Is Now the Best Time to Acquire a Rental Property?

In the last few weeks we have witnessed an encouraging uptick in the stock market and housing markets. It may be a sign of a bottoming out process, but who knows. One thing that is certain, mortgage rates have never been this low since we began tracking mortgage rates.

Sub 5 percent mortgage rates on 30 year fixed loans are literally unheard of, but we are now experiencing them. Couple that with a more affordable housing market and this may be an opportune time to consider picking up a rental property. Such a move may payoff for you in five years and beyond, once we get out of the financial mess we are currently in. A rental property near major transportation and employment hubs will set you up for when the economy turns around. Homes located in these areas will be in higher demand.


Since it is still a buyer's market, you can request that sellers (if they are not bank-owned properties) do some repairs before the settlement date. This will reduce the amount of work you will have to perform to get the house in rentable condition. Also, don't forget to perform a home inspection to access the condition of the house. It is now the buyer's turn and you should be as choosy as possible.

If you are a first-time home buyer who does not need a lot of space, you may want to consider purchasing a duplex or 2 family home. The extra rental income can never hurt and will allow you to depend less on outside sources of income, while turning your primary residence into an income producing asset.

We can't tell for sure if this is the bottom of the housing market, but either way, it is surely a great position to be in as a buyer.

HouseWealthy.com has been redesigned

The main website for this blog www.housewealthy.com has been totally redesigned. In addition to covering real estate wealth building topics, it will also offer discussions, forums, tools, methods, and techniques for gaining financial self-sufficiency through utilizing residual income and renewable energy.

Everyone wants control of their financial well being, but the means to gain control seems to be more elusive than ever. The path to fiscal stability is moving further out of reach. One thing the recent financial turmoil should be teaching us is that we can no longer depend on our employer, 401ks, or stocks to take care of us. We must become "HouseWealthy", which means we must create and grow our wealth in-house and not be solely dependent on the increased risk of outside sources.

Please visit the newly redesigned main website (www.housewealthy.com) and leave us a comment. You can also register and post a question or tip for other users to answer or comment on.

How to be Financially Self-Sufficient in Today's Uncertain Times

We have gone through some of the worst financial conditions that have been seen in the last 70 years. Everything from stocks, home values, savings rates, consumer spending, and all types of businesses have suffered greatly from the recent events. There seems to be absolutely nothing that is considered a good investment these days.

In the past, if one investment sector had a downturn, there was always another that would pick up the slack. For example, when stocks plunged from a combination of the tech bubble and the 9/11 terrorist attacks, the real estate boom picked up the slack and money funneled into that sector. Initially, as real estate quickly cool in 2007, the thought was that stocks could start to pick up some of the slack. That line of thinking did not work this go around, as the severity of the real estate crash has affected everyone and everything. The biggest impact has been the tremendous loss of jobs, since this is the driver for consumer spending and the GDP heavily depends on the consumer. This is not just a domestic problem, as the new global economy has intertwined the fate of many international economies.

The thought of being self-sufficient is relevant now more than ever. The ideology of depending on your employer, pension, and 401k plan is becoming more and more archaic as layoffs have put many out of work and individuals near retirement have seen there coveted 401k plan cut in half in less than one year.

Below are few ways that one can become self-sufficient:

1. Live off of interest
Certificates of Deposit (CD) and Bonds are ways of accruing interest with little to no risk on the part of the investor. If you have a relatively large sum of money saved, either from a 401k or investments, this money can yield good, safe returns from a CD yielding 6% - 7%. For example, $500,000 invested in a 7% APY CD for 7 years will yield about $2,916.66 per month. If allowed to compound over the 7 year period, the initial $500,000 investment will become $814,997.03. This is a risk-free investment. The best CD rates are not found at the major banks, as sites like Bankrate.com would have you believe. In actuality, the best rates are found at small local banks and credit unions. The website bankdeals.blogspot.com is a site that I often use to find the best CD rates across the country.


2. Live in a property that has a rental component
Many of the people that purchased the McMansions during the real estate boom years are either now in foreclosure or struggling to meet their ballooned monthly payments. Living above ones means has been the American way of life because everyone assumed that the economy would continue to grow, houses would continue to appreciate, jobs would continue to give great raises, and net worths would continue to rise.

Since this is obviously not the case now, a great way to supplement your income is to live in a property that also has a rental component. This could be a small apartment building with 3 – 4 units. You could live in the largest unit and rent out the others. This could also be a single family home that has a legal rental unit in the basement. Depending on the type of property that you live in, the rent that you charge your tenants could cover all of your housing expenses. This is a great way to create monthly income that is more resistant to external economic conditions.


3. Utilize solar/wind power
The cost of installing solar panels on your roof or a small windmill in your backyard is becoming more and more inexpensive. Once the initial investment is made, it can take 5 – 7 years to break even, but after that, you will be able to generate free electrical power for your home from the abundant energy of the sun and/or wind. In these times when the cost and source of our future energy is so unknown, this kind of investment can prove to be a way to liberate yourself from the total mercy of the utility companies.

If you have other ideas of ways to live self-sufficiently, please provide us with your comments.

Is real estate investing coming back?

I have been on the lookout for some new real estate investments during the last few months. Most of the time, I have been met with unrealistic prices and expectations from the sellers. They still dream of the good ol days of 2005, where they could pick a number out of the sky and watch multiple bids come in.

But now, things seem to be slowly coming back to earth. Whether it be a short-sale, or more favorably a seller that just needs to get out of a property, prices are starting to get to the levels where investors can consider coming back in and establishing sound rental properties. Based on the dynamics of the still depreciating market, rehabbing may be a little ways off, but rentals are starting to look attractive.


I looked at a few houses this weekend in the D.C. metro area and after running the numbers, there are a couple that will receive offers. Of course, they will not be at asking price. I still believe that offers should be at about 80% of asking price, depending on the property, and especially as an investor. In a declining market, you do not want to be caught holding someone else's bag at an inflated price. I have a few friends that bought in early 2007, thinking that they were getting a "deal", only to see prices sharply fall after the so-called subprime meltdown around August 2007. Although, I believe the brunt of that meltdown is behind us, it is very important to still stick to the numbers and not compare anything to the levels of 2005 and 2006.

This market is starting to look encouraging for the investor again. Just make sure the numbers work and you do not buy on emotion.

2008 Spring Real Estate Market

For the past couple of Spring seasons, the real estate market has been in a slow, steady decline. Prices stopped rising at the breakneck pace that we have become accustomed to during 2001 - 2005. Based on that frame of reference, any reversal in appreciation started to look like the deal.

But something seems different about the coming Spring of 2008. I am beginning to see price reductions unlike what has occurred in the past 2 years. It seems like the true reality of the real estate market is finally starting to sink in. I have witnessed price reductions of 25% to 50% of previous purchase prices, which was usually during 2005 - 2006. You may be wondering how a homeowner is able to take such a hit to unload a home. Well, it is not the homeowner directly taking the hit. These steep discounts have been due to what are called short sales. A short sale is when a lender agrees to sell a home at less than the mortgage balance, just to write-off the loss and avoid a costly foreclosure. The homeowner avoids going into foreclosure, but may have other tax implications connected to the sale of the home. These short sales are becoming more common as foreclosures rise and are offering significant discounts for buyers.


Anyone in the market to buy a home should consider concentrating on these short sales in order to get the best value for their money. No one truly knows how low home prices will fall, but they are definitely hitting very attractive levels for the savvy buyer.

Jumbo Loan Rates Set to Fall

Congress has just passed their economic stimulus plan that is supposed to put money in everyone's pocket so they can go out and boost the economy. This is the highlight of the plan, but it also covers another important provision that will be good news for homeowners and potential homebuyers.

The conforming loan limit that is insured by Fannie Mae and Freddie Mac is $417,000. Fannie and Freddie are the government companies that buy and package mortgage backed securities from banks. Any loan amount over $417,000 is considered a jumbo loan and is not insured by these entities. Ever since the subprime fallout, these jumbo loans have become expensive and average about 1.25 percentage points higher than conforming loans. Wall Street is very reluctant to purchase these securities since Fannie Mae or Freddie Mac does not back them.


The stimulus plan will instate a temporary increase in conforming loan limits to about $729,750, depending on your location. This means that these higher balance loans can now enjoy the same low rates as conforming loan amounts. But this increase will only last till the end of 2008, so interested parties must act quickly.

In my opinion, this is the best part of the stimulus package. It will allow struggling homeowners to save from $200 - $400 every month by refinancing their high balance loans. Let's hope that Congress considers making this increase in the conforming loan amount a permanent fixture.

2008 Refinance Boom May Be Looming

With the slowing economy, talks of recession, the tick up in unemployment, and the volatile stock market, the 30 year fixed rate mortgage has slowly continued to drop. A couple of weeks ago, the Feds finally took steps to combat the signs of recession by cutting the Fed rate by a combined 125 basis points. Usually the Fed funds rate has little to do with fixed rate mortgages, but it usually does not take long for fixed rates to follow the trend.

Long-term mortgage rates are already low and may go lower. Usually when the economy faces a possible recession, these rates drop. We all remember what happened to rates from 2003 – 2005, after the 2001- 2003 recession. So, if history is any indication, there is a good possibility that rates can fall further. This is good news for potential buyers, but even better news for current homeowners with decent credit that want to refinance out of ARMs or higher rate fixed mortgages.

Rates have not been this low in a long time, and it may be worth investigating whether you can benefit from this low rate environment.

Home Staging Helping Today's Home Sellers

In order to sell a home in this market you must have a property that is in good condition and well priced. But one area that is often overlooked is presentation.

Professional home stagers have been receiving more business and have helped increase the likeliness of a home selling. Prospective buyers want to be able to picture themselves in a home. A house with too many personal items or unique features will make it hard for a buyer to see themselves in the home.

In order to cater to the variety of potential buyers, you should make your home as neutral as possible. This would include neutral furniture, paint, artwork, etc. You don't want to offend any prospective buyers.

2008 Real Estate Outlook

Another new year has come and we are all looking forward to what it may have in store for us. This is true if you believe in New Year's resolutions or not. This may be especially true for all of the potential homebuyers out there. As most waited out the market shifts of 2007, 2008 may be the most favorable time than ever to dive into the market. There are currently some really nice deals out there, which has been absent from the market for a long time. Current home sellers are a bit anxious and the usual slowdown in sales that the winter months bring will accentuate this fact.

As always, no matter what the sale price may be, it is always best to negotiate within reason. This goes for owner-occupants as well as investors. You must also be looking to hold the property for at least the next 4 - 5 years. This is definitely not the time to consider rehab projects if you are an investor. Good, solid long-term rentals would be a better strategy. Normally, real estate cycles last for about 5 years. This would theoretically put us somewhere near the bottom of this current cycle. So 2008 may be the year for the homebuyer.


As for lending, FHA is back in favor again and should be considered especially if you are a first-time buyer. Their website www.fha.gov lists the loan limits for different areas around the country. If 2008 brings better loan programs that will allow more buyers to afford homes, we may see better sales a little sooner. The subprime mortgage crunch was one of the major factors that contributed to the drop in home sales for most of 2007.

Simple Tips for Controlling Mortgage Cashflow

Since we are in the middle of rising mortgage rates and potential foreclosures, I want to suggest a few ways for folks having cash problems to avoid potential disaster.

The number one rule is not to close your eyes and ignore the problem that you are having. It is best to read the signs and address problems that you see coming down the road. The biggest mistake would be to allow yourself to make late mortgage payments. That will virtual eliminate about 90% of the solutions you would otherwise be eligible to receive.

If you have an adjustable rate mortgage that you know will reset soon, pull out the paperwork and find out what new rate is due to adjust. Refinance ahead of time, because mortgage rates are pretty low right now.

Also, if you have consumer debt (e.g. car loans, credit card balances, etc) that has a high interest rate (8% - 20%), you can consider paying off those loans with a cashout refinance. This only works if you have enough equity in your home. This strategy will give you a fixed mortgage rate and reduce your total monthly obligations.

The Federal Housing Administration (FHA) loan is also making a comeback. While most lenders require that you keep 20% equity in your home on a cash-out refinance, FHA will allow you to keep just 5% equity in your home. This results in a much larger cash-out refinance.

With the squeeze in credit availability and the rise in consumer monthly payments, these suggestions should help you to manage your monthly cash flow.