Cash-Out Refinance

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Don’t Make The Mistake Of Not Knowing This as a Veteran

More than 21 million Veterans and Service persons live in the U.S. today. Only about 6% of them have purchased a home using a VA loan in the past five years.

Even fewer have refinanced.

Those percentages could be much higher. Eligible Veterans often bypass the VA home loan for more expensive programs.

For most, that’s a mistake.

>>Check your VA home buying or refinance eligibility now<<

VA Refinance

The VA IRRRL program stands for Interest Rate Reduction Refinancing Loan. It’s meant to reduce the veteran’s VA loan rate quickly and easily.

It requires no pay stubs, no W2s, no appraisal. No kidding.

That reduces the time and effort required for Veterans to get into today’s record-low rates.

There is no better refinance product on the market, but it’s only for Veterans who have VA loans currently.

For other Veteran homeowners, the VA cash-out refinance allows you to refinance out of any loan type, get rid of mortgage insurance, drop your rate, and turn home equity into cash, if you’d like.

Most Veterans would pay more and cost themselves more time by choosing a non-VA refinance.

>>Click here to check your VA IRRRL savings<<

**Editor’s Note: The VA homeowner does not need mortgage insurance. That cost is paid in full by the government, not you.

>>Get Your New Low Rate Now>>

VA Home Purchase

Likewise, buying a home with a VA loan is probably the least costly way to do it.

VA loans do not require mortgage insurance. That’s a savings of $150 per month on a $250,000 home, according to mortgage insurance provider MGIC.

And, there’s no down payment required. Instead of saving for years to put 5-10% down on a home, you go directly to home shopping immediately. And, VA loans are more lenient on credit history than just about any loan type.

If you’ve been sitting on the sidelines, waiting for the right time to buy, now could be the perfect time.

VA loan rates are low, and more Veterans are getting approved.

Click here to check your eligibility now<<

**Editor’s Source:
Trump Says Fed Keeping Rates Low

Source: militaryvaloan.com

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If you’re nearing the end of the initial term on your adjustable-rate mortgage (ARM), you might be wondering if now is a good time to refinance, and whether you should switch to a fixed rate.

In general, fixed-rate loans are good when rates are low or on the rise, because they lock in your payment and help you avoid constant rate increases. If rates are dropping, then an ARM lets you benefit from those decreases.

“The idea of trading away the uncertainty of an adjustable-rate mortgage for the certainty of a fixed-rate mortgage is appealing, especially if you’re expecting an adjustment in the next year or two,” says Greg McBride, CFA, chief financial analyst for Bankrate.

How to refinance an ARM

Like many types of loans, you can refinance an ARM. When you refinance an ARM, you replace your existing loan with a brand new one.

Lenders typically offer specific mortgage refinancing loans, so you’ll use their refinance application form to apply. Beyond that, the process is similar to your initial mortgage application, except that you already own the home. That can make some things, like inspections and appraisals a bit easier to schedule.

Keep in mind that you can choose the lender for your refinance. it could be your current lender or a different one.

To give yourself a good chance of qualifying for a refinancing loans, try to meet these requirements:

  • Own the home for at least six months
  • Have at least 20 percent equity
  • Have a credit score of at least 620 (for a conventional loan)
  • Have a debt-to-income ratio under 50 percent

Also keep in mind that you have to pay closing costs on the new loan, so you’ll want to make sure that you can afford to pay them. Also make sure that refinancing saves you more than it costs.

Benefits of switching to a fixed-rate mortgage

If you’ve never had a fixed-rate mortgage, here are the key upsides of this type of loan:

  • Your payments are always the same: A fixed-rate mortgage gives you the certainty of predictable payments. Rather than wondering how the market will impact your payments on an ARM, a fixed-rate option never changes for the entire loan term.
  • You can budget more easily: With a fixed-rate loan, you can plan for a stable housing payment.
  • You still have options: If a 30-year mortgage sounds like a lifetime, you can also look at a 15-year fixed-rate mortgage. The rates on this type of loan are even lower, but the tradeoff is that you’ll have higher monthly payments due to the accelerated timeline.

Is now a good time to refinance an ARM?

Mortgage rates rose significantly in 2022 and are much higher than they were in previous years. That means refinancing to a fixed-rate loan will lock in these high rates.

On the other hand, if your introductory rate is about to end, refinancing might still make sense, especially if you can secure a lower rate on a fixed-rate loan than the rate your ARM is about to adjust to. Another perk is that it gives you predictability despite today’s unpredictable rate environment.

  • Credit score: Do you have a strong enough credit score to obtain a competitive interest rate?
  • Financial goals: Would rather prioritize another goal such as paying off high-interest debt?
  • Longer-term plans: Will you stay in the home long enough for you to exceed the break-even point on your closing costs?
  • Ability to afford closing costs: Will the burden of paying closing costs outweigh the benefits of a lower monthly payment?

How is your credit?

Refinancing isn’t an automatic money-saver. You need to have strong credit to qualify for the lowest rate and the biggest savings opportunity. If you’ve been making timely payments on your ARM, that should be helping elevate your credit score.

“Someone coming up on the end of an ARM presumably has five or more years of timely mortgage payments on their credit history,” says Austin Kilgore, director of corporate communications at mortgage firm Achieve. “There’s a good chance their credit score is better now and they may qualify for something better.”

If your credit could use some work, however, it’s best to wait to refinance until you’ve improved your score. Check your credit report for any errors, such as incorrect contact information — and if something’s amiss, contact the credit reporting agency as soon as possible to get it fixed. If you can, pay down or pay off other debt, and continue to make credit card and other loan payments on time each month.

What are your financial goals?

Think about the financial goals refinancing can help you achieve, such as paying off your mortgage sooner, doing a cash-out refinance or consolidating debt. While a cash-out refinance increases the amount you owe, you’ll be able to use the funds for home improvements or other expenses or goals.

How long do you plan to stay in the home?

If you have no intention of moving or selling your home anytime soon, refinancing into a fixed-rate mortgage can be a smart decision. If a move is on your near-term horizon, however, it’s likely not worth the cost to refinance.

For example, if you’d save $100 on your monthly mortgage payment by refinancing, and the closing costs are $2,000, it’d take you 20 months, or close to two years, before you really start to see savings. Bankrate’s mortgage refinance break-even calculator can help you run the numbers for your situation.

“If you’re only looking at being at home for three or four more years and you have four years before it resets, and a new loan is not at least three-eighths of a basis point lower than your current rate, you might as well stay in your ARM,” advises Ralph DiBugnara, founder of Home Qualified, a digital resource for homebuyers and sellers. “There’s no financial benefit to move forward into a fixed rate.”

Should I refinance to a fixed rate mortgage?

At the very least, you should think about refinancing your ARM to a fixed rate if current mortgage rates are lower than the rate you’re paying or you’re nearing the end of the initial term on your ARM. The rate isn’t the only piece of the puzzle, however. Consider the following:

How much could you pay when your ARM resets? Make sure you have a clear understanding of the annual cap and the lifetime cap on your ARM. The annual cap will give you an idea of how much the rate could increase when it resets, and the lifetime cap is the maximum allowed for the entire duration of the loan.

Are you paying off an interest-only ARM? If your ARM included an interest-only introductory period, you’ve only needed to pay the interest, not the principal. Your payments will rise significantly when you have to pay down the actual loan, so it may be smart to refinance to a fixed-rate option.

Another thing to think about is refinancing your ARM to another ARM. This means getting another introductory rate period and kicking the can on truly adjustable rates down the road by a year or two – or five. Compare rates for new ARMs and fixed-rate loans to see if this makes sense.

Bottom line

Refinancing an ARM to a fixed-rate mortgage can be a wise investment in your financial future, potentially saving you thousands in lower monthly mortgage payments over the life of the loan. Not only that, you’ll be spared the uncertainty and stress that may accompany a fluctuating mortgage rate. Before you make your decision, take a holistic look at your financial situation and consider factors like your credit score, financial goals, and ability to afford closing costs.

Source: thesimpledollar.com

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Did you hear that sound? That’s the entire mortgage industry shouting, “hip, hip hooray!” The Federal Housing Finance Agency (FHFA) on Wednesday announced that it would rescind a controversial loan-level pricing adjustment (LLPA) for conventional borrowers with debt-to-income (DTI) levels at or above 40%.

The FHFA, which regulates Fannie Mae and Freddie Mac, had previously delayed implementation of the DTI LLPA from May 1, 2023 to August 1, 2023 following a chorus of upset from mortgage industry stakeholders, including the influential Mortgage Bankers Association (MBA).

Mortgage industry lobbyists and practitioners alike complained that the fee was “unworkable” and would result in logistical and compliance nightmares, as well as confusion and mistrust from borrowers.

“I appreciate the feedback FHFA has received from the mortgage industry and other market participants about the challenges of implementing the DTI ratio-based fee,” FHFA Director Sandra Thompson said in a statement on Wednesday. “To continue this valuable dialogue, FHFA will provide additional transparency on the process for setting the Enterprises’ single-family guarantee fees and will request public input on this issue.”

The FHFA also put out a request for information on other new fees, including those imposed on borrowers with higher credit scores and moderate down payments.

In January, the FHFA announced a series of changes to LLPA fees with a revamped LLPA matrix that differentiates pricing by loan purpose, and a total of 81 grids for purchase loans, limited cash-out refi loans, cash-out refinance loans. Such changes prompted pushback from the National Association of Realtors and the MBA that it could hurt middle-wealth homebuyers and increase overall pricing. 

The non-DTI-based fees went into effect officially on May 1 but practically have been in effect since mid-March.

The FHFA also had to battle misinformation along the way, with false claims spreading that lower-credit borrowers would pay less than better-credit borrowers.

Still, no LLPA fee elicited a stronger response than the new DTI requirement. Lenders argued they would not be able to accurately determine a borrower’s actual income before rates had to be locked, and the timeline didn’t allow them to change terms of the loan if new information came in later in the process, which happens frequently.

Following the FHFA’s announcement on Wednesday, the MBA issued a statement cheering the demise of the DTI LLPA.

“The proposed fee was unworkable for lenders and would have confused borrowers and undermined the customer experience,” the trade group said. “We are pleased that FHFA engaged with industry stakeholders, recognized the negative impacts of the fee, and decided to rescind its implementation. MBA urges FHFA to continue its engagement to improve clarity and transparency regarding the GSEs’ pricing framework.”

The National Association of Realtors, America’s largest trade organization, also applauded Sandra Thompson for reversing course on the DTI fee.

“It would have imposed a cost on borrowers at a time in the market when affordability is already stretched and only made them riskier,” NAR President Kenny Parcell said. “Likewise, the FHFA’s decision to release a request for information on the other changes is a great example of good governance.”

Likewise, the Community Home Lenders Association, a coalition of smaller lenders, said the scrapping of the DTI LLPA was good policymaking.

“The GSE pricing grid is a complex balancing of the objectives of access to mortgage credit for underserved borrowers and safety and soundness – and CHLA believes today’s action to end the use of DTI LLPAs will enhance those dual objectives,” said Scott Olson, the group’s executive director.

Days before the DTI fee was killed, National Housing Conference President and CEO David Dworkin argued in a post that the risk-based pricing model the FHFA relies on is antiquated and has outlived its purpose.

“Guarantee fees on loans purchased by Fannie Mae and Freddie Mac are the appropriate mechanism for investors to pay for guarantees on the timely payment of principal and interest on mortgage-backed securities, ensuring a liquid and efficient market,” Dworkin wrote. “To create a fair playing field for first-time homebuyers across all income levels, Fannie Mae and Freddie Mac should should charge the same fee for everyone, as was the practice between 1938 and 2008, and as FHA loans do today.”

Source: housingwire.com

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Buying a home is one of life’s most rewarding milestones. However, as a prospective homebuyer, you may have noticed how much the real estate landscape has changed over the past few years.

Let’s take a look at how a temporary mortgage buydown concession could reduce your interest rate and make your initial monthly payments more affordable.

What Is a Temporary Buydown on a Mortgage?

A temporary buydown is a mortgage financing strategy that allows a homebuyer to lower their interest rate and payment for a predetermined amount of time through the payment of mortgage points at closing (whether by the lender, homebuyer or seller).

What’s a mortgage point? A mortgage point, also known as a mortgage discount point, equals 1% of your total loan amount. For example, a mortgage point on a $200,000 loan would be $2,000. When you purchase points in a mortgage buydown, you’re essentially prepaying interest upfront at closing in exchange for a lower rate, i.e., “buying it down.” Typically, a lender may offer a .25% rate reduction in exchange for one point.

How long could the rate and payment reduction last? Up to three years.

How much could the rate be reduced? A maximum of 3%. The rate is lower in the introductory period and increases over time — a maximum increase of 1% per year — to the original quoted rate.

What happens to those mortgage point payments? The money will typically go into an escrow account. Those funds temporarily subsidize your interest rate for the agreed-upon time period.

According to Scott Bridges, senior managing director of Pennymac’s consumer direct lending division, the benefit of a buydown is simple. “In short, the buydown allows a buyer to combat higher market rates,” he explains. “The first year of the loan, your rate and payment will be based on a rate that is 1% lower than the market rate. So if current rates are 6%, your first year of payments would be based on a 5% rate. That reduced rate for year one can save the average consumer several thousand dollars in payments (depending on loan amount).”

While interest rate discounts, loan terms, and conditions vary by lender, a buydown can be a good option for temporarily lowering your monthly mortgage payments at the start of your loan.

What Are the Benefits of Buying Down an Interest Rate?

There are several reasons you may want to buy down your mortgage rate. Here are a few potential budget-friendly benefits:

  • Lowers initial monthly mortgage payments. If you have a temporary buydown, those points you pay for upfront can make your initial mortgage payments more manageable, which can be especially helpful if you’re at the beginning of your career and expect your income to rise in the future. Those early savings will also add up to less interest paid over the life of your loan.
  • May boost your buying power. A reduced interest rate and the subsequent lower monthly mortgage payment may help you qualify for a higher mortgage, enabling you to purchase a more expensive home.
  • Can be arranged for both purchases and limited cash-out refinances. Whether you’re buying a new home or doing a limited cash-out refinance and replacing your current mortgage with a new, slightly larger mortgage, you may qualify for a temporary interest rate buydown.
  • Potential tax write-off. While a seller, builder, or lender may cover the buydown to facilitate a sale, the points may be deductible as home mortgage interest if you’re the buyer and pay for the buydown.1
  • Reduces rates for fixed-rate and adjustable-rate mortgages (ARM). You can purchase points to lower your interest rate on a fixed-rate mortgage and during an ARM’s introductory fixed-rate period. Depending on the buydown structure, rates may be reduced up to 3% for a maximum of three years.
  • More money in your pocket. A lower mortgage payment at the start of your loan could free up cash to pay bills or make home improvements.
  • Allows you to watch the market. A buydown gives you an opportunity to watch the market while saving on your monthly payments. “As rates move up and down during and after that first year, you can refinance into a lower rate with the knowledge you had a full year of reduced mortgage payments,” Bridges notes.

How Much Does It Cost to Buy Down the Interest Rate?

Generally speaking, the approximate cost for a temporary mortgage buydown equals how much you’ll ultimately save in interest. But several factors will be taken into account:

  • How much money you’re borrowing
  • How many points you’re buying; each point costs 1% of the mortgage amount
  • Type of buydown structure

Who funds a temporary mortgage buydown? In most cases, the buyer will pay the mortgage points, but in some instances, the buydown could be fully or partially funded by the seller, lender, or third party, such as a realtor or builder.

How long will the reduced interest rate be in effect? The lower rate and payment will be in effect for up to three years, depending on the rate buydown structure. Below are a few different types of mortgage buydowns.

Rate Buydown Structures

There are several types of rate buydown structures. If your lender offers you a buydown — most, but not all, lenders do — you will have the opportunity to negotiate pricing and determine which structure suits your financial needs. The following are the most common types of temporary mortgage buydown structures.

3-2-1 Buydown

A 3-2-1 buydown is a home financing arrangement that will reduce a homebuyer’s interest rate for the initial three years. The lowest interest rate is in the first year, increasing to the permanent quoted rate after the third year.

3-2-1 Buydown Basics

  • Reduces rate by three percentage points in the first year of the mortgage
  • Reduces rate by two percentage points in the second year
  • Reduces rate by one percentage point in the third year
  • Borrower pays full interest rate after the completion of the third year and is fixed for the remainder of the loan

3-2-1 Buydown Example

This chart shows how a 3-2-1 rate buydown could potentially work if you were to qualify for a 30-year, $200,000 mortgage at a rate of 7%:

Mortgage Year Interest Rate Monthly Payment (Principal and Interest) Monthly Savings Annual Savings
1 4% $954.83 $375.77 $4,509.24
2 5% $1,073.64 $256.96 $3,083.52
3 6% $1,199.10 $131.50 $1,578
4 – 30 7% $1,330.60 $0 $0

In this scenario, the total buydown cost would be approximately $9,171, the amount equal to the first three years of interest savings. The chart amounts don’t include insurance or taxes, and you will want to assume no points contribution from the seller, builder, lender, or a third party.

2-1 Buydown

A 2-1 buydown is a type of home financing arrangement that reduces the interest rate on a mortgage for the first two years, after which the rate rises to the permanent quoted rate.

2-1 Buydown Basics

  • Reduces rate by two percentage points in the first year of the mortgage
  • Reduces rate by one percentage point in the second year
  • Borrower pays full interest rate after the completion of the third year for the remainder of the loan

2-1 Buydown Example

This chart shows how a 2-1 rate buydown could potentially work if you were to qualify for a 30-year, $200,000 mortgage at a rate of 7%:

Mortgage Year Interest Rate Monthly Payment (Principal and Interest) Monthly Savings Annual Savings
1 5% $1,073.64 $256.96 $3,083.52
2 6% $1,199.10 $131.50 $1,578
3 – 30 7% $1,330.60 $0 $0

In this scenario, the total cost of the buydown would be approximately $4,661.52, the amount equal to the first two years of interest savings. The chart amounts don’t include insurance or taxes, and assume no points contribution from the seller, builder, lender, or a third party.

1-0 Buydown

A 1-0 buydown is a type of home financing arrangement that reduces the mortgage interest rate by 1% in the first year, increasing to the permanent quoted rate after that initial year.

1-0 Buydown Basics

  • Reduces rate by one percentage point in the first year of the mortgage
  • Borrower pays full interest rate after the completion of the first year for the remainder of the loan

1-0 Buydown Example

This chart shows how a 1-0 rate buydown could potentially work if you were to qualify for a 30-year $200,000 mortgage at a rate of 7%:

Mortgage Year Interest Rate Monthly Payment (Principal and Interest) Monthly Savings Annual Savings
1 6% $1,199.10 $131.50 $1,578.00
2 – 30 7% $1,330.60 $0 $0

In this scenario, the total cost of the buydown would be approximately $1,578, the amount equal to the first year of interest savings. The chart amounts don’t include insurance or taxes and assume no points contribution from the seller, builder, lender, or a third party.

Who Can Buy Down a Mortgage?

In most cases, the buyer will buy down the mortgage, but there are times when the seller, builder, or lender will offer to purchase points and pay for the buyer’s mortgage buydown. Let’s take a look at each scenario.

Buyer-Funded Buydown

When a buyer negotiates a buydown with a lender, they pay a certain amount of points upfront at closing in exchange for a reduced interest rate. Depending on the buydown structure, the rate could be temporarily lowered for up to three years or the entire loan term. Most mortgage buydowns are buyer-lender arrangements.

Seller-Funded Buydown

A seller-funded buydown is when a highly motivated seller purchases points and buys down the homebuyer’s interest rate. This seller concession can help “seal a deal” by incentivizing and speeding up a home sale. Subsidizing a mortgage buydown can:

  • Give a seller a competitive advantage without having to lower the listing price
  • Help increase the borrower’s purchasing power
  • Make it easier for buyers to qualify for financing
  • Expedite the home sale process

A possible win-win for both the seller and the buyer. The seller could make a faster sale while holding on to more profits than they would if they lowered the asking price. The buyer saves money with a lower interest rate.

Builder-Funded Buydown

Homebuilders can offer mortgage buydowns to attract prospective homebuyers. As interest rates climb and the new-home market slows, builder buydowns are becoming an increasingly popular selling strategy. A recent survey found that 75% of nationally surveyed home builders confirmed they are buying down buyers’ mortgage rates to make payments more affordable.2 Builder buydowns can:

  • Lure buyers in a competitive and high mortgage market
  • Make new homes more affordable to a broader range of buyers
  • Be offered as part of a package, such as an upgrade or closing cost contribution

A builder buydown arrangement may require the buyer to go through the builder’s mortgage company for the mortgage.

Lender-Funded Buydown

Lenders may offer to subsidize a buydown by contributing all or some of the funds for the mortgage points. This concession option could help increase your negotiating and purchasing power as a borrower.

A temporary lower interest rate is certainly enticing, but mortgage buydowns aren’t for everyone. Buying mortgage points in exchange for a rate reduction may not be in your best interest if you are…

  1. Having trouble meeting loan qualification criteria: You must qualify for the standard loan terms without the benefit of the buydown. This also includes:
    • Having a minimum 660 FICO score
    • Meeting the applicable Fannie Mae requirements
    • Submitting mandatory documentation
  2. Purchasing an investment property or manufactured home: A mortgage buydown can be arranged for a principal, owner-occupied home, or a second home. It’s not available for investment properties or manufactured homes.
  3. Planning on selling soon: There are substantial upfront costs involved with buying a new home, including the down payment and closing costs. Add mortgage points to the mix and it will take time to “break even,” meaning the time it will take for your savings to outweigh those costs to lower your interest rate. If you sell in the near future, you may not have been in the home long enough to recoup those point costs.
  4. Doing a regular cash-out refinance: Mortgage buydowns are allowed on purchases and limited cash-out refinances only. Limited cash-out refinances follow Fannie Mae guidelines restricting the cash-back amount to $2,000 or 2% of the new loan principal balance, whichever is less.3
  5. Short on cash: If you have limited cash, the high upfront costs may deplete your savings, leaving you short on funds you may need to cover other future expenses. Instead of buying points, you may want to allocate those funds to paying down high-interest debt or building an emergency fund.
  6. Making a small down payment: If you’re purchasing a home and contributing less than 20% to the down payment, or if you’re refinancing and have less than 20% equity, you’ll likely have to pay for private mortgage insurance (PMI) on your conventional loan.4 The premium will be added to your regular monthly payment. Rather than pay for points, consider using that money to make a larger down payment.

When can a mortgage buydown make sense? This home loan strategy is worth exploring if…

  1. You have enough liquid cash: If your savings is enough to cover the down payment, closing costs, and mortgage points — and you have a cash reserve left over — a temporary mortgage buydown can be a great option for reducing your interest rate for up to three years.
  2. You expect your income to rise: Starting your career? Re-entering the workforce? If you anticipate that your income will rise within the next few years, a temporary mortgage buydown can help you ease into homeownership with a lower initial interest rate and payment.
  3. The seller, builder, or lender is paying for the points: If you’re a homebuyer and the seller, builder, or lender offers to purchase the mortgage points for you, a temporary buydown can be an easy way to save money without any point-related, out-of-pocket expenses.

“Lots of people avoid buying a home when rates are higher,” says Bridges, “but this program allows you to at least achieve some reduced payments and real savings for a year.”

Higher rates can also significantly slow down home buying demand. That means, Bridges adds, “You will likely pay less for the house than you would in a low rate market when multiple buyers tend to bid over asking.” With a buydown, you set yourself up to win on multiple fronts. “You get a deal on the house you want, save money on the purchase price of the home in this higher rate market, save money on the monthly payment in year one, and refinance when rates drop.”

The Permanent Mortgage Rate Buydown Option

Want to lower your interest rate and monthly mortgage payment for your entire loan term? In addition to a temporary buydown, you may be eligible to negotiate a permanent buydown with your lender.

  • Protects against rate hikes. The lower rate will never increase during the loan term as long as you have a fixed-rate mortgage.
  • How much does it cost? The rate typically costs between six and eight points. Costs are added to the closing fees.

Ready to learn more about how Pennymac can help you find the right home loan? Begin your online application now, and if you still have questions, contact a Pennymac Loan Expert. We’ll help you evaluate your mortgage buydown options and decide the best course of action for your unique situation.

1 https://www.irs.gov/taxtopics/tc504

2 https://www.realestateconsulting.com/the-light-rate-buydowns-help-buyers-purchase-new-homes/

3 https://selling-guide.fanniemae.com/Glossary/1044658971/What-is-the-definition-of-a-limited-cash-out-refinance.htm

4 https://www.consumerfinance.gov/ask-cfpb/what-is-private-mortgage-insurance-en-122/

Source: pennymac.com

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“I haven’t seen a dry spell like this in the time I’ve been in business,” Bob Yopko, president of First Equity Residential Mortgage, said of this year’s spring homebuying season. 

The purchase market is locked up with a lack of inventory thanks to elevated rates and homeowners already having secured low mortgage rates during the pandemic years. This, in turn, has made business brutal, Yopko explained.

The still-high mortgage rates that have been killing Yopko’s business averaged 6.39% as of May 4, a decline from last week’s 6.43%, according to Freddie Mac’s primary mortgage market survey (PMMS). Rates averaged 5.27% during the same period a year ago.

“This week, mortgage rates inched down slightly amid recent volatility in the banking sector and commentary from the Federal Reserve on its policy outlook,” Sam Khater, Freddie Mac’s chief economist, said in a statement.

Mortgage rates tend to align with the 10-year U.S. Treasury yield, which traded at 3.38% on Wednesday compared to 3.43% about a month ago.

“Mortgage rates spreads are bad now, meaning mortgage rates should be a lot lower today versus the 10-year yield,” Logan Mohtashami, lead analyst at HousingWire, said. 

With financial credit getting tighter and the Fed no longer buying mortgage-backed securities (MBS), it has been hard for the spread to get better in this environment, Mohtashami explained.

“Mortgage rates should be 5.55%, not 6.5%,” he said.

Slower housing market

With mortgage rates remaining elevated, many sellers feel locked in by their current low mortgage rate. As a result, swaths of homeowners are planning to wait until rates come down before selling, leading to fewer newly listed homes compared to a year ago. 

“The housing market is moving slower this spring. In a typical year, we would expect to see the number of homes for sale begin to increase more significantly from this point forward,” Jiayi Xu, an economist at Realtor.com, said.

Buyers who are still interested in buying in the busiest season for the residential housing market are acclimating to the current rate environment, Khater noted, but the lack of inventory remains a primary obstacle to affordability. 

Due to limited options available on the market, buyers are increasingly turning to newly constructed homes, Xu added.

Another source of frustration for buyers are the new Federal Housing Finance Agency (FHFA) loan-level price adjustments (LLPAs) that went into effect May 1. The FHFA’s “revamped” LLPA matrix differentiates pricing by loan purpose, with grids for purchase loans, limited cash-out refinance loans, cash-out refinance loans and additional LLPAs by loan attribute. 

One goal for the changes was to make homeownership accessible for first-time homebuyers and those with low and moderate incomes. But the new changes have faced pushback from the industry, with opponents claiming that the LLPA adjustments are penalizing middle-class American families by raising fees on good-credit borrowers while lowering fees for higher-risk borrowers.

“According to this new policy, well-qualified borrowers with scores ranging from 680 to above 780 may need to pay slightly more than before to offset the reduction in fees charged to buyers with low credit scores,” Xu said. 

In the weeks ahead, the Mortgage Bankers Association (MBA) expects the ongoing uncertainty in the financial markets to keep mortgage rates volatile, but expects rates to ultimately fall below 6%-levels.

“We still anticipate they will fall, ending the year closer to 5.5%,” MBA President and CEO Bob Broeksmit said.

Source: housingwire.com

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Posted on: July 19, 2018

Homes are bought every day around the country using the VA loan. Even in the current housing shortage, veterans and active duty military members are still finding homes to purchase.

Of course, some areas are going to be easier to buy a home in than others, and some places have more homes available for people to buy.

But where are veterans buying homes?

Fortunately, the VA keeps track of all mortgages processed through their system. A recent data series was released by the VA showing the counties with the most VA loans, IRRRLs and cash-out refinances. It sheds a little light on where the most popular spots for veterans to buy a home are.

Click to check today’s VA rates.

The most popular spots for veterans to buy a home

The VA took data from all 3,076 counties that process some type of VA mortgage product between 10/01/2017 – 5/31/2018. In that period (what is just about half a year), the VA closed a total of 411,282 loans. Of those, 236,501 were purchase loans. That means that veterans are on pace to purchase over 500,000 homes using the VA loan in a one-year period.

The VA breaks it down further, showing how many of each mortgage product were used in each county. Here were the top 10 for purchase loans:

  1. Maricopa, Arizona – 4,850
  2. Bexar, Texas – 3,899
  3. El Paso, Colorado – 3,822
  4. San Diego, California – 3,792
  5. Clark, Nevada – 3,297
  6. Riverside, California – 2,591
  7. Pierce, Washington – 2,083
  8. Hillsborough, Florida – 2,018
  9. Harris, Texas – 1,981
  10. Tarrant, Texas – 1,839

Based on the data, veterans are mostly moving west or to Texas, with three of the top 10 counties being in Texas. Aside from that, the west coast (California and Washington) has three as well, with Nevada, Arizona and Colorado being popular picks.

Unsurprisingly, Florida was also a popular spot for veterans to buy a home. Not only is Florida a traditional retirement spot, but it also has affordable housing relative to some of the other counties on this list.

What’s interesting is that a lot of veterans are moving to areas with big cities. San Diego is a larger city, and Clark, Nevada is home to Las Vegas.

Cash-out refinance loans prove popular

Along with purchase loans, the VA offers two types of refinances: the IRRRL and the cash-out refinance. Of the two, the cash-out refinance proved to be much more popular with 112,594 refinances closing during the same period, as compared to 62,187 for IRRRL.

Cash-out refinances are different from IRRRL for a few reasons. First, veteran homeowners are allowed to take cash out of their equity and use it for whatever they want – be it a renovation, a new boat or even a vacation.

Second, cash-out refinances are available to all veterans, even if they didn’t use a VA loan to purchase their house.

Also, many veterans that have lived in their house for over 10 years may be able to reduce their mortgage rate as well, saving on monthly payments. There are a variety of reasons that veterans get refinances, but cash-out proves to be the most popular.

Click to check today’s cash-out refi rates.

Source: militaryvaloan.com

Apache is functioning normally

Last Updated on August 22, 2019 by Mark Ferguson

Hard money is used by many investors as a short-term solution to fund real estate deals. Hard money can be used to fund fix and flips or buy rental properties until long-term financing can be put in place. I fix and flip homes as well as invest in long-term rentals, but personally, do not use hard money. When you use hard money it is usually more expensive than traditional financing and I have other short-term financing in place. Hard money is still a great option for many investors, but I will also discuss other short-term financing options. There is also a way to use hard money or private money to buy rentals with no money down using a conventional loan refinance.

What is a hard money loan?

Hard money is a type of financing used to finance properties for a very short-term like 6 months or a year. Hard money-lenders use different terms than a traditional bank. The first thing you will notice when you finance with hard money lenders is they charge a very high-interest rate. Most hard money-lenders are charging 10 to 16 percent and points for their money. Points are a percentage of the total loan and can add costs quickly when a hard money-lender is charging 2, 3 or even 4 points on a loan. Hard money loans are typically used for fix and flips because they usually have a one year term.

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Why would investors use hard money to finance a rental property?

The advantage of a hard money-lender is they may loan the entire amount of money you will need to complete a deal. Most hard money lenders base the amount of the loan on the after repaired value or ARV. You may hear they will loan 65 or 70 percent of ARV; that is not the purchase price, that is how much the house will be worth once you fix up the home. With a hard money loan, a rental property could be financed with much less money down.

How can a hard money loan be refinanced on a rental property with no money down?

Here is an example of how one hard money-lender structures a deal. You buy a home for $60,000, the ARV is $130,000 and the lender says they will go up to 70 percent ARV on the property. The hard money-lender will loan up to $91,000 on the house based on the ARV. The hard money-lender will need bids or estimates for repairs, and they will pay out the money for the repairs like a construction loan. They will pay 25% of the repairs needed at closing, and the other payment will come in 25 percent increments as the repairs are completed. The lender won’t charge you any interest or points until you sell the home and then you pay them one large payment for the loan principal, interest and points. This particular hard money-lender charges 15% interest and 4 points, but they will reduce the points paid after you do a few deals with them.

The cost to do this deal with a hard money-lender can add up very quickly. On this deal, the interest will cost you $6,825, and the points will cost you $3,640 if you use the money for 6 months. There are also hard money-lenders that will charge lower interest and points but will want a split of your profits. I don’t use hard money-lenders myself, because of how much they charge, but for investors who have no other options it can work out well. Hard money-lenders can help you secure a property below market value when you do not have other options.

Where can you find hard money-lenders?

There are many hard money-lenders out there. Many only lend in specific states, while some lend nationwide. The best way to find a hard money-lender is to search for one in your state on any search engine. If you want a few companies to talk to, I have listed some hard money-lenders below.

Lima Capital Hard Money

Fund that Flip

Can you refinance a private money loan on a rental with no money down?

Private money is money that comes from a private person. The person loaning the money is not a bank, mortgage company, hard money-lender or portfolio lender, they are just a person. Regular people will lend money on real estate because interest rates on other secured investments are really, really low now. Have you looked at what the rate is on a CD? For a five-year CD, the average is less than 1 percent! You can’t even come close to keeping up with inflation with that rate. Many wealthy people are looking for a higher yield investment that is still secured. Loaning on real estate may be the perfect answer for them to increase returns and create great opportunities for investors. A private money loan can be used in the same way a hard money loan is used.

How do you find private money for a rental property?

The biggest problem with private money is finding the person to lend you private money! There are many websites that claim to have private money lenders they can connect you with for a small fee. In my experience, those websites take your money and connect you with a hard money-lender at best. A real private money-lender wants to lend their money to someone they know and trust. They don’t want to lend money to a complete stranger who may or may not be trustworthy and do not have a clue what they are doing. I am still trying to find a source for good private lenders, but I think I am limited to one option; people I know. I use private money from many sources who want a better return on their money.

How to buy a rental property with no money down using hard money

It is possible to buy a rental property with no money down using hard money. If you were to finance with a hard money loan and finance repairs as well, you can refinance the hard money loan with no seasoning period according to Fannie guidelines. Fannie guidelines do not allow a cash-out refinance without a seasoning period, but the home has a higher loan than the original purchase price because the repairs were financed. You can get a long-term loan to replace the hard money loan without waiting a year like you would with a cash-out refinance.

For example, if you buy a home for $100,000 with hard-money loaning 100 percent of the purchase price and financing $35,000 in repairs. The total loan is now $135,000, you fix up the home and refinance using a Fannie loan, which will loan up to 75 percent of the new appraised value. If the appraisal comes in at $185,000 then you could finance up to $138,750, but Fannie guidelines will not allow a cash-out refinance. You would be able to refinance the full $135,000 that was loaned to you by the hard-money lender. This technique can be rather expensive because you have to pay the higher interest rate on the hard-money loan, the initial points and then the refinance costs with Fannie Mae. However, you just bought a long-term rental and fixed it up with almost no out-of-pocket costs!

Using traditional banks to finance short-term loans on rental properties

There are some banks who do short-term loans for investors. They are very hard to find and usually, you must have a great relationship with the bank.  We use a portfolio lender to finance many of our short-term investments. They charge around 5.25 percent interest and 1.5 points on our loans. They will only give us 75 percent loan to value on our original purchase price and can complete the loan in two weeks. In the past, banks would finance 100 percent loan to value and fund us the same day. I am afraid those days are gone forever.

Traditional banks can offer another short-term option in the form of lines of credit. Most banks will want collateral in the form of real estate to issue a line of credit. If you have a house with equity in it, you should be able to get a line of credit from your bank. My bank charges a 5 percent interest rate and will go up to 90 percent loan to value on my personal residence or 80 percent on an investment property.

Conclusion

I use a mix of traditional banks, lines of credit and private money to fund my deals. I am lucky that I have private money available and cash to complete a lot of deals. I will usually get the bank loan for 75 percent of the purchase price, use private money for the rest of the down payment and my own money for repairs. Don’t be afraid to finance real estate with hard money if that is your only option.

Build a Rental Property Empire

Categories Money

Source: investfourmore.com

Apache is functioning normally

Last Updated on March 29, 2023 by Mark Ferguson

I am a big believer in making big goals and one of my goals is to purchase 100 rental properties by 2023. I have been a real estate agent and investor for more than 15 years, and I love the income my rental properties provide. Buying 100 rental properties will allow me to retire with more than enough money to reach my current dreams and goals. I do not want to buy 100 properties quickly without concern for the returns or risk. It takes a lot of money, time, and effort to buy 100 properties in the right way. I only buy houses that are well below market value and have great cash flow.

I first wrote this article in 2013, but have tried to update it frequently. I now have 20 rentals that make me over $10,000 a month after expenses. I am way behind on my goal, but many things happened that I could not have predicted like our housing market going crazy. I have bought commercial properties in the last few years instead of residential because they have been better money makers in my market.

Why I made a more challenging goal

In 2010, my original goal was to buy 30 rental properties in ten years. I based that goal on what I thought I could realistically achieve when I started buying rentals. A couple of years ago, I realized my goal was too easy because I knew I could buy 30 houses in ten years. I had given myself no room for improvement in my investing strategies or real estate business! At the start of 2013, I reworked all my goals including my rental property purchase schedule. My new goal was to buy 100 rental properties by January 2023 because it challenged me and would make me work hard. I had no idea when I first made this goal how I could buy 100 rental properties, but that is why we make big goals; to challenge us to do more and to change the way we do things.

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Why real estate?

I want to buy 100 rental properties because of the income and freedom that 100 houses will give me. I make over 15 percent cash on cash returns on my rentals because I purchase them below market value with great rent to value ratios. If I can buy 100 rental properties with the current cash flow requirements I have, I will make a lot of money. According to my calculations, I will be making over $900,000 a year in cash flow, have at least 60 houses paid off, and have over 11 million in equity in my rental properties. Those figures are not adjusted for inflation and assume no appreciation or rent increases. That kind of income should allow me to afford whatever my family and I want and allow us to do whatever we like. We only live once and I want to get everything that I can out of life.

The first part of this article discusses the philosophy behind buying 100 rental properties, why it is important to have big goals, and why it is important to think big. The second half of the article discusses the numbers and a detailed purchase schedule.

For more great tips, check out the InvestFourMore Instagram page.

Is it possible to purchase 100 rental properties?

To be completely honest, I do not know how I am going to buy 100 rental properties by January 2023. I do not make nearly enough money to buy 9 or 10 houses a year. I have barely been able to buy three houses a year. I bought my first rental property in December 2010, and I started my rental property purchase goal on that day. I should have had three by December 2011, six by December 2012, and nine by December 2013. I started out very slow buying only one rental in my first year. I have picked up speed and as of March 2016, I own 16 rentals, still behind where I had hoped to be. That does not mean I will not reach my goal. The reason I have not purchased as many rentals lately is they are much harder to find in our market. Our prices have increased significantly making it harder to cash flow. I have been buying many more fix and flips since I cannot find rentals.

Why do I think I can purchase 100 rental properties by January 2023 if I am so far away? After reading and listening to books on how to become wealthy I started reworking my life goals. A couple of ideas are repeated in books and audio tapes beginning with Think and Grow Rich by Napoleon Hill. Think and Grow Rich was published in the early 20th century after Napoleon Hill followed Andrew Carnegie for decades. Carnegie was one of the richest men in the history of the world and wanted someone to study rich people in the world and write a book about how and why they became rich. Because Carnegie was one of the richest people in the world, he was able to grant Hill access to most of the world’s wealthiest people. Think and Grow Rich is now known as one of the first self-help books, and many of its basic ideas are still taught today by the world’s most famous life coaches and teachers.

How will my attitude affect my success?

Being positive is a theme that is repeated in every self-help book and audio recording I have ever listened too. I am a strong believer that our attitude has a huge influence on our success in life. The books range from slightly crazy to extremely scientific reasons for how being positive can greatly affect the success we have in our lives. You may have heard of the law of attraction, which states that the universe will return to us whatever we put out. If we are positive and happy, we will get positive and happy things back. If we are negative and sad, negative and sad things will come our way. I am a very logical and scientific person and was not sold on this idea right away. I had to know why this would happen. How could being positive magically bring positive things into our lives?

I started doing research on the brain and on how the law of attraction theory worked. I found out that it is not all magic, there are scientific reasons why the law of attraction works. It is based on the subconscious part of our brain and on how it operates our bodies. We know that our conscious mind is only a fraction of what our brain is responsible for. Our subconscious mind is constantly working to keep us alive by telling our heart, lungs, muscles and the rest of our bodies what to do. Most of our movements and actions are performed by our subconscious, not our conscious mind. We do not have to think about walking, talking, driving, writing, or even most of our daily tasks. By doing those things repeatedly, we have programmed our minds on how to do them.

Tying this back into the positive thinking idea, if we are always thinking positively, our subconscious will think positively, too. If our subconscious thinks we are happy all the time, it will do what it can to make us happy. Why do we care what our subconscious thinks? It is much smarter than our conscious mind. The subconscious is responsible for handling millions of tasks at once, while our conscious mind can only handle a handful of ideas at once. If we let our subconscious know what we want it will help guide our lives and help us to get what we want. Whether it is love, happiness, money, or material items our subconscious has much more power than we think. The theory also states that you must think about what you want, not what you do not want because our subconscious cannot tell the difference. If you are constantly thinking about not having money, then your subconscious will do its best to make that come true as well. If you are constantly thinking of not getting sick, our subconscious will do its best to get you sick. Think of being healthy, think of being rich, and think of the good things, not the negatives.

Why such a big goal?

Almost every self-help book will tell you goals are extremely important. Without goals, we have no direction, no path, and no idea of what we really want in life. There are varying ideas of how our goals should be constructed. Some say we just need broad wide-open goals such as being as happy as possible all the time to make whatever is best for you to come to you. Others say to be as specific and detailed as possible with your goals, break your goals into smaller goals, and then have a period for when those goals will be accomplished. Eventually, you will have a detailed blueprint for how you will get to where you need to go.

Some people say you need realistic goals and others say you need outrageous goals. As you have probably guessed, I like outrageous goals! The reason I like outrageous goals is that they are challenging! If I know that I can reach a goal and if I know exactly how to reach it, where is the motivation for me to push myself? I want goals that make me think and reach for new ideas and systems. I have no idea what opportunities or challenges will face me in the future, so why should I limit my future goals to what I can do now? I may have a huge increase in income or find a new system that allows me to buy houses cheaper. I have such a lofty goal because I have no idea what could happen.

Who will I need help from?

Many of the self-help books also talk about how we all need friends, co-workers, or acquaintances to help us reach our potential. Some use the term mastermind to describe groups of like-minded people who meet to help each other succeed by offering advice and motivation. The idea is that the more people to brainstorm ideas, questions, problems, etc. the better the chance a great idea or solution to a problem will come about. I do not have a mastermind group (this has since changed), but I have recruited my best friend to work with me and learn the real estate business. He was a top-level manager in the corporate world and left his six-figure salary behind to learn real estate from me. I benefit by having a new mind to bounce ideas off and have more help in the office. He benefits by getting out of the corporate grind and learning how to be truly wealthy. He also has a flexible schedule and he is not stuck behind a desk all day.

Why focus is so important

The self-help teachers also say how important it is to focus on one task or goal. All the greats had something in their mind that they really wanted. They did not let anything stop them until they got what they wanted or died trying. I have always thought of myself as being able to multitask, a jack-of-all-trades type of person. So far, it had worked out well, but I know I can do better. I know there are things I can improve in my business to make it run better and make more money. I have always thought that I knew everything about finding good deals in real estate. After starting this blog, I have realized that there is a whole world I have been missing in direct marketing to off-market properties. Instead of trying to manage five different sources of income myself, I need to delegate less important tasks to my staff and focus on the real moneymakers. If I can focus intently on a couple different areas of my work instead of just skimming over 50, I know I can improve my numbers significantly.

Why visualizing the goal being achieved is important

Many great athletes will tell you how important visualization is to succeed in sports. Great golfers visualize exactly how their shot will look before they hit it. Basketball players repeatedly visualize hitting the game-winning shot. The wealth teachers are all huge supporters of visualization. They say visualization will give your subconscious a clear picture of what you want and then your subconscious will do its best to make it happen. If you want to change your life, start visualizing how it should be every day. Better yet, go see, touch, and smell the things you want. Test-drive the car you always wanted, look at your dream home, or immerse yourself with the things you want and your subconscious will get to work. I wrote a ten-year dream story on exactly how I wanted my life to be. I described a beautiful house and in three months, I bought that house. I was not even planning to move and in no way thought I could afford a house like the one I have now, but it became a reality.

Using all I have learned to reach my goals

Based on the ideas I have just discussed, I think I have a good chance of reaching 100 rental properties. I still do not know exactly how it will happen, but I know it will or I will find a better and more challenging goal. I have to train my subconscious to help me reach my goal. I have to be positive all the time. I have to think about my goals constantly and break it down into manageable pieces. I must have help and I have to focus more intently on my important goals. I also have to visualize myself already achieving my goals and having everything I want. Even if not all of this makes me rich, worst-case scenario, I am a positive, determined, focused person who knows exactly what he wants.

Breaking down big goals makes them more realistic

I have broken down other goals in my life, but I have yet to break down a goal this big! I am going to work through the goal while writing the blog and see where I end up in 9.5 years. I wanted to write this article to help convince myself that it is possible to buy 100 properties. The first part of this article was all about my mindset. Now, let us get down to the numbers. Here is a year-by-year breakdown of how I plan to purchase 100 rental properties.

My 11th rental

Year one

With my current income, I can purchase three rental properties a year and I have purchased that many in the last three years. I should be able to do a cash-out refinance on at least one rental property in 2014 and get enough money to buy another property. I am also counting on my new attitude and work ideas to create enough extra income to purchase one more rental property. I also just acquired a HELOC on my personal residence for $60,000. I think that will allow me to purchase one more rental. New goal for 2014 is to purchase six long-term rentals.

I will have 15 houses with about $9,400 in monthly cash flow. That is $112,800 a year all going toward paying off mortgages on my properties. I will have paid off one house at the beginning of 2014 and will pay off one and a half more in 2014.

Year two

In 2015, with income and savings, I should be able to purchase four properties. I should be able to do another cash-out refinance and buy another rental property as well. I also believe my continuous improvements will allow more increases in income, through either listing or flipping houses. The increased income will allow me to add another rental and HELOC another as well. I am hoping the addition of my friend beginning to work with me will bring in more income from his real estate activities, which will allow another purchase. My goal for 2015 is to purchase nine rentals. 

I will have 24 houses with about $15,200 in monthly cash flow. That is $182,400 a year all going toward paying off mortgages. I will pay off the other half of one property and two more rentals in year two and will have four properties paid off.

Year three

I believe I will increase my income and savings enough to be able to buy five rentals. I will have 24 rentals and I should be able to refinance at least two of those properties. That will allow two more purchases and the HELOC should add the flexibility to add another rental. I am still planning to add to my income every year with increased business. This year I see a big jump in income with my friend being around for his third year and our new marketing and listing techniques taking off. I see three more rental properties being purchased from new income. My goal for 2016 is to purchase 11 rentals.

I will have 35 houses with about with about $22,200 in monthly cash flow. That is $266,400 a year all going to pay off mortgages. I will pay off four and a half more properties for a total of eight and a half properties paid off.

Year four

From my current income, I will be able to buy eight rental properties. I will continue to refinance two properties a year, which will allow at least two more purchases. I am also going to use the HELOC to buy another, and I am still planning to increase my income. I am going to stay conservative and assume enough income to buy one more property this year. My goal for 2017 is to purchase 12 rental properties.

I will have 47 rental properties at this point with about $31,400 in monthly cash flow. That makes $376,800 a year all going to mortgage payoff! I will pay off the half of a mortgage left over from 2016 and five more properties in 2017, making 14 properties paid off.

Year five

From my current income, I will be able to purchase nine rental properties. I will refinance two more properties and use the proceeds to buy two more rentals. I may not have enough money in the HELOC this year so I will not count on that, but I will count on my income increasing enough to purchase one more rental. My goal for 2018 is to purchase 12 rental properties. Note: To buy this many properties I will need about $300,000 in cash for repairs and down payments.  

I will have 59 rental properties with a monthly cash flow of $41,000. That makes $492,000 a year all going to mortgage payoff. I will pay off seven and a half more properties in 2018 making 21.5 properties paid off.

Year six

From my current income, I will be able to purchase ten rental properties. I will refinance two more properties and use those proceeds to buy three more rentals. With inflation and appreciation, I should be able to refinance the properties for more money than in previous years. I will not use increased income to buy another property. If my income increases, I will use it for fun stuff such as vacations or cars! My goal for 2019 is to buy 13 rental properties.

I will have 72 rental properties with a monthly cash flow of $51,600. That is $619,200 going toward mortgage payoff. I will pay off the half mortgage from 2018 and nine more properties in 2019 making 31 properties paid off.

Year seven

From my current income, I will be able to buy ten rental properties. I will refinance two more properties and use that money to buy three more rentals. I will not count on any more raises in income since I do not need it at this point. My goal for 2020 is to purchase 13 rental properties.

I will have 85 rental properties with a monthly cash flow of $63,400. That is $760,800 a year going towards mortgage payoff. I will pay off 11 more properties in 2020 making 42 properties paid off.

Year eight

From my current income, I will be able to buy ten rental properties. I will refinance two more properties again and purchase three more rentals with that money. My goal for 2021 is to purchase 13 rental properties.

I will have 98 rental properties with a monthly cash flow of 75,600. I will have $907,200 a year going towards mortgage payoff. I will pay off 14 more properties in 2021 making 56 houses paid off.

Year nine

I only need to buy two more properties to reach my goal! I made it ahead of schedule and when I started writing this article, I was not sure how I would be able to reach 100 properties by 2023. I do not need to refinance any properties at this point and I can start using my income any way I want or I could retire!

I will have 100 rental properties with a monthly income of $82,400. I will have $988,800 a year going to whatever I want it to go to at this point. I can stop paying down mortgages if I want to or I could keep buying properties if I get bored. I came really close to the figures I estimated before writing this article. Falling just short of one million in income from my rental properties (which was more than I thought) and just shy of 60 properties paid off.

Assumptions in my plan to purchase 100 rental properties

You may be wondering how I came up with my figures. To be honest I used very basic figures to make things easy on myself.

  • I assumed $600 in monthly cash flow per property. I am making between $500 and $700 per property now.
  • I assumed each mortgage that I paid off would increase monthly cash flow by $400.
  • I do not assume any inflation because that would cause the numbers to be much more difficult to figure!
  • I assume my portfolio lender will continue to lend on as many properties as I want. I will have 43 houses financed at one time and then those will start to decrease as I pay them off.
  • I assume I can continue to do cash-out refinances with my portfolio lenders.
  • I assume interest rates will not increase significantly.
  • I assume rental rates will not go up.

Additional benefits of rental properties that my income projections did not account for

Rental properties have great tax advantages, which I discuss here. Every rental property can be depreciated, which will save me thousands in taxes each year. I assume my rental properties will not appreciate, but they have already seen huge appreciation in the last two years, increasing my net worth by $600,000. I assume rents will not increase, but my rents have increased as well over the last couple of years. I rented my first rental property for $1,050 a month in 2011 and it now rents for $1,300 a month. I will most likely be better off than my projections indicate if I can buy 100 rental properties.

Potential roadblocks

These are many assumptions and one or more of them may not work out as I plan. However, other factors may help me do even better than I planned or balance out any roadblocks I run into.

  • New ways to find properties: I am going to start direct marketing to off-market owners. This should allow me to buy properties even further below market, and I may even find a few owners who will finance down payments. I recently realized I could use my IRA to buy properties!
  • Private money: One of my goals is to find new sources of private money that will allow me to finance more repairs and down payments. This would allow me to put less money into properties and buy them faster.
  • New income sources: I have no idea what the future holds as far as opportunities and money. I may find a gold mine that will allow me to buy properties for cash and not have to worry about financing at all!
  • I assume I will not do anything with the houses I pay off free and clear, but if needed to I could easily get a line of credit or refinance one of these houses to bring in enough money to buy a few new properties.

What will I do in 2023 if I reach my goal?

My Lamborghini

I have many things I would love to do if I did not have to work. Here is a list of a few of the things I would love to do with one million dollars a year coming in and no job!

  • Start a pizza restaurant
  • Start a car dealership
  • Travel the world with my family
  • Donate time and money to those less fortunate
  • Play in the World Series of Poker
  • Attend a Super Bowl
  • Play golf all over the world
  • Buy a Lamborghini Diablo (done!)
  • Buy a beach house
  • Help teach others about real estate (doing my best now)

I have a much longer goal list than what is above and I hope to do many of these things before 2023. I know I will have time, money, and the freedom to do these things at that time.

Conclusion

I plan to purchase 100 rental properties by January 2023, but I realize that may not happen. If something better comes along to change my plan, I am ready to embrace fully any new opportunities.

Update on my plan 2014

I have already changed focus slightly in 2014 to fix and flipping over buying long-term rentals. I have done this for two reasons:

  1. There have been more fix and flip opportunities than rental opportunities in my market.
  2. The money from flipping will help me buy more rentals; rentals take a great deal of cash.

It seemed crazy to think I could increase my income enough to buy this many properties when I first made this goal in 2013. However now that it is late 2014, I can easily see myself making more than enough money to buy 100 rental properties and have plenty of money left over to do other fun activities. At some point, I may decide it is better to buy larger multifamily buildings than single-family homes, but for now, I see more opportunity in the single-family market in my area than multifamily.

Update on my plan 2016

The market has gotten even crazier in Colorado. Houses I was buying for $100,000 are now at least $160,000 or more. The rents have not increased nearly as much as house values have increased. It is very hard to find rentals and I have stopped buying them in Colorado. I have started to look at other states including Florida for a new market.

I also stopped paying off my mortgages early. I decided my money was better used to buy as many homes as I could. It has paid off buying 16 rentals in the last five years since our market has gone up so much. I have invested about $300,000 in buying my houses and my equity is close to $1.5 million. I have even decided to sell some of my rentals and re-invest that capital into more properties in another market.

I wrote this goal out in 2013 and updated it in 2014, and it is now 2016. I think goals are vitally important to achieving what you want in life. Will I reach this goal? I do not know. If I don’t reach it, will I be a failure? No! I am already way ahead of where I would have been without this goal. That is the point of goals, to motivate you to go farther than you think you can.

Update on my plan 2018

Right now it is the middle of 2018 and I have not come close to where I should be with my goal. Am I disappointed? No. Many things have happened that are out of my control; good and bad. The biggest challenge I have faced is the housing market in Colorado. Prices have almost tripled since I made this goal. Some of the rentals I bought for less than $100,000 7 years ago are worth close to or more than $300,000 today. I can no longer cash flow on residential rental properties in my market. I have thought about buying rentals in Florida, but in the end, decided to buy commercial properties here. I even bought a 68,000 square foot strip mall this year. I am buying rentals worth a lot of money, but not as many as my plan called for. Sometimes we have to change our plans based on changes in our lives or markets.

I have also focussed more on flips because I can make money with those in my market. I flipped 26 houses last year!

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Source: investfourmore.com