Mortgage Rates Hit Record Low Again – What Should You Do?

Author: Rich Barnhart

Author: Rich Barnhart

Florida rates drop well below 4% this week

4 months ago I blogged about mortgage rates hitting a 50 year low. Now, with properties values at 2003 levels and mortgage rates even lower (30 year fixed averaging 3.7% in Florida today) we are experiencing an incredible opportunity in an otherwise troublesome real estate market. Analysts continue to discuss whether we are at the absolute bottom and whether interest rates can go any lower and my answer is maybe and probably not. Here are some thoughts for those of you struggling with a buy decision:

  • It is almost impossible to time the market perfectly. If you are waiting for the absolute bottom you will miss it. Conservative real estate investors stay ahead of the market, buying on the way down and selling on the way up. Good properties in our area are already hard to come by and when priced at market value they sell quickly, often with multiple offers. I see too many buyers miss out on opportunities because they are under bidding or waiting for values to go lower. You can’t make any money in real estate if you don’t buy anything.
  • If you can qualify for a mortgage, then you should definitely consider borrowing money for your purchase. With rates so low most investors, even if they have the cash, are trying to finance at least a portion of their purchase. They can then use their cash for another property or consider other investments. Let me be clear – I’m not suggesting that you should finance your real estate purchase and put all your cash in the stock market. Discuss your investment options with your financial planner and make sure you keep 6 months to a year of mortgage payments in the bank just in case.
  • Investors who have a higher tolerance for risk are considering more aggressive strategies. For example, did you know you can borrow money against your investment portfolio, sometimes at rates below prime? For short term investments like rehab and resell (fix and flip), this is a perfect way to keep your money in other investments like the stock market while buying and selling real estate with borrowed funds. A good financial planner or stock broker can assist you with these transactions, but please consider maintaining a low loan to value (or high equity) in your real estate investment in case you need to sell quickly.
  • Finally, 2 things are inevitable – property values will go up and so will interest rates. Since most of us buy real estate for the long term then it is really hard to go wrong in today’s market. If you want to buy, but the bank won’t loan you money then consider seller financing or other alternative methods. For example, did you know that you can purchase real estate with your IRA? Your stock broker may not share this information with you because their company may not allow it, but specialized IRA custodians will allow you to buy investment property with a self-directed IRA. Don’t have an IRA? Start one or roll your 401k into a self directed plan. Ask your real estate broker if they are familiar with these types of transactions or stay tuned for a future blog post with more details.

 

Blog Author:

Rich Barnhart

Rich is the broker and owner of By The Sea Realty and a frequent contributor to the company's real estate blog.
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