Investing in real estate got a lot more attractive this week as mortgage rates tumbled to fresh five-month lows.
Mortgage buyer Freddie Mac recently announced that the average interest rate on a 30-year fixed rate home loan fell to 3.97% in the week ended April 20. That’s down from 4.08% the previous week.
Interest rates on mortgages have risen sharply since the November election, but that hasn’t necessarily slowed the pace of home buying. A stronger economy and demand for real estate continue to fuel sales of both existing and new homes.
For new investors, however, a 50 basis-point jump in average mortgage rates over the past five months is a source of anxiety.(As a refresher, mortgage rates track the yield on the 10-year Treasury note, which has been rising on anticipation of faster economic growth.) But the real question is, should you be concerned? A little bit of perspective will shed light on this important question.
A Perspective on Interest Rates
Investors, home buyers and small business owners have been especially weary about interest rates as of late. The sharp rise in borrowing costs since the presidential election has raised concerns that the period of cheap money is drawing to a close. However, the reality is a bit more complicated than that.
Although rates have been a lot more volatile as of late, they remain very low by historical standards. That’s not expected to change very much in the near future, even as the government continues to raise short-term interest rates.
The reason the government is raising borrowing costs is because the economy is gradually improving. More plentiful jobs, faster wage growth and upbeat business conditions have signaled that it’s time to start tightening lending guidelines.
For those of us old enough to remember interest rates before the financial crisis know that there’s still a long way to go before borrowing conditions return to normal.
So, if you’re an investor or small business owner on the prowl for real estate, don’t let interest rates stop you – at least not yet.
Regardless of how high or low interest rates are, it’s important you work with trusted financial professionals who can help you obtain favorable lending terms that make sense for you. At Red Door Capital, we help investors and small business owners find the best financing options for their specific needs. Click here to learn about what Red Door Capital can do for you.
Real Estate Investing: A Growing Opportunity
If you’re reading this, there’s a good chance you’re thinking about investing in real estate. Regardless of short-term interest rates, real estate offers a solid return on investment in the current economic climate.
For starters, the price of an existing home has increased for 61 consecutive months in year-over-year terms, according to the National Association of Realtors (NAR). Data from the NAR also show that most major metro areas are seeing gains in existing-home prices.
Demand for rentals is also on the rise as population growth and the need for more affordable housing continue to grow. And let’s face it: not everybody is in a position to buy a home. This is especially the case for younger people coming out of school.
Whether you’re thinking about rental properties or flipping single-family homes, there’s plenty of opportunity right now. To learn more about your investment options, read: Red Hot Housing market Offers Unique Opportunity for Investors.
Five Tips for Financing Investment Property
The folks at Bankrate have done a great job summarizing five important investment tips for aspiring real estate investors. If you’re ready to pull the trigger on an investment property, the following tips will help you get the most bang for your buck.
1. Have a solid down payment
If you’re thinking about financing a second property for investment purposes, you should know that mortgage insurance won’t cover it. This means you’ll need to make a 20% down payment to secure traditional financing for your investment property. If you can put down a slightly bigger down payment, such as 25%, you may also qualify for a better interest rate.
2. Strengthen your credit profile
When it comes to obtaining favorable lending terms, having a solid credit rating always helps. Borrowers with high credit scores qualify for better terms and pay much lower fees.
Credit score isn’t a deal breaker. If this area is a concern for you, contact Red Door Capital today.
3. Consider alternative lenders
If you’re in the market for an investment loan but don’t have a strong credit profile or lack a large down payment, you should consider an alternative lender before seeing your bank. Private lenders can offer you more flexibility and a wider selection of services than the large financial institutions. Red Door Capital is connected to a large network of alternative lenders who finance a diverse range of investment opportunities. Read about our solutions to learn more.
4. Make a strong business case
If you’re looking to invest in property with a high chance of profit or long-term cash flow, present your business case. Ultimately, lenders want to finance projects they think will provide solid returns. You should carefully consider developing a business or investment plan for your project and why you think it will succeed.
5. Consider tapping into home equity
If you’re in the market for a long-term investment, such as a rental unit, drawing on your home equity might be a good option. There are plenty of financing options that enable you to do this, such as a home equity loan, cash-out refinance or home equity line of credit (HELOC). Like anything else, tapping into home equities has its pros and cons. But if you have decent equity in your home and are looking into a solid long-term opportunity, it’s definitely an option worth considering.
Regardless of what you choose, Red Door Capital can help you get your real estate investment off the ground. Check out our real estate financing solutions to learn more about how we can make your real estate dream into a reality.
Jennifer Acosta Scott (July 9, 2015). “5 tips for financing investment property.” Bankrate.
The Associated Press (April 20, 2017). “Average mortgage rates drop to 5-month low.” ABC News.
Freddie Mac. Mortgage Market Survey Archive.
National Association of Realtors (April 21, 2017). Existing-Home Sales Jumped 4.4% in March.