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- How to Get Financing For a Rental Property | Inzopa Insights
Sean Bryant writes:
When you're looking into buying a rental property, it's not as easy as coming across one you like and going for it. Do research first into the surrounding area to check out the real estate market, especially if you're only going to be keeping the property a short amount of time. Chances are you'd rather make money on it should you decide to sell the home in the future — or at least break even — but you certainly don't want to take a big risk and end up losing out on money.
Go over your credit report
Get your paperwork together
Gather the down payment
Get pre-approved before you shop
Choose the right professionals
When you're going for financing for a rental property, you're going to need a slew of professionals to help you with the process. You'll need a realtor, an attorney, and an account, all of whom should have experience with investment properties. It's a whole different type of investment, and they should have the background and qualifications to be an asset to you, especially if it's your first rental property. If you don't know where to start, put the word out to friends and loved ones who can give you personal recommendations for professionals that can help you.
The required "paperwork" will change each month. It is wisest to list the required documents and to know exactly where and how to obtain them. Consider noting the URL's (website addresses) and full pathnames on your computer or network. Many financial institutions have been encouraging going paperless. You may have filed your tax returns electronically and not have paper backups. Know where you stored them on your hard drive and electronic backups (external drive, CD, cloud, etc.).
Don't forget to add an insurance broker to your list of professionals. Before you go in for financing, pencil in the cost of coverage to be sure you have a financial cushion for insurance, among other things. Due to E&O issues (Errors and Omissions), your broker may not be able to give you a figure until you are undertaking a full Request for Quotation. That's because without all the fine details concerning your prospective property and your own situation, financial and otherwise, a rule-of-thumb figure may end up falling considerably short of an actual premium or coverage may even end up being unavailable on your property or you may not be eligible for such investor coverage.
There are rules-of-thumb available on the Internet, to which rules, for the reason cited, we will not link here or endorse. We suggest you use them with caution and with the understanding that your situation could come in above or below the percentage or preclude you entirely. We also suggest never lowballing such estimates. As the saying goes, "better safe than sorry."
In this case, there are no upfront guarantees unless you've been completely through the eligibility process before and approved for a like-kind property in the same insurance zone and your personal and/or business situation hasn't worsened and the coverage offered hasn't changed and you are looking at the same limits and deductibles. Even then, there may be factors precluding your property or you/your business, such as for one, the claims you've made against your current or previous policies.
- Cashing Out: How to quickly get cash for your mortgage note
Today, more people selling their properties have discovered that using seller take-back financing can help them sell their properties more quickly and in many cases, for a lot more money. They have learned that using this powerful technique has many benefits for both sellers and buyers. But one of the most profitable benefits a seller using the take-back financing technique is the creation of a steady positive cash flow. This cash flow is created when the repayment terms of the seller take-loan (second mortgage note) are agreed upon. As a seller take-back note holder, you can work out a repayment schedule that best suits your financial needs. Usually, this means receiving your payments on a monthly basis over the life of the loan.
Who's doing carry-backs while investors are buying some 50% of the market all-cash, and what's the average discount on a sold note?
Does it pencil out to carry the buyer's 2nd mortgage or to sell it rather than sell to a different buyer?
What kind of buyer needs a 2nd right now?
What kind of credit risk is such a buyer during this type of market? It's not a buyer's market by much.
Is this a "creative financing" market?
- Multifamily Real Estate Trend | Multifamily Real Estate Market Predictions for 2014 – Multifamily Blogs
Justin Alanis writes:
With more and more people looking to apartment homes as a solution to their housing needs and the job markets in big cities continuing to improve, the trend is going to continue to see the masses being drawn into the big metropolitan areas. But, because of the fact that the recession has cost these individual renters so much and left them with added debt, they unfortunately do not have the funds available to make a down payment on a single-family purchase. Especially in this tougher lending environment that doesn't expect to change anytime in the coming year.
Then there's the fact that while the demand for apartment/multifamily units are going up and the ability to purchase single-family goes down, the availability of new units is unable to fulfill the current and expected needs of the market.
What this means for rental property investors is that we can expect to see an average return on our investments at about 9% in 2014.
The only major obstacles that might affect the multifamily real estate market in 2014 could be unforeseen major financial complications at the federal level that may translate into constraints put on the readiness of mortgage credit.
- Lenders relax standards on home loans – Bankrate, Inc.
Some mortgage lenders have loosened credit standards for homebuyers as demand for loans from refinancers slows, a Federal Reserve survey shows.
More than a quarter of the large banks in the report say they have somewhat eased the credit standards on residential mortgages over the past three months, according to the central bank's October senior loan officer survey.
- 2 Potential Headwinds for the US Housing Market | PRAGMATIC CAPITALISM
Walter Kurtz writes:
While the US housing market remains relatively robust, it is likely to face a couple of headwinds going forward. One is the lower affordability index, which is declining due to higher prices and higher mortgage rates (see discussion). On a year-over-year basis the declines have been quite steep.
Walter also mentions low household-formation. We'll add low housing inventory, both for sale and multi-family to rent, which does factor into affordability but bears mentioning separately in our view just for additional info for our readers.
- Deutsche Bank says REO-to-Rental securitization proves market evolution | REwired
This is very important financially and economically, domestically and globally. Jacob Gaffney reports/writes:
Capitalism solves all money problems great and small. Problem is, as recent years show, the financial ideology also causes those same economic problems. But where there is hope, is in the ability of financial firms to keep evolving.
There is some serious give and take of course. The markets that gave us CLOs and ARMs, after all, also gave us subprime and ABS CDOs.
And so, at the end of the last week, the secondary markets finally unveiled the much awaited, inaugural REO-to-Rental securitization. Three credit ratings agencies gave the deal, Invitation Homes 2013-SFR1 from Blackstone (BX), a great risk mitigation foothold, awarding $278.7 million in triple-A ratings, in what is by far the largest tranche in the deal.
- interfluidity – Why (and when) interest-on-reserves matters…
Steve Randy Waldman writes:
Paul Krugman writes:
Incidentally, small nerdy note. Some people argue that the concept of the monetary base has lost its relevance now that the Fed pays (trivial) interest on reserves. I disagree. Reserves and currency are fungible: banks can turn one into the other at will. But the total of reserves and currency is fixed by the Fed — nobody else can create either. That, as I see it, makes them a relevant aggregate — and anyone who believes that all those reserves are sitting idle because of that 25 basis point reward is (a) silly (b) ignorant of Japan's experience, where the BOJ sharply increased the monetary base without paying interest on reserves, and what happened looked exactly like our own later experience.
Nerdy indeed! Some might even describe it as dork-ish.
But I think that Krugman is mischaracterizing the view he is arguing with. I'm not sure he would even argue with the view properly characterized. Of course he might!
Switzerland has a negative interest rate on excess reserves. We advocate that the Fed start charging the banks interest on excess reserves — to stop the Fed from merely pushing on a string in attempting to get credit flowing. The Fed should compel the banks to find worthy borrowers on Main Street so we can heat the economy and put unemployed American citizens back to work in jobs that will pay living wages and better. Unemployment for such people shouldn't be 6.5% but definitely sub-5 even if it means 3+% price inflation.
What's your take?
- Video: Here's Why U.S. Is Still in a Recession: Achuthan: Video – Bloomberg
Very interesting points:
(Bloomberg) — Lakshman Achuthan, COO and Co-Founder of Ecri, discusses whether or not the U.S. is in recession and an explanation of his call. He speaks on Bloomberg Television's "Bloomberg Surveillance."
- The collapse of US infrastructure spending, charted | FT Alphaville
Cardiff Garcia reports:
The chart is from a new note by economists at BCA Research, who add:
In the five and ten years ended 2012, real government non-defense investment in structures declined at annualized rates of 3.3% and 2.4% respectively (Chart 6). We include state and local governments in this measure because they account for three-quarters of government non-defense capital spending, heavily financed by federal grants.
The reduction in spending on infrastructure is nothing short of a disaster.
- A shifting Beveridge Curve — Does the US have a long term structural unemployment problem? | Bond Vigilantes
Anjulie Rusius writes:
Using data on job vacancies and unemployment, the Beveridge Curve indicates how efficient an economy is at matching unemployed workers to job vacancies and can indicate where in the business cycle an economy sits. Looking specifically at data for the US from December 2000 onwards, the jobs market behaved as you'd expect; changes in the supply or demand for labour causes movement along the curve (this is particularly apparent during the highlighted recessionary periods). But what is particularly interesting — and glaringly obvious — is the shift which occurred post June 2009. The looping movement "back up the curve" is less surprising as after an economic contraction, this would be precisely what you would expect during a recovery period (i.e. falling unemployment teamed with an increase in the job vacancy rate as firms start to hire again).
But what could have caused this shift in the Beveridge curve, which if it remains, could imply a long term increase in structural unemployment?
1) Inefficiency. …
2) The labour force participation rate. …
3) Long term unemployment. …
4) Increasing frictional unemployment. …
5) Economic and policy uncertainty. …
Check it out.
- Two heavyweight Fed papers argue for stronger policy action | Reuters
Ah, the Fed (at least two researchers there) is catching up with us. The paper leans way in the direction we've been advocating for years now.
(Reuters) – Two of the Federal Reserve's top staff economists make the case in new research papers for more aggressive action by the U.S. central bank to drive down unemployment by promising to hold interest rates lower for longer.
The studies were authored by teams led by William English, head of the Fed's monetary affairs division, and David Wilcox, the central bank's director of research and statistics. They will be presented at an International Monetary Fund conference in Washington on Thursday and Friday, respectively.
It found that economic benefits were higher when the unemployment threshold was 6.0 percent, compared to 6.5 percent, and higher still if it was 5.5 percent compared to 6.0 percent. It did not find much evidence to support altering the inflation threshold, as some have advocated.
The paper co-authored by Wilcox examined evidence that the costs of high unemployment on the productive capacity of the U.S. economy were much larger than thought, strengthening the argument to allow inflation to overshoot the Fed's 2 percent target to bring the level of joblessness down faster.
- Multifamily Trend | Selecting Better Tenants Through Artful Interviews – Multifamily Blogs
Another one by Justin Alanis:
A lease is a relationship. The tenant interview is the first date. There is a great deal more than credit reports and references involved in determining who will be a great tenant and who will bring you nothing but headaches. Actually, interviewing is both a art form and a science. Based on hard experience, here are some concerns you need to think about to make the most reasonable and profitable decisions for the health of your entire complex.
- When bonds don't trade | Felix Salmon
Felix Salmon writes:
Sovereigns … need to borrow in size, and they have historically relied on liquidity issues to ensure that they get the cheapest possible rate. (That's the main reason why US Treasury bonds have the lowest yields in the world, on a swapped-into-dollars basis: it's all about the liquidity, not the credit risk.) The great bond liquidity drought is arriving at the worst possible moment for G20 sovereigns which are already struggling with unprecedented levels of bonded debt. It's always liquidity that kills you, not insolvency: it's the inability to roll over your debts as they come due. Which means that the next wave of sovereign debt defaults might come even sooner than many analysts currently fear.
This is part of the Fed's thinking when it considers holding to maturity, which we've been suggesting the Fed do and nearly since wind-down fears were first being discussed. There are "bailout" issues being raised concerning the Fed, but there are creative ways to avoid that if they're interested.
- Testosterone Pit – Home – Bank of Japandemonium Killed And "Sacrificed" The JGB Market
A very pessimistic view of Abenomics:
"The JGB market is dead," announced with finality Tetsuya Miura, chief bond strategist at Mizuho Securities, one of Japan's 23 primary dealers that have to bid on Japanese government securities at auctions. Only the Bank of Japan, and nothing else, was still "driving bond prices," he said.
The BOJ is on a crusade. No central bank of a developed country is more reckless, not even the Fed. It's based, like any good deception campaign, on the recurring willful mis-definition of the problem.
Japan does have some of the highest corporate income tax rates in the world — but like in the US, there are deductions, loopholes, and tax avoidance strategies, so only 30% of all companies, according to Finance Minister Taro Aso, actually pay any corporate income tax at all. As of April 1, their tax burden will be even lower — another hallmark of the fiscally most irresponsible country in the developed world.
We really think the world is suffering from debt-based currencies. We'd like to see only a debt-free, interest-free currency.
- [Recommended read:] American Cities May Have Hit 'Peak Office' – Forbes
A very pessimistic but astute article on office real-estate by Joel Kotkin:
Despite some hype and a few regional exceptions, the construction of office towers and suburban office parks has not made a significant resurgence in the current recovery. After a century in which office space expanded nationally with every uptick in the economy, we may have reached something close to "peak office" in most markets.
The amount of new office space in development is extraordinarily low by historical standards, outside of a handful of markets.
… the trend in real estate remains to convert office spaces to other uses, particularly residential. Large-scale office construction is happening in just a handful of markets; New York and Houston are the only ones with 10 million square feet being built, with smaller amounts in the works in Boston, Washington, Dallas-Ft. Worth and the San Francisco Bay Area.
The key question here is not the geography of office space but why so little is being built. As long as economic growth is modest, don't expect much change in the skyline in most downtowns, or suburbs. Job growth has been mediocre at best, and much of that has been in the low-wage and part-time category. McJobs and part-time workers do not generally fill office towers.
The dirty little secret of this recovery is that labor participation rates are at the lowest level since 1978. Underemployment is rife, at around 18% to 20%, and much of that likely includes large numbers of people who used to work in offices.
- With Western Demand Weak, Asia Relies More on Itself – Real Time Economics – WSJ
Michael S. Arnold writes:
Economic strength in the developed world traditionally has meant dollar signs for Asian exporters — but this time around, the recovery in the West is hardly being felt on Asian shores.
Perhaps the pass-through is just delayed, and the resurgence in the West will make itself felt in Asia later rather than sooner. But some economists think something fundamental is changing in the relationship between East and West, with Asia depending more on its own demand for growth.
… the recoveries underway in the developed world aren't particularly vibrant. With employment figures still weak, talk in the U.S. has been of a "jobless recovery." Inflation in Europe has fallen so low that some are warning of deflation. Japan's recovery is predicated in large part on a weak yen, something that benefits its own exporters at the expense of its neighbors'.
… Perhaps most importantly, the U.S. recovery is being driven by the shale gas revolution, rather than consumer demand. Consumers burned by heavy debt loads in the subprime crisis are loathe to lever back up — and many are still out of work.
Additionally, as wages grow along with Asia's middle classes, the cost advantage of Asian-made goods is shrinking, encouraging U.S. companies to bring some manufacturing jobs back onshore.
- Rents Still Rising, Expected to Rise Another 16% Over 5 Years – EZ Landlord Forms
Brian Davis reports:
Five years later, the Great Recession's impact continues to restructure real estate markets and rental markets nationwide.
The homeownership rate has fallen precipitously in recent years, in the wake of the foreclosure crisis and credit crunch. After reaching an all-time high of 69.2% in 2004, today it sits a more historically-normal 65.3%. As painful as those crises were for many Americans, structurally the U.S. may be better off in the long-term with a more modest homeownership rate, according to recent research linking high homeownership rates with high unemployment rates.
But that kind of drop in homeownership means millions of Americans are now renters rather than homeowners, feeding the demand for rental housing. According to Zillow's Rent Index, average U.S. rents have risen by 9.6% over the last three years, from $1,184 to $1,298. Reis Inc reported that the apartment vacancy rate in the U.S. dropped to 4.2% in the third quarter, its lowest level since 2001. Of the 79 metro areas they track, Reis reported that not one has seen rents fall in the last year, with average rents rising 3% year over year.
All of this is good news for landlords, many of whom are stuck with high mortgages from properties bought during the days of the bubble. Rental properties remain a sound investing strategy, particularly in areas with greater demand for rental properties than home sales.
Brian goes into some detail. Check it out.
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