Specialist · Honolulu, HI · Member since 2014 · 1k+ posts · 1k+ votes
Hello all. Apparently, the best terms on an investment property are currently 5.25-5.375% with 25% down, and 5.75-5.875% with 20% down, this is with a 740++ credit score. 30 year fixed. This is what a reputable lender told me. Is this what you guys are seeing? Would love some recommendations for lenders you like that can do better. Out of my current investments, the worst rate is 4.5%.
Owner occupant rate was 4.75% this past week, so yes those rates are in line. Skyrocketing isna bit of hyperbole with rates still on the very low end historically. In the mid 2000s when the owner occupant rated dipped to 6% most of us felt that was the lowest they would ever go in our lives.
@Russell Brazil I did listen to your podcast & paid attention to the part where you advised locking in as much debt as possible when rates are low.
I have a lender who will lend on 2-4 unit investment properties for only 15% downpayment, no points, but the rate is 8.4%. I was quoted 5.6% for conventional mortgage with 25% down.
I crunched some numbers on 2 4plexes (these are real properties, not hypothetical). Purchase price is $200K each. If I put 50K down, I could buy 1 4plex at 5.6% rate. If I put 60k down (only 10k more), I can buy both 4plexes.
Due to the difference in rates, the cashflow (after reserves, vacancies, etc.) is EXACTLY the same for 4 units at the low rate as it is for 8 units at the high rate. And the CoC return & IRR are almost exactly the same within the first couple years, too. What would you do??
I've been leaning towards going with the higher rate and buying both buildings. The reason is because my rate of return is the same, but I own 400k of assets instead of 200k. Another thought I had is I can use the cashflow to pay down the mortgage balance until I get to 75% LTV then do a rate & term refi to the conventional rates (it would only take me about 26 months to do that), but who knows what rates will be in 26 months??
Would you go with the higher rate, and own double the assets, or lock in with the lower rate now while you can? FYI - these would be long-term buy and hold properties.
What are the risks of going with the higher rate that I'm not seeing??
Worst case scenario, I'm not able to ever refi into a lower rate for whatever reason. But even if I could never refi to a lower rate, I'd still be getting the same return with 8 doors at higher rate than 4 doors at the lower rate. And I'd have 400k of (hopefully) appreciating assets instead of only 200k.
Would love to hear your thoughts! And the thoughts of anyone else who wants to chime in.
@Stephanie P. How much was driven by subprime vs. prime isn't really the point. The effect that rising rates had on a ridiculously hot housing market 10 years ago is the point. I see some parallels with what is happening now. We probably won't see an insane crash like last time, but some of the flippers and the speculators will go broke this time around too, and prices will come down.
Owner occupant rate was 4.75% this past week, so yes those rates are in line. Skyrocketing isna bit of hyperbole with rates still on the very low end historically. In the mid 2000s when the owner occupant rated dipped to 6% most of us felt that was the lowest they would ever go in our lives.
Hmm.. thats interesting. You thought rates would never go below 6%. Surely they have in the past?
I am a buyer at 6% or below. Above that, seems a tad risky.
Freddie Mac has only tracked rates since 1971, and they are our best source. The first time they tracked a below 6% was in January 2003. They bounced around from 5.5% to 6.5% for a couple years before rising well above 6% in 2005...then it took the housing collapse and operation spin from the fed to push them back below 6% at then end of 2008 where they continued their downward trend to the low 3's.
Even where they are today is historically low. While you may think there is risk in a 6% rate, we will eventually get back to a normalized interest rate enviorment and you will yearn for rates that low in the future.
we just had this conversation with our banker yesterday.. of course those who entered the market in the last 10 years only know HYPER low rates so it seems like rates are high.. those of us who have been doing it for decades and like me in 77 ish bought my first owner occ the rate was 9% and I felt lucky to get it.. rates in the mid 80s went north of 15%..
6 to 8% is basically historic norms for the last 25 years anyway.
and yes if your metric of a good deal is positive cash flow with ONLY 20% down then load up before its gone.. most west coast markets this even cash flow is more like 30 to 50% down so that is the norm.. its not norm to positive cash flow with only 20 to 25% down.
Thanks for validating my thoughts in that last sentence, Jay. I'm in the South Puget Sound area and I'm just about tired of people telling me that you don't need a pile of cash to get into real estate investing. Not without stumbling across a VERY motivated seller willing to sell for pennies on the dollar. For those of us who have a day job and don't yet have a network it's daunting to search Craigslist, FSBO sites, the MLS, etc. and realize we're looking at nearly six figures to buy into a cash-flowing turnkey SFH. I'm starting to get fast at analysis, if nothing else, so there's that.
I too have been having a hard time here in the Pacific North West (I am from the Puget Sound area) in finding a good deal. Everything is overpriced. Its hard to hit the 1% rule to come close to the $100 per door cash flow.
@Jay Hinrichs Fellow Portlander and brand new Bigger Pockets member here. A question for you: do you recall how the high interest rates of ‘79-‘83 (10%->18.5%) affected the income property market? I ask because I can see a scenario where we go back into the double digits and am contemplating how to proceed.
@Jay Hinrichs Fellow Portlander and brand new Bigger Pockets member here. A question for you: do you recall how the high interest rates of ‘79-‘83 (10%->18.5%) affected the income property market? I ask because I can see a scenario where we go back into the double digits and am contemplating how to proceed.
for me I was not in income property.. I at the time was a young agent trying to make a living on commissions.. so what I did I would ONLY sell property that was free and clear and that the owners could owner finance.. and I cleaned up in those years frankly.. but again just commission income.. I owned no rentals at the time. I did hold a lot of paper on tax sale properties I bought and resold that was great I was getting 15% interest on my seller carry backs .. buy a tax sale for 2k sell for 10k plus get 15% interest on it.. this is why rentals have never really appealed to me in a big way.. I like being the bank.
Good thread guys. Seems like most investors here think we're headed towards skyrocketing interest rates... I agree they'll be going up in the mid range (1-2 years) . I've also heard differing arguments that interest rates could go down drastically (see Bruce Norris from thenorrisgroup.com)
What are your current rates for non-owner occ 1-4 units?
I'm about just got 4.95% interest with 2.25% points on a $320k property in SE Florida. 25% down
APR is 5.229%
I just want to know if my rate is a 'deal' at the moment...
If I'm not mistaken, the interst rate hike slows down the market for residential buyers and 2018 was an exsmple. In my market prices are adjusted since taxes are going up ward as well. The higher end of the market is totally DEAD (tax reform and hike in interst rate).
Dear God, a bit of an exaggeration? Just wait until you can't get conventional funding anymore. Those 4-5% termed out rates will be a thing of the past. If that rate get's the deal done for you now and the numbers still work, who cares. I would take a 20% loan if the deal depended on it, the numbers still worked, and it helped me reach my goals. My two cents! Best of luck though, truly.
Dear God, a bit of an exaggeration? Just wait until you can't get conventional funding anymore. Those 4-5% termed out rates will be a thing of the past. If that rate get's the deal done for you now and the numbers still work, who cares. I would take a 20% loan if the deal depended on it, the numbers still worked, and it helped me reach my goals. My two cents! Best of luck though, truly.
What's an exaggeration? You're a bit late to the party, quoting a post from more than a year ago.
That mortgages rates have skyrocketted. Honestly, I don't really look at the originalnposting date, this one just showed up in the "newest" thread section...so I guess better late than never...
