Are you really a LONG TERM Investor?

Each day I have lengthy discussions with Property investors who tell me they are "LONG TERM" investors but hold their Properties in Adjustable Rate Loans (ARMs) or Balloons that are 5 years or less.  Now, if you plan to exit your Real Estate investments within that time-frame, you are have made a wise decision.  If your investment timeline is greater than the Adjustment or Balloon term, you will be subject to the conditions of the market at that time.  Some people refer to this is as GAMBLING!  No one really knows where rates will be in 3, 5 or 7 years, but most agree that rates cannot stay this low.    

Increased market rates in the future could drastically eat into your cash-flow.  Refinancing into a Fixed-rate loan WILL cost you hard dollars (Appraisal, Fees, Title), but you will know exactly what your future holds.....if you do it now, while rates are historically low.  Couple this with a short Prepayment Penalty and long Amortization and you could have the stability of uninterrupted cash flow....at least from the loan side!  The cost of WAITING and then refinancing is paying those refi costs AND receiving a HIGHER rate eating into your monthly cash flow!     

It takes some math, but looking at the costs of holding ARMs or Balloons and then refinancing, now (or in the future) could really save some sleepless nights.  There are many opinions on rates and the market in general, so each investor needs to decide their own tolerance for risk.  This is one variable you can control in your portfolio.

Take a look at your Portfolio....ARE YOU REALLY A LONG TERM INVESTOR????