In last month’s article on real estate investing, we discussed what to look for when considering the purchase of a house as an investment property, including location, condition and the surprising upside of outdated decor (to read this article again, visit my blog listed below). Next, we’ll look at purchasing power and the impact the current low interest rates have on what you buy.
More For Less
When money costs less to borrow, you can afford to buy more. That’s why now is the ideal time to jump into real estate investing.
From the late 1970s through the 1980s, mortgage rates rarely fell below 10%, and for a time even reached a staggering 18%. Since then, rates have steadily declined. Today, it costs less than 3.5% for a typical 30-year conventional mortgage. Most experts predict that rates will soon start to rise because, frankly, there’s not much room for any direction but up.
What’s Your Price?
An important first step in real estate investing is to decide what payment level is right for you. By working backward from a monthly mortgage payment, calculate the price of the house you can afford based on today’s interest rates. Keep in mind that for a one percent hike in interest on a 30-year mortgage, the cost of the house grows ten percent. That means a manageable monthly payment may get you a $300,000 house today, but only a $270,000 house tomorrow.
Managing Cash Flow
Buying rental property now, before interest rates begin to climb, can mean the difference between ending each month with additional money in your pocket or not. While the goal of long-term real estate investing lies in the gradual buildup of equity and not in cash flow after your tenant has paid rent, it’s best to minimize expenses. Since the mortgage payment is likely the biggest expense you’ll pay as a landlord, it makes sense to maximize your buying power by borrowing while interest rates are still low.
Join us at 6 p.m., Tuesday, January 22 for our seminar on real estate investing, where we will discuss this topic and much more. The seminar will take place at Keller Williams Key Partners, 4200 Somerset Drive in Prairie Village. Seating is limited; call me to reserve your free spot today.