crept up on certificates of deposit. Unlike just one year ago, CDs now merit consideration.
But the key is to invest in certificates with longer terms.
“Another lower-risk option is to consider a Certificate of Deposit (CD),” advises Lance C. Steiner, CFP at Buckingham Advisors. “Banks, credit unions, and many other financial institutions offer CDs with maturities ranging from 6 months to 60 months. Currently, a 6-month CD may pay between 0.75% and 1.25% where a 24-month CD may pay between 2.20% and 3.00%. We suggest considering a short-term ladder since interest rates are expected to continue rising.” (Stated interest rates for the high-yield savings and CDs were obtained at bankrate.com.)
Most banks offer certificates of deposit with terms as long as five years. Those typically have the highest yields.
But the longer term does involve at least a moderate level of risk. If you invest in a CD for five years that’s currently paying 3%, the risk is that interest rates will continue rising. If they do, you’ll miss out on the higher returns available on newer certificates. But the risk is still low overall since the bank guarantees to repay 100% of your principle upon certificate maturity.
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7. Peer-to-Peer (P2P) Lending
Do you know how banks borrow from you—at 1% interest—then loan the same money to your neighbor at rates sometimes as high as 20%? It’s quite a racket, and a profitable one at that.
But do you also know that you have the same opportunity as a bank? It’s an investing process known as peer-to-peer lending, or P2P for short.
P2P lending essentially eliminates the bank. As an investor, you’ll provide the funds for borrowers on a P2P platform. Most of these loans will be in the form of personal loans for a variety of purposes. But some can also be business loans, medical loans, and for other more specific purposes.
As an investor/lender, you get to keep more of the interest rate return on those loans. You can invest easily through online P2P platforms.
One popular example is Prosper. They offer primarily personal loans in amounts ranging between $2,000 and $40,000. You can invest in small slivers of these loans, referred to as “notes.” Notes can be purchased for as little as $25.
That small denomination will make it possible to diversify your investment across many different loans. You can even choose the loans you will invest in based on borrower credit scores, income, loan terms, and purposes.
Prosper, which has managed $20 billion in P2P loans since 2005, claims a historical average return of 5.7%. That’s a high rate of return on what is essentially a fixed-income investment. But that’s because there exists the possibility of loss due to borrower default.
However, you can minimize the likelihood of default by carefully choosing borrower loan quality. That means focusing on borrowers with higher credit scores, incomes, and more conservative loan purposes (like debt consolidation).
8. Real Estate Investment Trusts (REITs)
REITs are an excellent way to participate in real estate investment, and the return it provides, without large amounts of capital or the need to manage properties. They’re publicly traded, closed-end investment funds that can be bought and sold on major stock exchanges. They invest primarily in commercial real estate, like office buildings, retail space, and large apartment complexes.
If you’re planning to invest in a REIT, you should be aware that there are three different types.
“Equity REITs purchase commercial, industrial, or residential real estate properties,” reports Robert R. Johnson, PhD, CFA, CAIA, Professor of Finance, Heider College of Business, Creighton University and co-author of several books, including The Tools and Techniques Of Investment Planning, Strategic Value Investing and Investment Banking for Dummies. “Income is derived primarily from the rental on the properties, as well as from the sale of properties that have increased in value. Mortgage REITs invest in property mortgages. The income is primarily from the interest they earn on the mortgage loans. Hybrid REITs invest both directly in property and in mortgages on properties.”
Johnson also cautions:
“Investors should understand that equity REITs are more like stocks and mortgage REITs are more like bonds. Hybrid REITs are like a mix of stocks and bonds.”
Mortgage REITs, in particular, are an excellent way to earn steady dividend income without being closely tied to the stock market.
Examples of specific REITs are listed in the table below (source: Kiplinger):
REIT
Equity or Mortgage
Property Type
Dividend Yield
12 Month Return
Rexford Industrial Realty
REXR
Industrial warehouse space
2.02%
2.21%
Sun Communities
SUI
Manufactured housing, RVs, resorts, marinas
2.19%
-14.71%
American Tower
AMT
Multi-tenant cell towers
2.13%
-9.00%
Prologis
PLD
Industrial real estate
2.49%
-0.77%
Camden Property Trust
CPT
Apartment complexes
2.77%
-7.74%
Alexandria Real Estate Equities
ARE
Research Properties
3.14%
-23.72%
Digital Realty Trust
DLR
Data centers
3.83%
-17.72%
9. Real Estate Crowdfunding
If you prefer direct investment in a property of your choice, rather than a portfolio, you can invest in real estate crowdfunding. You invest your money, but management of the property will be handled by professionals. With real estate crowdfunding, you can pick out individual properties, or invest in nonpublic REITs that invest in very specific portfolios.
One of the best examples of real estate crowdfunding is Fundrise. That’s because you can invest with as little as $500 or create a customized portfolio with no more than $1,000. Not only does Fundrise charge low fees, but they also have multiple investment options. You can start small in managed investments, and eventually trade up to investing in individual deals.
One thing to be aware of with real estate crowdfunding is that many require accredited investor status. That means being high income, high net worth, or both. If you are an accredited investor, you’ll have many more choices in the real estate crowdfunding space.
If you are not an accredited investor, that doesn’t mean you’ll be prevented from investing in this asset class. Part of the reason why Fundrise is so popular is that they don’t require accredited investor status. There are other real estate crowdfunding platforms that do the same.
Just be careful if you want to invest in real estate through real estate crowdfunding platforms. You will be expected to tie your money up for several years, and early redemption is often not possible. And like most investments, there is the possibility of losing some or all your investment principal.
Low minimum investment – $10
Diversified real estate portfolio
Portfolio Transparency
10. Physical Real Estate
We’ve talked about investing in real estate through REITs and real estate crowdfunding. But you can also invest directly in physical property, including residential property or even commercial.
Owning real estate outright means you have complete control over the investment. And since real estate is a large-dollar investment, the potential returns are also large.
For starters, average annual returns on real estate are impressive. They’re even comparable to stocks. Residential real estate has generated average returns of 10.6%, while commercial property has returned an average of 9.5%.
Next, real estate has the potential to generate income from two directions, from rental income and capital gains. But because of high property values in many markets around the country, it will be difficult to purchase real estate that will produce a positive cash flow, at least in the first few years.
Generally speaking, capital gains are where the richest returns come from. Property purchased today could double or even triple in 20 years, creating a huge windfall. And this will be a long-term capital gain, to get the benefit of a lower tax bite.
Finally, there’s the leverage factor. You can typically purchase an investment property with a 20% down payment. That means you can purchase a $500,000 property with $100,000 out-of-pocket.
By calculating your capital gains on your upfront investment, the returns are truly staggering. If the $500,000 property doubles to $1 million in 20 years, the $500,000 profit generated will produce a 500% gain on your $100,000 investment.
On the negative side, real estate is certainly a very long-term investment. It also comes with high transaction fees, often as high as 10% of the sale price. And not only will it require a large down payment up front, but also substantial investment of time managing the property.
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11. High Dividend Stocks
“The best high-yield investment is dividend stocks,” declares Harry Turner, Founder at The Sovereign Investor. “While there is no guaranteed return with stocks, over the long term stocks have outperformed other investments such as bonds and real estate. Among stocks, dividend-paying stocks have outperformed non-dividend paying stocks by more than 2 percentage points per year on average over the last century. In addition, dividend stocks tend to be less volatile than non-dividend paying stocks, meaning they are less likely to lose value in downturns.”
You can certainly invest in individual stocks that pay high dividends. But a less risky way to do it, and one that will avoid individual stock selection, is to invest through a fund.
One of the most popular is the ProShares S&P 500 Dividend Aristocrat ETF (NOBL). It has provided a return of 1.67% in the 12 months ending May 31, and an average of 12.33% per year since the fund began in October 2013. The fund currently has a 1.92% dividend yield.
The so-called Dividend Aristocrats are popular because they represent 60+ S&P 500 companies, with a history of increasing their dividends for at least the past 25 years.
“Dividend Stocks are an excellent way to earn some quality yield on your investments while simultaneously keeping inflation at bay,” advises Lyle Solomon, Principal Attorney at Oak View Law Group, one of the largest law firms in America. “Dividends are usually paid out by well-established and successful companies that no longer need to reinvest all of the profits back into the business.”
It gets better. “These companies and their stocks are safer to invest in owing to their stature, large customer base, and hold over the markets,” adds Solomon. “The best part about dividend stocks is that many of these companies increase dividends year on year.”
The table below shows some popular dividend-paying stocks. Each is a so-called “Dividend Aristocrat”, which means it’s part of the S&P 500 and has increased its dividend in each of at least the past 25 years.
Company
Symbol
Dividend
Dividend Yield
AbbVie
ABBV
$5.64
3.80%
Armcor PLC
AMCR
$0.48
3.81%
Chevron
CVX
$5.68
3.94%
ExxonMobil
XOM
$3.52
4.04%
IBM
IBM
$6.60
5.15%
Realty Income Corp
O
$2.97
4.16%
Walgreen Boots Alliance
WBA
$1.92
4.97%
12. Preferred Stocks
Preferred stocks are a very specific type of dividend stock. Just like common stock, preferred stock represents an interest in a publicly traded company. They’re often thought of as something of a hybrid between stocks and bonds because they contain elements of both.
Though common stocks can pay dividends, they don’t always. Preferred stocks on the other hand, always pay dividends. Those dividends can be either a fixed amount or based on a variable dividend formula. For example, a company can base the dividend payout on a recognized index, like the LIBOR (London Inter-Bank Offered Rate). The percentage of dividend payout will then change as the index rate does.
Preferred stocks have two major advantages over common stock. First, as “preferred” securities, they have a priority on dividend payments. A company is required to pay their preferred shareholders dividends ahead of common stockholders. Second, preferred stocks have higher dividend yields than common stocks in the same company.
You can purchase preferred stock through online brokers, some of which are listed under “Growth Stocks” below.
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Preferred Stock Caveats
The disadvantage of preferred stocks is that they don’t entitle the holder to vote in corporate elections. But some preferred stocks offer a conversion option. You can exchange your preferred shares for a specific number of common stock shares in the company. Since the conversion will likely be exercised when the price of the common shares takes a big jump, there’s the potential for large capital gains—in addition to the higher dividend.
Be aware that preferred stocks can also be callable. That means the company can authorize the repurchase of the stock at its discretion. Most will likely do that at a time when interest rates are falling, and they no longer want to pay a higher dividend on the preferred stock.
Preferred stock may also have a maturity date, which is typically 30–40 years after its original issuance. The company will typically redeem the shares at the original issue price, eliminating the possibility of capital gains.
Not all companies issue preferred stock. If you choose this investment, be sure it’s with a company that’s well-established and has strong financials. You should also pay close attention to the details of the issuance, including and especially any callability provisions, dividend formulas, and maturity dates.
13. Growth Stocks
This sector is likely the highest risk investment on this list. But it also may be the one with the highest yield, at least over the long term. That’s why we’re including it on this list.
Based on the S&P 500 index, stocks have returned an average of 10% per year for the past 50 years. But it is important to realize that’s only an average. The market may rise 40% one year, then fall 20% the next. To be successful with this investment, you must be committed for the long haul, up to and including several decades.
And because of the potential wide swings, growth stocks are not recommended for funds that will be needed within the next few years. In general, growth stocks work best for retirement plans. That’s where they’ll have the necessary decades to build and compound.
Since most of the return on growth stocks is from capital gains, you’ll get the benefit of lower long-term capital gains tax rates, at least with securities held in a taxable account. (The better news is capital gains on investments held in retirement accounts are tax-deferred until retirement.)
You can choose to invest in individual stocks, but that’s a fairly high-maintenance undertaking. A better way may be to simply invest in ETFs tied to popular indexes. For example, ETFs based on the S&P 500 are very popular among investors.
You can purchase growth stocks and growth stock ETFs commission free with brokers like M1 Finance, Zacks Trade, Wealthsimple.
14. Annuities
Annuities are something like creating your own private pension. It’s an investment contract you take with an insurance company, in which you invest a certain amount of money in exchange for a specific income stream. They can be an excellent source of high yields because the return is locked in by the contract.
Annuities come in many different varieties. Two major classifications are immediate and deferred annuities. As the name implies, immediate annuities begin paying an income stream shortly after the contract begins.
Deferred annuities work something like retirement plans. You may deposit a fixed amount of money with the insurance company upfront or make regular installments. In either case, income payments will begin at a specified point in the future.
With deferred annuities, the income earned within the plan is tax-deferred and paid upon withdrawal. But unlike retirement accounts, annuity contributions are not tax-deductible. Investment returns can either be fixed-rate or variable-rate, depending on the specific annuity setup.
While annuities are an excellent idea and concept, the wide variety of plans as well as the many insurance companies and agents offering them, make them a potential minefield. For example, many annuities are riddled with high fees and are subject to limited withdrawal options.
Because they contain so many moving parts, any annuity contracts you plan to enter into should be carefully reviewed. Pay close attention to all the details, including the small ones. It is, after all, a contract, and therefore legally binding. For that reason, you may want to have a potential annuity reviewed by an attorney before finalizing the deal.
15. Alternative Investments
Alternative investments cover a lot of territory. Examples include precious metals, commodities, private equity, art and collectibles, and digital assets. These fall more in the category of high risk/potential high reward, and you should proceed very carefully and with only the smallest slice of your portfolio.
To simplify the process of selecting alternative assets, you can invest through platforms such as Yieldstreet. With a single cash investment, you can invest in multiple alternatives.
“Investors can purchase real estate directly on Yieldstreet, through fractionalized investments in single deals,” offers Milind Mehere, Founder & Chief Executive Officer at Yieldstreet. “Investors can access private equity and private credit at high minimums by investing in a private market fund (think Blackstone or KKR, for instance). On Yieldstreet, they can have access to third-party funds at a fraction of the previously required minimums. Yieldstreet also offers venture capital (fractionalized) exposure directly. Buying a piece of blue-chip art can be expensive, and prohibitive for most investors, which is why Yieldstreet offers fractionalized assets to diversified art portfolios.”
Yieldstreet also provides access to digital asset investments, with the benefit of allocating to established professional funds, such as Pantera or Osprey Fund. The platform does not currently offer commodities but plans to do so in the future.
Access to wide array of alternative asset classes
Access to ultra-wealthy investments
Can invest for income or growth
Learn More Now
Alternative investments largely require thinking out-of-the-box. Some of the best investment opportunities are also the most unusual.
“The price of meat continues to rise, while agriculture remains a recession-proof investment as consumer demand for food is largely inelastic,” reports Chris Rawley, CEO of Harvest Returns, a platform for investing in private agriculture companies. “Consequently, investors are seeing solid returns from high-yield, grass-fed cattle notes.”
16. Interest Bearing Crypto Accounts
Though the primary appeal of investing in cryptocurrency has been the meteoric rises in price, now that the trend seems to be in reverse, the better play may be in interest-bearing crypto accounts. A select group of crypto exchanges pays high interest on your crypto balance.
One example is Gemini. Not only do they provide an opportunity to buy, sell, and store more than 100 cryptocurrencies—plus non-fungible tokens (NFTs)—but they are currently paying 8.05% APY on your crypto balance through Gemini Earn.
In another variation of being able to earn money on crypto, Crypto.com pays rewards of up to 14.5% on crypto held on the platform. That’s the maximum rate, as rewards vary by crypto. For example, rewards on Bitcoin and Ethereum are paid at 6%, while stablecoins can earn 8.5%.
It’s important to be aware that when investing in cryptocurrency, you will not enjoy the benefit of FDIC insurance. That means you can lose money on your investment. But that’s why crypto exchanges pay such high rates of return, whether it’s in the form of interest or rewards.
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17. Crypto Staking
Another way to play cryptocurrency is a process known as crypto staking. This is where the crypto exchange pays you a certain percentage as compensation or rewards for monitoring a specific cryptocurrency. This is not like crypto mining, which brings crypto into existence. Instead, you’ll participate in writing that particular blockchain and monitoring its security.
“Crypto staking is a concept wherein you can buy and lock a cryptocurrency in a protocol, and you will earn rewards for the amount and time you have locked the cryptocurrency,” reports Oak View Law Group’s Lyle Solomon.
“The big downside to staking crypto is the value of cryptocurrencies, in general, is extremely volatile, and the value of your staked crypto may reduce drastically,” Solomon continues, “However, you can stake stable currencies like USDC, which have their value pegged to the U.S. dollar, and would imply you earn staked rewards without a massive decrease in the value of your investment.”
Much like earning interest and rewards on crypto, staking takes place on crypto exchanges. Two exchanges that feature staking include Coinbase and Kraken. These are two of the largest crypto exchanges in the industry, and they provide a wide range of crypto opportunities, in addition to staking.
Invest in Startup Businesses and Companies
Have you ever heard the term “angel investor”? That’s a private investor, usually, a high net worth individual, who provides capital to small businesses, often startups. That capital is in the form of equity. The angel investor invests money in a small business, becomes a part owner of the company, and is entitled to a share of the company’s earnings.
In most cases, the angel investor acts as a silent partner. That means he or she receives dividend distributions on the equity invested but doesn’t actually get involved in the management of the company.
It’s a potentially lucrative investment opportunity because small businesses have a way of becoming big businesses. As they grow, both your equity and your income from the business also grow. And if the business ever goes public, you could be looking at a life-changing windfall!
Easy Ways to Invest in Startup Businesses
Mainvest is a simple, easy way to invest in small businesses. It’s an online investment platform where you can get access to returns as high as 25%, with an investment of just $100. Mainvest offers vetted businesses (the acceptance rate is just 5% of business that apply) for you to invest in.
It collects revenue, which will be paid to you quarterly. And because the minimum required investment is so small, you can invest in several small businesses at the same time. One of the big advantages with Mainvest is that you are not required to be an accredited investor.
Still another opportunity is through Fundrise Innovation Fund. I’ve already covered how Fundrise is an excellent real estate crowdfunding platform. But through their recently launched Innovaton Fund, you’ll have opportunity to invest in high-growth private technology companies. As a fund, you’ll invest in a portfolio of late-stage tech companies, as well as some public equities.
The purpose of the fund is to provide high growth, and the fund is currently offering shares with a net asset value of $10. These are long-term investments, so you should expect to remain invested for at least five years. But you may receive dividends in the meantime.
Like Mainvest, the Fundrise Innovation Fund does not require you to be an accredited investor.
Low minimum investment – $10
Diversified real estate portfolio
Portfolio Transparency
Final Thoughts on High Yield Investing
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Notice that I’ve included a mix of investments based on a combination of risk and return. The greater the risk associated with the investment, the higher the stated or expected return will be.
It’s important when choosing any of these investments that you thoroughly assess the risk involved with each, and not focus primarily on return. These are not 100% safe investments, like short-term CDs, short-term Treasury securities, savings accounts, or bank money market accounts.
Because there is risk associated with each, most are not suitable as short-term investments. They make most sense for long-term investment accounts, particularly retirement accounts.
For example, growth stocks—and most stocks, for that matter—should generally be in a retirement account. While there will be years when you will suffer losses in your position, you’ll have enough years to offset those losses between now and retirement.
Also, if you don’t understand any of the above investments, it will be best to avoid making them. And for more complicated investments, like annuities, you should consult with a professional to evaluate the suitability and all the provisions it contains.
FAQ’s on High Yield Investment Options
What investment has the highest yield?
The investment with the highest yield will vary depending on a number of factors, including current market conditions and the amount of risk an investor is willing to take on. Generally speaking, investments with the potential for high yields also come with a higher level of risk, so it’s important for investors to carefully consider their options and choose investments that align with their financial goals and risk tolerance.
Some examples of high-yield investments include:
1. Stocks: Some stocks may offer high dividend yields, which is the annual dividend payment a company makes to its shareholders, expressed as a percentage of the stock’s current market price.
2. Real estate: Investing in real estate, either directly by purchasing property or indirectly through a real estate investment trust (REIT), can potentially generate high returns in the form of rental income and appreciation of the property value.
3. High-yield bonds: High-yield bonds, also known as junk bonds, are bonds that are issued by companies with lower credit ratings and thus offer higher yields to compensate for the added risk.
4. Private lending: Investing in private loans, such as through peer-to-peer lending platforms, can potentially offer high yields, but it also carries a higher level of risk.
5. Commodities: Investing in commodities, such as precious metals or oil, can potentially generate high returns if the prices of those commodities rise. However, the prices of commodities can also be volatile and subject to market fluctuations.
It’s important to note that these are just examples and not recommendations. As with any investment, it’s crucial to carefully research and consider all the potential risks and rewards before making a decision.
Where can I invest my money to get high returns?
There are a number of places you can invest your money to get high returns. One option is to invest in stocks, which typically offer higher returns than other investment options. Another option is to invest in bonds, which are considered a relatively safe investment option.
You could also invest in real estate, which has the potential to provide high returns if done correctly. Finally, you could also invest in commodities, such as gold or silver, which can be a risky investment but can also offer high returns.
What investments can I make a 10% return?
It’s difficult to predict exactly what investments will generate a 10% return, as investment returns can vary depending on a number of factors, including market conditions and the performance of the specific investment. Some investments, such as stocks and real estate, have the potential to generate returns in excess of 10%, but they also come with a higher level of risk. It’s important to remember that past performance is not necessarily indicative of future results, and that all investments carry some degree of risk
Stay in shape in Kansas City at one of the 10 best apartment gyms in the city. See which one suits your workout style here.
Known around the world for its barbeque prowess and strong connections to the roots of jazz, Kansas City is a uniquely American city. As one of the larger cities in the Midwest, Kansas City still serves as a central cultural hub to large swathes of people throughout Kansas, Missouri and the rest of the Midwest.
With hundreds of apartment buildings to choose from, it’s easy for newcomers and locals alike to get stuck choosing between a number of quality living options. It’s in these cases that renters need to turn to the amenities to make the right choice. If you’re considering an apartment that shows up on this list, you’re in luck. Below is a list of ten of the best apartment gyms in Kansas City. Find the fitness center that suits you best and take the first steps toward signing that lease today.
Source: Rent. / Two Light Luxury Apartments
Two Lights Luxury Apartments boasts one of the more beautifully designed apartment gyms in existence. Located in the Crossroads neighborhood, this large, light-filled community fitness center serves as a meeting point for many residents and is an undeniably pleasant place to get your sweat on.
Featuring cardio machines with views of the city, equipment designed to tone every upper body muscle you have and free weights for days, this gym is capable of handling even the most demanding and creative workout regimens.
Source: Rent. / Flashcube Luxury Apartments
With an indoor basketball court, tennis court, pickleball court, soccer room and climbing wall, there’s no way the fitness amenities at Flashcube Luxury Apartments were going to miss this list.
Boasting an expansive indoor sports complex that just might put your local Y to shame, the over-the-top exercise amenities don’t stop at the rec center. Also providing residents with a spin room, cardio station and well-equipped weight-lifting area, this Crossroads complex is capable of supporting an extremely active lifestyle entirely within its walls.
Source: Rent. / Second & Delaware
Located in Columbus Park and backed right up to the banks of the Missouri River, the fitness center at the Second & Delaware apartment complex perfectly caters to the active lifestyles of its resident population thanks to an industrial-style gym, yoga studio, spin room and more.
With everything from a squat rack to a rowing machine to windowfront ellipticals with views of the outside world, you’re never short on options at Second and Delaware. Whether you’re a cardio enthusiast or a casual lifter, there’s always a new opportunity for exercise waiting for you here.
Source: Rent. / West Hill Lofts
With soaring ceilings, brick walls and a Wellbeats Digital Trainer system, it’s easy to see from the jump that the West Hill Lofts gym means business. Designed to help people of all fitness approaches meet their personal goals, this fitness center is fully equipped for objectives both small and lofty.
Treadmills and ellipticals with outside views, a squat rack with enough space to make serious gains and cable machines capable of supporting a whole workout circuit on their own are just a few of the elevated features and pieces of equipment you can expect to find at this West Plaza iron jungle.
Source: Rent. / The Yards
Located right on the border of Kansas and Missouri in West Crossroads, the fitness center at The Yards, a modern apartment community, is full of futuristic fitness tech designed to make working out less of a chore than ever before.
Boasting a Fitness On-Demand® system, professional-grade exercise machinery and a serene stationary bike room that’s perfect for pedaling the stresses of the day away, this gym is all about comfort and convenience above all else. Whether you like a Sunday afternoon spin class or a Monday morning power lift, the gym at The Yards has it all.
Source: Rent. / Woodside Village
In Westwood, KS, just southwest of downtown Kansas City, is the Woodside Village apartment complex. Designed to facilitate physical fitness throughout the daily lives of its residents, the list of recreational amenities here is certainly not short.
Boasting a spa, indoor and outdoor pools, tennis courts and a state-of-the-art fitness center, this complex provides everything residents need to live life to the fullest. At these apartments, you can start your day with some heavy lifting in the light-filled fitness center and cap it off by soaking the soreness away in the spa.
Source: Rent. / Roaster’s Block
Located in a beautiful brick building near Westside North, the fitness center at Roaster’s Block has an industrial vibe that encourages hard work and maximum effort. With everything from a pullup station to pulldown machines and all the cardio equipment you could ever need, this gym has all residents could want.
Also offering personal training services, HIIT classes, yoga sessions and more, the fitness center at Roaster’s Block is set up with a stellar support network so all can feel comfortable and confident in reaching their personal workout goals.
Source: Rent. / The Ambassador
Originally constructed as the largest hotel in Kansas City, The Ambassador has since gracefully transitioned into a luxury apartment complex in Central Hyde Park. Small but mighty, the fitness center at The Ambassador is all about making the most of its more modest footprint.
This fitness center is equipped with only the highest quality machinery and adorned with numerous flatscreen TVs and free weights. What this gym may lack in size, it more than makes up for with quality. Find yourself here at the beginning of a long day or at the end of a tough week and let the worries melt away (along with a few pounds).
Source: Rent. / Thrive at Creekside
Located north of Downtown in scenic Parkville, the fitness center at Thrive at Creekside is equipped with the cardio equipment you need to get marathon-ready in months and the weight machines you’ll need to bulk up beyond recognition if that’s what you’re looking for.
Whether you’re starting the day with a half hour on the rowing machine or wrapping up a long week with an even longer stretching session, this fitness center provides residents with all the essentials they need to go beyond and become their best selves.
Source: Rent. / Trinity Woods
East of Kansas City in Independence is one of the more luxurious apartment fitness centers in the KC area. Trinity Woods is an elevated apartment community with a fitness center that will force you to forget the monthly memberships.
Boasting Olympic weights, Technogym equipment, a dedicated spin room and fitness programs on demand, this gym perfectly caters to every type of fitness goal. From total body transformation to simply staying in decent shape, everything is possible at this well-equipped gym.
Stay in shape in Kansas City
Staying in shape can be difficult no matter where you call home. That said, if you’re lucky enough to sign a lease at one of the Kansas City apartment buildings listed above, you’re already well ahead of the curve when it comes to accomplishing your fitness goals.
Leverage the amenities at your disposal and deepen your appreciation for physical fitness in your new apartment home gym.
The economy is tanking; unemployment claims have topped 30 million. So what’s happening with the housing market?
To wrap our minds around this rapidly-changing housing market, let’s break this down into three sub-questions:
How strong was the housing market before the pandemic struck?
What’s happening now?
Where might it be going?
Here we go!
How strong was the pre-pandemic housing market?
Home values rose steadily after the Great Recession. From 2012–2020, home prices climbed 5.8% annually, according to the US Housing Market Health Check report from Thomvest Ventures. (All stats in this article come from that report unless otherwise indicated.)
Home values hit record-breaking new highs; the current national home price index is valued at 115% of the prior peak in March 2007.
Why did home values skyrocket in the last 8 years? There are many complex reasons, but three major factors include:
Historically low mortgage interest rates. This makes monthly payments more affordable.
Wage growth and consumer confidence arising from the 11-year bull market that just ended.
Limited housing supply, fueled by a decline in new construction.
Let’s talk about that last point, because it’s crucial in understanding how the pandemic will re-shape the market.
In 2005, prior to the Great Recession, home values were skyrocketing and people across the country were drinking the Kool-Aid that says “your personal residence is an investment” (it’s not) and “home values never fall” (they do).
The rapid climb in home values – and ensuing demand from buyers who wanted a slice of the action – led builders to flood the market with a surplus of speculative new construction. Remember 2005 and 2006? You couldn’t blink without seeing a brand-new suburban subdivision arise of out nowhere, seemingly overnight.
The spike in housing supply started fifteen years ago with speculation, and continued through 2008 and 2009, as foreclosures flooded the market.
From 2010 through 2020, that supply has been steadily declining. Okay, fine, “declining” is a polite way to describe the reality. In February 2020, the government-sponsored entity Freddie Mac, an institution that’s not prone to hyperbole, stated the situation bluntly: “The United States suffers from a severe housing shortage.” They called this a “major challenge” and estimated that 2.5 million new housing units would be needed to bridge the gap between supply and demand.
What triggered this shortage? The multitude of reasons could fill an entire article, but one major reason is that the cost-per-square-foot of new construction is prohibitively expensive in some areas, particularly high-cost-of-living cities, squeezing margins so tight that many builders have decided it’s not worthwhile to construct new homes in those areas. As a result, new home construction has trailed household growth every year since the Great Recession ended.
During the last decade, supply has drastically sunk, while demand has steadily risen.
Recipe for a price increase, anyone?
Real estate analysts track a metric called “months of supply.” It’s a measure of how many months it would take for the current inventory of homes on the market to sell, at the current pace of sales.
Historically, six months of supply equals moderate price growth. Fewer than six months of supply, though, correlates with skyrocketing home values. Many sellers receive multiple offers; comparable sales figures climb as buyers attempt to outbid each other. The average-days-on-market shrinks.
If you’ve searched for real estate in the past couple of years, you may have endured the frustration of spotting an amazing listing – only to discover that it went under contract within 24–48 hours of its initial listing.
It was a seller’s market. And that’s now a relic of the past.
What’s happening now?
Cue the curtain for 2020.
As you might expect, both supply and demand have fallen off a cliff. Sellers aren’t selling (‘cuz duh, who wants to move in the middle of social distancing?), and buyers aren’t buying (for the same reason).
But here’s the thing:
Early data suggests that demand may have fallen significantly more than supply. For the first time in a decade, the tables have turned.
To be clear, supply is tighter than ever. Available homes for sale declined 25 percent year-over-year. Nationwide, one million homes were listed for sale in April 2019 vs. 750,000 homes for sale in April 2020.
But the drop in buyers may exceed the drop in sellers.
As early as January 2020, home showings had already dropped by almost half – it dropped 49% – as compared to January 2019. (And that was January!)
Of course, showings are a crude, imprecise metric. Many home buyers – even starting as early as January – began opting to tour homes through Facetime or Skype, or browsing 3D virtual tours.
So let’s take a look at a different metric: the number of people casually browsing home-buying websites such as Zillow or Redfin. Would you expect this number to rise in this work-from-home era? Stay the same? Dip slightly?
The answer: None of the above. The volume of visits to home-buying sites like Zillow and Redfin careened off a cliff after the pandemic struck, dropping an astonishing 40 percent.
It’s not surprising, then, that by the first week of April, pending home sales fell 54 percent year-over-year.
Real estate commentators have differing views on the severity of the current demand decline, which is arguably harder to measure than supply. Housing supply can be tracked by metrics like new construction permits, renovation permits, and the volume of current market listings relative to the pace of sales (months of supply). Demand is estimated through stats like the pace of sales, the number of homes sold at or above asking price, weekly mortgage applications, and web traffic to search portals.
Many analysts view job growth and population growth as strong indicators of an uptick in demand. Job losses, therefore, predict a drop in demand. (Besides, banks don’t like to give mortgages to unemployed people.) And the U.S. is experiencing the worst levels of unemployment since the Great Depression.
For the first time in a decade, it looks like the supply-demand equation is flipped in the buyer’s favor.
“But wait! Are foreclosures going to spike again? Won’t those flood the market?”
It’s natural to expect the current recession to look like the last one. Since the Great Recession was characterized by a rash of foreclosures saturating the market, it’s natural to ask: “are we going to see a firehose of foreclosures flood the market again?”
The answer: probably not, for two reasons – (1) a decade of tighter lending criteria, resulting in highly-qualified borrowers with tinier debt loads, and (2) public opinion.
Let’s examine each one.
First, today’s borrowers are far more qualified than the borrowers of 2008.
Before the Great Recession, between 70–80 percent of mortgage originations were given to borrowers with less-than-excellent credit, defined as scores of 759 or less.
Today that metric has almost flipped. During Q4 2019, almost 66 percent of mortgage originations went to borrowers with excellent credit scores, defined as 760 or higher.
Before the Great Recession, homeowners could qualify for larger mortgages and easily borrow against their home equity through a cash-out refinance. As a result, in 2007, the ratio of mortgage-payment-to-income (the “front end ratio”) stood at 32 percent.
Today borrowers often qualify for smaller amounts (due to tightened lending restrictions) and are reluctant to borrow against home equity. At the start of 2020, the mortgage-to-income ratio was only 21 percent.
Let’s talk for a moment about borrowing against home equity.
In 2007, many borrowers were encouraged to cash-out refinance their home and spend this money on consumer purchases, such as discretionary home upgrades (e.g. building a backyard patio or installing a home theater system). They were advised that this would “boost their home value,” and they were not properly educated about the core financial literacy concepts that their personal home is not an investment and that relying on appreciation is speculation.
Unfortunately, those borrowers couldn’t liquidate their discretionary purchases when the recession struck. Their personal residence upgrades don’t provide a stream of passive income. They quickly found themselves underwater.
(That’s not the only reason many borrowers found themselves underwater in 2007, of course. Some borrowed to cover necessities, such as medical bills. Some found themselves blindsided by prolonged unemployment. Many were misled by lenders, who painted an unduly rosy picture and downplayed the risks of overborrowing. And many bought near or at the peak, such that when neighborhood home values declined, they found themselves holding a loan balance larger than their newly-depressed home worth.)
But the point remains – before the Great Recession, many people borrowed against their home equity for non-investment purposes.
Today that’s a distant memory. Cash-out refinance loans dropped 75 percent after the 2008 recession and remain at historically low levels today.
Foreclosures, bankruptcies and delinquencies are also at historic lows, as of the start of 2020. This January, only 3.5 percent of homeowners were late in paying their mortgage by 30 days or more, the lowest rate in 20 years for the month of January.
Finally, more people are mortgage-free today. In 2007, around 68 percent of homeowners carried a mortgage; by February 2020, that number had fallen to 62 percent.
Let’s review. In early 2020, at the start of the pandemic, the housing market was characterized by:
Highly qualified borrowers
Smaller loans
Healthier debt-to-income ratios
Fewer cash-out refinances or second loans
Low delinquency / more on-time payments
That’s why this isn’t going to be a repeat of 2008. The conditions are different. The housing market entered the 2020 recession from a position of strength.
We’ll briefly touch on the second reason why there won’t be a rash of foreclosures: public opinion and organizational will.
We’re experiencing a loose patchwork of protections intended to protect homeowners (particularly owner-occupants) from facing foreclosure.
Some banks are offering mortgage forbearance programs. Some states are instituting eviction and foreclosure moratoriums. Unemployment payments are fueled with $600 per week in additional benefits, and businesses with PPP funding must keep their workers on the payroll.
While these efforts are far from perfect, they’re – at the moment – adequate to prevent a huge volume of foreclosures.
So far, so good. Current data reflects no significant rise in delinquencies (late payments). If this number starts to spike in the summer or fall, there’s a reasonable chance that public opinion will pressure lawmakers and institutions to offer more protections to homeowners.
Where’s the housing market headed in the next 6-12 months?
Here’s what we’ve learned:
Home values are at historic highs. They’ve climbed steadily over the last decade.
Mortgage interest rates are at historic lows, continuing their pattern from the past decade.
Borrowers are well-qualified, and the likelihood of a 2008-style glut of foreclosures is slim. We’re unlikely to see a housing crash.
Housing supply has been tight for the last decade, but now the supply/demand balance appears to be tilting in favor of buyers.
Synthesis:
If you want to buy a property, the next 6–12 months might be an excellent time to become a buyer.
(And if you want to sell a property, wait. Hold for now.)
The pandemic may be ushering in a new era. Buyers might feel like it’s 2012 again: they can negotiate hard, offer significantly less than asking price, and not worry about getting outbid. They can ask the seller for repairs, concessions, and closing costs. Ahh, the good ol’ days.
Of course, there are people who disagree. Demand was high before the pandemic struck. As a result, some analysts have floated the idea that once mandatory social distancing restrictions loosen, buyers will unleash pent-up demand.
But if the lack of customers flooding back into restaurants, bowling alleys and tattoo parlors in Georgia is any indication, the housing analysts who dream of “unleashed pent-up demand” are … well, they’re dreaming.
When the economy tightens, people tend to become more cautious with their spending.
In the midst of a deep recession, with more than 30 million unemployment claims and a national mood of restraint, I find it unlikely that a huge volume of aspiring first-time homeowners will be eager to spend six-figure sums.
This means the brave buyers who pick up properties at this time may enjoy finding deals and negotiating from a position of strength.
Is it wise to buy in 2020?
In an unstable economy, many people are reluctant to make big-ticket purchases such as cars or homes.
And rightfully so.
Let’s turn this conversation to you. You might be wondering, “is it wise to buy a home in 2020?” – regardless of whether it’s a personal residence or an income property?
The answer: ONLY if you’re starting on a strong financial foundation.
First – If you don’t have an adequate emergency fund, focus first and foremost on building at least 3–6 months of rainy day reserves. If you think there’s a decent chance that you might get laid off or furloughed, or if you’re self-employed, extend this to 6–9 months of expenses.
Even if you’re a relentless optimizer, DO NOT invest this money. Keep this in a high-yield savings account (CIT Bank* is a favorite among our community members). Resist the temptation to throw it into the stock market, no matter how much you want to “buy on the dip.”
You can buy on the dip with a different bucket of funds. Don’t gamble with your emergency fund.
Second – If you’re carrying high-interest credit card debt, this is not the time to distract yourself with a home purchase. Crush your credit card debt first. Transfer your balances to a zero-interest card, and live on a strict budget that allows you to chip away at these balances before the teaser rate expires.
Third – If you anticipate any major big-ticket expenses (for example, if your car is 25 years old and the engine is sputtering, and it’s only a matter of time before replacing it transcends from “someday” to “urgent”), set aside enough cash to cover this cost.
Fourth – This is such a “duh” that I hope it goes without saying, but if you get a company 401k match, contribute at least enough to your retirement accounts to take full advantage of the match.
Fifth – Take stock of your dreams and goals. Everything is a trade-off. Don’t buy a home just because you think “this recession might be a great opportunity!” – that’s not a good enough reason if your heart isn’t authentically excited about it.
If you’re starting from a strong financial foundation AND this is your genuine goal, then 2020 might be the year that you, as an aspiring buyer, have been hoping to find.
(And if you’re selling a home … wait until 2021.)
Our real estate investing course, Your First Rental Property, will re-open for enrollment on Monday, November 30th! This premier 11-week online course will walk you, A to Z, through everything you need to know as a beginner rental property investor.
Read this page for all the details. Join the VIP Waitlist to hear when enrollment dates are announced first. Hope to see you in the fall!
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Unless otherwise indicated, all research and data conducted by and attributed to the US Housing Market Health Check report, released by Thomvest Ventures and written by Nima Wedlake, Principal.
*Affiliate disclaimer: We’re a proud partner and affiliate. If you use this link, we may earn a small commission (at no additional cost to you) which we use to pay our hardworking team of five, cover operating costs like hosting and software, and invest in keeping this site running.
As an Amazon Associate I earn from qualifying purchases. Guest Post Your mood rises as the heat of summer ease. Soon, green leaves will turn to fiery fall colors as crisp, cool air invades our fair city. For lovers of autumn, this is the best time of year to get outside. Exercising outdoors has many … [Read more…]