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Inflation, Tappable Equity, and Home Value Trends

June 20, 2022 by Realty411 Team

Image from Pixabay

By Rick Tobin

Historically, rising inflation trends have benefited real estate better than almost any other asset class because property values are usually an exceptional hedge against inflation. This is partly due to the fact that annual home prices tend to rise in value at least as high as the annual published Consumer Price Index (CPI) numbers.

However, inflation rates that are much higher than more typical annual inflation rates near 2% to 3% can cause concern for the financial markets and Federal Reserve. As we’re seeing now, the Fed plans to keep raising interest rates to combat or neutralize inflation rates that are well above historical norms.


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The true inflation rates in 2022 are at or above the published inflation rates back in 1981 when the Fed pushed the US Prime Rate up to 21.5% for the most creditworthy borrowers and the average 30-year fixed mortgage rate was in the 16% and 17% rate range. Back in the late 1970s and early 1980s, rising energy costs were the root cause of inflation just like $5 to $7+ gasoline prices per gallon in 2022.

All-Time Record High Tappable Equity

Image from Pixabay

In the first quarter of 2022, the collective amount of equity money that homeowners with mortgages on their properties could pull out of their homes while still retaining at least 20% equity rose by a staggering $1.2 trillion, according to Black Knight, a mortgage software and analytics company.

Mortgage holders’ tappable equity was up 34% in just one year between April 2021 and April 2022, which was a whopping $2.8 trillion in new equity gains.

Nationally, the tappable equity that homeowners could access for cash reached a record high amount of $11 trillion. By comparison, this $11 trillion dollar amount was two times as large as the previous peak high back in 2006 shortly before the last major housing market bubble burst that became more readily apparent in late 2007 and 2008.

This amount of tappable equity for property owners reached an average amount of $207,000 in tappable equity per homeowner. If and when mortgage rates increase to an average closer to 7% or 8% plus in the near future, then home values may start declining and the tappable equity amounts available to homeowners for cash-out mortgages or reverse mortgages will decline as well.

All-Time Record High Consumer Debts

The March 2022 consumer credit report issued by the Federal Reserve reached a record high $52.435 billion dollars for monthly consumer debt spending. This $52 billion plus number was more than double the expected $25 billion dollar spending amount expectation and the biggest surge in revolving credit on record. In April 2022, the consumer spending numbers surpassed $38 billion, which was the #2 all-time monthly high.

Image from Pixabay

For just credit card spending alone, March 2022 were the highest credit card spending numbers ever at $25.6 billion. The following month in April, credit card debt figures exceeded $17.8 billion, which was the 2nd highest credit card charge month in US history.

While many people are complaining about mortgage rates reaching 5% and 6% in the first half of 2022, these rates are still relatively cheap when compared with 25% to 35% credit card rates and mortgage rates from past decades that had 30-year fixed rate averages as follows:

● 1980s: 12.7% average 30-year fixed mortgage rates
● 1990s: 8.12%
● 2000s: 6.29%

In the 2nd half of 2022, it’s more likely that many borrowers will fondly look back at 5% and 6% fixed rates as “relatively cheap” if the Federal Reserve does follow through with their threats to increase rates upwards of 10 times over the next year in order to “contain inflation” while punishing consumers at the same time who struggle with record consumer debt (mortgages, student loans, credit cards, automobile loans, etc.).

Financially Insolvent Government Entitlement Programs

There are published reports by the Trustees of both Social Security and Medicare about how the two programs are potentially on pace towards financial insolvency in the not-too-distant future. The Social Security Trustees claim that their retirement program may not be able to fully guarantee all benefits as soon as 13 years from now in 2035. Over the next decade, Social Security is calculated based upon current income and expense numbers to run budget deficits of almost $2.5 trillion dollars.


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As per the Trustee’s published report linked below, it’s claimed that the Social Security Disability Insurance (SSDI) trust fund may deplete its reserves as early as 2034.
Social Security report link: https://www.ssa.gov/OACT/TR/2022/tr2022.pdf

If and when the Social Security trust fund starts operating with cash-flow deficits, all beneficiaries, or Americans who receive the Social Security benefits, may be faced with an across-the-board benefits cut of 20% as suggested by the Trustees. For many Americans who struggle to get by on 100% of their Social Security benefits, the threat of a possible future reduction in amounts of 20% or more can be quite scary to think about.

The average Social Security benefit paid out nationwide in 2022 is estimated to be $1,657 per month or $19,884 per year. A 20% reduction in monthly benefits without using future inflation adjustments would be equivalent to a reduction of $331.40 per month in benefits and a new lower monthly payment amount of $1,325.60.

The Medicare Hospital Insurance (HI) trust fund is also on track to exhaust its cash reserves over the next six years by 2028, as predicted by the Medicare Trustees in their own gloomy report that’s linked here: https://www.cms.gov/files/document/2022-medicare-trustees-report.pdf

Let Your Money Work For You

Image from Pixabay

As noted in my past published articles, the bulk of a homeowner family’s overall net worth comes from the equity in their primary residence. The average US homeowner at retirement age has approximately 83% of their overall net worth tied up in the equity in their home and pays monthly expenses from just the remaining 17% of overall net worth that is held in checking, savings, or pension accounts.

While inflation usually is beneficial to pushing up real estate values at a rapid annual pace, inflation is also devastating to the value of the dollar in your pocket as purchasing powers decline. Inflation for real estate does have a ceiling level at which it becomes detrimental to housing values if the Fed starts doubling or tripling mortgage rates to slow down the inflation rates.

Equity in properties isn’t so easy to access to buy food, gas, clothing, or to pay your utilities as having cash on hand. If and when future government entitlement benefits decrease and inheritance and property taxes may increase, then being self-sufficient while earning monthly income from tenants in your rental properties or by pulling cash out of your properties near peak highs may go a long way towards allowing you to maintain the same standard of living that you’ve been accustomed to over the years.


Rick Tobin

Rick Tobin has a diversified background in both the real estate and securities fields for the past 30+ years. He has held seven (7) different real estate and securities brokerage licenses to date, and is a graduate of the University of Southern California. Rick has an extensive background in the financing of residential and commercial properties around the U.S with debt, equity, and mezzanine money. His funding sources have included banks, life insurance companies, REITs (Real Estate Investment Trusts), equity funds, and foreign money sources. You can visit Rick Tobin at RealLoans.com for more details.


Learn live and in real-time with Realty411. Be sure to register for our next virtual and in-person events. For all the details, please visit Realty411.com or our Eventbrite landing page, CLICK HERE.

Filed Under: credit, credit crisis, news Tagged With: inflation and real estate, real estate investing, real estate investing tips, real estate investor, real estate magazines, real estate wealth, realloans, realty 411, realty magazine, realty411, rei magazine, rei wealth, REIwealth, Rick Tobin

The Non-Owner, No Income (NONI) Loan Solution

February 9, 2022 by Realty411 Team Leave a Comment

Image from Pexels

By Rick Tobin

Are all loans second to NONI (Non-Owner, No Income) for cash flow purposes? Does your investment property give you a positive annual cash flow with or without significant vacancy rates, repairs, nonpayment of rents due to tenant moratoriums or other reasons, and costly management expenses? How many investment property owners are stuck with high 7% to 10%+ private money or an expensive 30-year fixed mortgage that creates negative monthly cash flow? The NONI interest-only loan or fully amortizing loan with 7, 10, 30, and 40-year fixed terms is an exceptional financial choice.

NONI Interest-Only Loans

First off, can you afford your monthly mortgage payment? Without positive cash flow and the ability to pay your mortgage payments on time, your investment properties may be at risk for future forbearance, loan modification, or distressed sale situations where you could later lose your positive equity in a future foreclosure. The combination of positive cash flow and compounding equity gains should be the primary goal for investors instead of having unaffordable mortgage payments.

Here’s some eye-opening NONI loan products highlights that keep customers coming back for more NONI products, especially if the investor owns 2, 5, 10, or 20+ rental properties:

  • Starting interest-only rates as low as 3.875%*
  • Designed for business purpose 1-4 unit residential loans in most states
  • No income or employment collected on the loan application
  • Loan amounts to $3.5 million for non-owner properties
  • No 4506-T, tax returns, W-2s or pay stubs
  • Qualification is based on property cash-flow, NOT borrower income
  • First time investors allowed
  • Multipurpose LLC allowed
  • Unlimited cash-out up to 75% LTV
  • As little as 0 months reserves (use cash out for reserve qualifications)
  • NONI doesn’t care how many properties a borrower owns
  • The lower I/O payment (when I/O option is chosen) is used when calculating DSCR and cash reserves
  • 85% LTV available for purchase and rate/term transactions (680+ FICO)
  • Rental income is taken from an existing lease or the rent survey from the appraisal and compared to the mortgage payment to determine debt coverage ratio. (all program guidelines and rates subject to change and qualification)

For traditional loan programs, many lenders will take 75% of your gross rents to qualify for a new mortgage loan because the lender assumes that you have vacancies, repairs, and property management fees. For easy math, a rental property with $1,000 per month in gross income is underwritten as if it were $750 per month and another pricier property with $10,000 per month in rental income is analyzed as if it were $7,500 per month.

Image from Pixabay

For NONI, on the other hand, you can qualify at 1.0 DSCR (Debt Service Coverage Ratio) or break-even levels. For example, your rental home averages $2,000 per month, so your newly proposed mortgage payment (including property taxes, insurance, and homeowners association fees, if applicable) must be equal or lower to that same gross rental income. As a result, it’s much easier to qualify for a NONI loan product than any other residential mortgage loan that I know of today.

30-Year Fixed vs. 10-Year Interest-Only

A 30-year mortgage payment doesn’t usually begin to pay down any significant amount of loan principal until after the 7th year. The average mortgage borrower keeps their loan for nearly 7 years, so an interest-only loan product can be a much more solid choice today for many borrowers.

Let’s compare the fully amortizing 30-year fixed payment with a 10-year interest-only payment with cash-out options to see the difference for the same 3.875%* rate:

Loan amount: $250,000
30-year fixed rate payment: $1,175.59/mo. (principal and interest)
10-year fixed interest-only: $807.29/mo.

Loan amount: $500,000
30-year fixed rate payment: $2,351.19/mo. (principal and interest)
10-year fixed interest-only: $1,614.58/mo.

Loan amount: $750,000
30-year fixed rate payment: $3,526.78/mo. (principal and interest)
10-year fixed interest-only: $2,421.88/mo.

Loan amount: $1,000,000
30-year fixed rate payment: $4,702.37/mo. (principal and interest)
10-year fixed interest-only: $3,229.17/mo.

Loan amount: $2,000,000
30-year fixed rate payment: $9,404.74/mo. (principal and interest)
10-year fixed interest-only: $6,458.33/mo.

Loan amount: $3,000,000
30-year fixed rate payment: $14,107.11/mo. (principal and interest)
10-year fixed interest-only: $9,687.50/mo.

*APRs from 4.79%: The 10-year fixed loan converts to an adjustable for the remaining 20 or 30 years with 30-year and possible 40-year loan term options. There are also 30-year and 40-year fixed interest-only loan programs at higher rates (all rates and programs subject to change)

Increasing Inflation and Rates, Decreasing Dollar Value

The more money that is created together between the US Treasury and Federal Reserve, the lower the purchasing power. Inflation can severely damage the purchasing power of the dollar while generally benefiting real estate assets.

US M1 Money Supply (February 2020): $4 trillion
US M1 Money Supply (March 2020 – October 2021): From $4 to $20 trillion

Image from Pixabay

Or, 80% of today’s M1 Money Supply, or an additional $16 trillion dollars in circulation, was created within just 22 months (March 2020 to October 2021).

Most Americans create the bulk of their family’s net worth from the ownership of real estate, not hiding cash under their mattress or holding stocks or bonds. Inflation is also a hidden form of taxation. One of the best ways to offset weaker dollars is to buy and hold real estate as a hedge against rising inflation while also generating monthly cash flow.

Today’s younger investors may not remember 10% to 20% fixed mortgage rates from years past. If your rental properties are losing money at a 3% or 4% fixed rate today, then any future properties purchased with higher rates will lose even more money unless you select a much more affordable interest-only loan product.

Let’s take a look next the average published 30-year fixed rate for owner-occupants who qualify with full income and asset documentation by decade:

● 12.7% in the 1980s
● 8.12% in the 1990s
● 6.29% in the 2000s
● 4.09% in the 2010s

The common link between each of these decades was that perceived inflation risks were usually a core reason why the Federal Reserve increased interest rates in order to quash inflation. Today’s published inflation rates are at 40-year highs. Yet, they are still underreported and are actually much higher as partly noted by annual used car prices rising almost 48% in just 12 months near the end of 2021.

Doubling Asset Values

If you keep the old Rule of 72 (how long it takes to double an asset value by the annual gain or interest return projections) in mind with rising inflation trends continuing to boost housing prices, you will clearly see the potential to boost your net worth. For example, a home doubles in value based upon the gains such as a 7.2% annual increase that will take 10 years for the home to double in value (72 / 7.2% = 10 years).

Image from Pixabay

Between November 2020 and November 2021, it was reported that the average home price, including distressed properties, increased more than 18%. If that home price gain trend continued at the same annual pace, the average home price could double in value every 4 years (72 / 18 = 4 years). In many pricey coastal regions, homes have appreciated 30% to 35%+ per year over the past few years. As a result, many investors have seen their home values double in just two or three years.

As rates are more likely to increase than decrease in the future, the interest-only loan products that can be fixed for 7, 10, 30, or 40 years make more sense from a cash flow and peace of mind standpoint.

While NONI keeps your payments low, your net worth may be boosted sky high as the soaring inflation trends continue and properties may double or triple in value!

Rick Tobin

Rick Tobin has a diversified background in both the real estate and securities fields for the past 30+ years. He has held seven (7) different real estate and securities brokerage licenses to date, and is a graduate of the University of Southern California. Rick has an extensive background in the financing of residential and commercial properties around the U.S with debt, equity, and mezzanine money. His funding sources have included banks, life insurance companies, REITs (Real Estate Investment Trusts), equity funds, and foreign money sources. You can visit Rick Tobin at RealLoans.com for more details.


Learn live and in real-time with Realty411. Be sure to register for our next virtual and in-person events. For all the details, please visit Realty411.com or our Eventbrite landing page, CLICK HERE.

Filed Under: credit, credit crisis, news Tagged With: NONI Loan, real estate magazines, real estate wealth, realloans, realty 411, realty magazine, realty411, rei magazine, rei wealth, Rick Tobin

THE BASICS OF BANKRUPTCY: Acquiring bankruptcy loan, terms, and procedures. BK Chapter 13

August 6, 2020 by Realty411 Team Leave a Comment

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Filed Under: credit, credit crisis, loans, news Tagged With: loans

Your HELOC can fund your policy

June 12, 2020 by Realty411 Team Leave a Comment

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Filed Under: credit, credit crisis, news Tagged With: HELOC, The Money Multiplier

Here’s The Capital You Need

December 12, 2019 by Realty411 Team Leave a Comment

By Dana Bersch

There’s a whole buffet of real estate deals out there, but with powerful unsecured credit lines from Stonebridge Capital Group, you can cherry pick the deals you want on-demand.

At Stonebridge Capital , we don’t believe you need a winning lottery ticket to realize your financial dreams. There is a constantly moving “good luck conveyor belt” in front of today’s business owners, entrepreneurs, and real estate investors. The catch is that “you need the money to take advantage of those opportunities, and good deals simply won’t wait for you to find the money.”

The Biggest Problem You Face Today

The most pressing issue on the current landscape isn’t a lack of deals, buyers, or rentersDana “the biggest problem facing business owners today is a lack of access to capital.”

The data shows that most businesses fail because they just run short of cash flow. They can no longer pay the bills, push out great marketing, or seize on the best opportunities. Some fail because they don’t appreciate their need for funding, or how much they need. Others are stuck with rigid funding sources and arrangements that don’t serve them well, or simply haven’t found an attractive source of financing. Ultimately the main source of failure is all about the money.

We are constantly reminding all real estate investors and entrepreneurs that they are in business. “Flipping houses is a business.”  As is acquiring and operating rentals, wholesaling, and note investing, and so on.

I know the challenges these entreprenuers face well. As a business owner for more than 30 years,  I understand the pitfalls small businesses have in having access to capital, which is critical for their success.  Before I started  Stonebridge Capital  in 2006 I was involved in several industries, including manufacturing, healthcare,  restaurants, real estate, oil and gas investments, and entertainment.

Over the last decade the Stonebridge team  has been working with hundreds of entrepreneurs, investors, and business owners to help them recognize their need for additional capital, position themselves to obtain the best funding, and  obtain generous lines of credit. 

The Unsecured Credit Line Advantage

Stonebridge Capital specializes in providing business and personal lines of credit from $25k to $250k.  We also have access to bank term loans, which can add to the amount of funding.

This credit is working capital that real estate investors, entrepreneurs, and business owners can use for just about anything they need. That means acquiring new properties, down payments, paying down high-interest debt, rehab work, marketing, filling the gaps when tenants are late on rent, etc.

Credit lines offer a huge advantage to real estate professionals. You only pay on the money you are actively using, it helps you qualify for the mortgage or hard money loan, covers expenses while you are involved in your rehab, and once you cash out on deals and pay it down, the money is right there to use again without  the application and appraisal hassles and expenses. We receive a sizable portion of our business from referrals from mortgage brokers and hard money lenders for clients who need to increase their down payment to qualify for their loan and to bridge the funding gap from what they provide too. Additionally, using an unsecured line of credit means no liens on your properties, and never diluting your business ownership or giving up control as with equity fundraising.

Features to Love:

  • Funding in just 10 to 21 days
  • 24 hour preapproval
  • No application fee
  • 0% interest for up to 24 months
  • Stated income
  • New startups OK
  • 680+ FICO score
  • Free guidance on maintaining, optimizing, and growing your credit

Don’t Prejudge Your Credit

If an extra $250,000 could help your business (and you can bet it can), “don’t prejudge your credit.” There are no application fees, and you can find out how much of a line you can get within 24 hours..

Check it out and get pre-approved online at www.sbcapgroup.com/sb or call 480.626.1772.

 

Filed Under: credit Tagged With: credit, credit line

Real Estate Investing With No Money Or Credit

July 3, 2019 by Realty411 Team Leave a Comment

By Laura Alamery

So, you want to be your own boss and do not want to put a lot of start-up capital into your venture. You have been researching which business options might be best for you and keep reading about real estate wholesaling and other strategies that allow you to make a profit in real estate investing without putting any money down or having credit checks performed.

It is not too good to be true! There are a number of different directions that real estate can take, and the no money, no credit path has many options.

  • Wholesaling
  • Co-wholesaling
  • Subject To Sales
  • Seller Financing
  • Transactional

Excelling in each of these areas requires the proper knowledge, as well as the people skills necessary to grow your real estate investing business. Regardless of the real estate direction that is chosen, building solid connections with others in your community will grow your business faster than any other sales or marketing campaigns that exist.

What is Wholesaling?

Let’s start with the most important players involved in a real estate transaction. The seller, the buyer, and the person who facilitates the sale. Most commonly, the facilitator is a real estate agent. They list the property for the seller, or scout available properties for the buyer, and they most definitely need to be licensed by the state the transaction is taking place.

Real estate wholesalers act similarly, to an extent. Like agents, wholesalers are always on the lookout for sellers. Unlike agents, most wholesalers are looking for properties that are selling at a very serious discount, in order to resell it at a higher price and make a sizeable profit.

Wholesaling requires dedication and the people skills to build a comprehensive database of both sellers and buyers. And is a common niche for new (and veteran) real estate investors. The wholesaler finds the contract and either assigns the contract to a buyer at a higher price or has a double closing, meaning the wholesaler technically buys the property but then immediately resells it the same day.

Co-Wholesaling

Connecting with other wholesalers can expand both your customer list and your bank account. If you have a buyer looking for a specific property, a fellow wholesaler may have the perfect place. Generally, the wholesale fee is split between the two and both can profit from the sale.

Another advantage to co-wholesaling is that it opens your customer base to include more opportunities. Often times, wholesaling is where investors meet and connect to collaboratively purchase a property through a real estate investment trust (REIT). Working together can work wonders! Investment properties such as this are often large commercial buildings that significantly impact the community.

Subject To Sales

Subject to real estate transactions are the best option for those with no or bad credit. This agreement is between the seller and the wholesaler or investor. No down payments are made or credit checks performed, as the buyer ends up simply assuming the mortgage.

There are a few things to be aware of before entering into these types of deals. In the mortgage contract, the lender has the right to call the note due at any time, in full. Speaking with the bank before the transaction is a good idea to know where you stand going in.

Rarely does happen, as the lenders are simply happy that the loan is getting paid. This is a great example of why wholesalers are always looking for distressed properties. Homeowners have many reasons for needing to relinquish responsibility of their property. Wholesalers make the transition easy, as they already come with a list of buyers, the seller does not have to go through the hassle of listing and showing, and the sale usually happens quickly.

Seller Financing

Another great option that does not require money down or credit checks is when the seller will provide the financing. How this works is usually that the seller keeps the property in their name and the buyer simply pays the seller instead of the bank.

There is also usually an option for the buyer to make the purchase once they are in the position to make the down payment or get a mortgage of their own. Sellers like these kinds of sales because they have a steady stream of monthly income from the payments.

Transactional Funding

Here is where those relationships that you have been building are going to come into play. Bank loan officers are a necessity to wholesalers and their relationship should be as important as the buyers and sellers.

A great example of when transactional funding will come in handy are bank owned and short sale properties. These properties often sell at bargain prices and a substantial profit can be made. Unfortunately, these sellers do not allow assignment of the contract or double closings, and do require cash at the end of the deal.

Finding Your Place in the Real Estate Investing World

Real estate can be overwhelming and finding the niche that works best for you is important to maintaining a successful and lucrative business. Once the journey begins, so many doors will open with possibilities of avenues to pursue.

The options outlined here are some of the most common areas for new real estate investors. Once a few sales have taken place it will be easier to determine which speciality is right for you. A very big part of real estate investing is relying on your intuition and listening to where you feel most comfortable will only help build your business, portfolio, and bottom line.

Enlisting the help of experienced investors, and finding a mentor who wants to help, can catapult your business into the next level. There are so many things to learn when it comes to real estate, and while much of it is simply learning by experience, there are options to make it easier. The knowledge of those veteran investors and agents is invaluable and learning from their mistakes can save you many.

Start building your real estate investment portfolio with little to money down, with no credit checks, by following these noted strategies. And watch your business take off!

Filed Under: credit, credit crisis, loans Tagged With: seller financing, transactional funding, wholesaling

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