| Rates And Investment Properties
Investing in real estate, huh?
All the infomercials finally gave you the bug, didn't it? Surely
if all those funny-looking people sitting on a beach chair flashing
fake $100 dollar bills can make money in real estate then you can
too, right? But this week's column isn't about touting a proven
method for investing in real estate. It's about if you're thinking
of buying investment property then why you should do it now and
not wait for your "How To Get Rich in Real Estate" cassette
tapes to arrive in the mail. Why?
We're all aware of rock bottom rates. It's hard not
to notice when nearly every other spam you get is wanting to refinance
your mortgage. Is it getting all a little too redundant to read
something like "Interest Rates at Historic Lows?" How
many times can we make history, anyway? The problem with such headlines
is that soon we become somewhat immune to the news. Low rates, yeah,
what else is new?
But let me remind you of something. Way, way back,
say two years ago, rates were in fact about 2% higher than where
they are now. That can mean more than just a small difference in
payment. It can mean whether or not your rental unit will ever cash
flow and how much real estate you can buy.
Let's look at an example of a rental property selling
for $180,000. It's rented, always has been. Great tenants. Shoot,
the tenants even mow the yard and do minor repairs themselves. Property
is immaculate. It's a nice little house and rent in the area for
similar properties goes for about $1,500 per month. Now let's do
A 30 year fixed rate in January of 2001 of 7.50% (yes,
rates were very high back then) on a $150,000 note gets you a mortgage
payment of $1,050 per month. You're showing a gross monthly profit
of $450. Factor in hazard insurance and property taxes each month
and maybe you're walking away with a couple of hundred bucks. Remember,
these tenants do all the repairs and never complain.
Fast forward to today. A competitive investment rate
could be found at 5.75%, the monthly mortgage payment drops to $878.
This nearly doubles your net income. And this is a fixed rate for
as long as you own the property. It will never change unless you
tell it to.
Let's look at it another way. Instead of looking at
that cute little house on the corner, you spotted a duplex closer
to the college campus. A 2% increase in interest rate erodes your
buying power. How much? By nearly 20%, that's how much. If you can
afford a $250,000 loan today and rates go back up to 2000 levels,
you may only qualify for a $200,000 loan. That's huge. And that
difference is something no Real Estate Investing Seminar can ever
Article continued at http://realtytimes.com/rtcpages/20030418_investment.htm