Monday, February 27, 2012

The IDEAL Investment

Rental homes can be the IDEAL investment in today's market because they offer a much higher rate of return than alternatives without the volatility of ups and downs in the stock market.

IDEAL serves as an acronym to identify the advantages of rental properties:

  • Income from the monthly rent contributes to paying the expenses and a return on the investment
  • Depreciation is a non-cash deduction that contributes a tax shelter
  • Equity grows monthly as the mortgage amortizes due to some of each payment being applied to the principal
  • Appreciation is achieved as the value of the property goes up
  • Leverage can increase the return on investment by using borrowed funds to control a larger asset
The combination of these characteristics working together makes rental real estate a very good investment for today's economy and years to come. Increased rents, high rental demand, good values and low non-owner-occupied mortgage rates contribute to positive cash flows and very favorable rates of return.
Contact me for more information about actual opportunities in our local market.

Friday, February 24, 2012

Blogging On The Run With RE/MAX

Well it's Friday morning in Montgomery, Alabama and we may have some bad weather (again) rolling our way. But real estate activity has also been "rolling our way" in the form of increased activity.

SO...2012 is looking really great! And being on the run (meeting with two buyer clients today) I decided to test out the Blogger app for my iPhone.

Thursday, February 16, 2012

Great Investment

If you invest in a savings account, you'll make less than 1% and will have to pay income tax on the earnings. On the other hand, contribute something extra to your house payment on a regular basis and you'll essentially, earn at the mortgage interest rate which is certain to be more than you're earning in the bank.

Making additional principal contributions on your mortgage will save interest, retire debt and build equity. An extra $100 a month in the example shown will save thousands in interest and short the term of the mortgage as well.

Reducing your cost of housing is another way to improve the investment in your home. Becoming debt-free is a worthy goal that is achieved with discipline and good decisions. Suggestions like this are part of my commitment to help people be better homeowners when they buy, sell and all the years in between.

Saturday, February 11, 2012

Risk Determines Value

Regardless of what a lender quotes on mortgage rates, the actual rate paid by a borrower is based on a number of variables. Lenders determine whether to loan money and at what rate based on the risk involved with the transaction.

Factors that increase the risk that the loan will be repaid will proportionately increase the interest rate charged to the borrower. If the risk becomes too high, the loan will not be approved.

  • Loan amounts - conventional loans for more than the conforming limits set by Fannie Mae are considered jumbo loans and generally have a higher interest rate.
  • FICO score - the lowest interest rate is reserved for the highest credit scores; the lower the score, the higher the rate borrower will pay.
  • Occupancy - borrowers occupying a home as their principal residence are considered a better loan risk than second homes and investment properties.
  • Loan purpose - purchase transactions generally have the lowest interest rate while refinancing a home is generally higher.
  • Debt-to-Income ratio - a borrower's monthly liabilities divided by their gross monthly income develops a ratio that helps lenders to assess the borrower's ability to repay the mortgage.
  • Loan-to-Value ratio - the lower the percentage of the loan to the appraised value of the property will generally lower the interest rate.
Any combination of these factors could limit a borrower's ability to secure a mortgage at the rate initially quoted. Being pre-approved by a trusted mortgage professional is the best way to know what rate you can expect to pay. Please call for a recommendation.