Today we are talking about how to make money buying real estate even in a market where the interest rates are rising. Alex Craig of Turnkey Properties will share some methods he has seen that creates wealth and a good life for real estate investors. I will be covering some methods and stories of people who have used real estate financing to make money and create a good life for themselves.
What goals in life do you have a burning desire to accomplish? Real estate is one of the greatest vehicles to get you where you want to go with a blended value return. Let’s talk about YOUR plan. Let’s work YOUR plan. If the deal works for you today, let’s do it today! Subscribe to get the weekly Real Estate Mortgage Shoppe podcasts with show notes directly in your inbox.
To Your Success
Jo Garner, Mortgage Loan Officer NMLS# 757308
(901) 482-0354 Jo@JoGarner.com
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LET’S TALK ABOUT MAKING MONEY IN REAL ESTATE
Good morning, Memphis! Welcome to our internet listeners and podcast listeners across the 50 states! You’re on Real Estate Mortgage Shoppe. I’m your host, Jo Garner, Mortgage Loan Officer. You can connect with me at www.JoGarner.com. Our general topic is HOW TO MAKE MONEY & BUILD A GOOD LIFE USING REAL ESTATE IN A RISING INTEREST RATE MARKET. Subscribe to get our weekly podcasts with show notes at www.JoGarner.com. Call us while we are live at (901) 535-9732 Today is August 11th, 2018.
REAL ESTATE, MAKING MONEY, AND MORTGAGE METHODS
Today we are talking about how to make money buying real estate even in a market where the interest rates are rising. Alex Craig of Turnkey Properties will share some methods he has seen that creates wealth and a good life for real estate investors. I will be covering some methods and stories of people who have used real estate financing to make money and create a good life for themselves.
INTRODUCING ALEX CRAIG OF TURNKEY PROPERTIES
Back in the studio, we have Alex Craig of Turnkey Properties in Memphis, TN and Little Rock, Arkansas. After working several years in the corporate world, Alex left the corporate world and became a real estate investor back in 2007. You have done very well Alex for yourself and helping others too. “Alex, what got you into buying real estate and what keeps you there?” (Alex has about a minute or so to share a short testimonial)
THE BEST TIME TO PLANT A TREE AND THE BEST TIME TO BUY REAL ESTATE
(Jo) Alex some of the very best investments I have made throughout my life have been in real estate. I’m at that age where in those quiet moments on the back patio sitting back in my chair with my feet up breathing in the fresh air, I start thinking back on things I feel like I have done right over my lifetime, things I have learned from mistakes and wondering where I want to go from here. One of my big regrets at this point is that I have not held on to enough real estate. If I could go back in time I wish I could have purchased and paid off enough real estate so I could live better now and later in my retirement years.
I keep reminding myself of the old Chinese proverb: “The best time to plant a tree is 20 years ago. The second best time is today.” If you want something badly enough, you can summon the time, the money and the chutzpah to go get it. So many of my real estate investor clients got started buying their primary residence and then purchased one rental property. It may have been two or three years later when they had a little more funds in reserve and a comfort level with the homes they owned, that they ventured out to buy the third one and so on. After a while the cash flow allowed them to start paying down the mortgage balances early.
A GREAT REAL ESTATE TOOL—THE 30 YEAR FIXED RATE MORTGAGE
In my opinion one of the best tools a real estate investor can use is the 30 year fixed rate mortgage. The United States of America is the only country that will allow a homebuyer to get a FIXED rate for a whole 30 years. As a real estate investor, this gives you super low principal and interest payment that never changes. As you gradually increase the rents on your rental properties, you give yourself a raise in pay, and then another raise and another raise until you are really making money each month even while you SLEEP.
ALEX CRAIG TALKS ABOUT SOME OF THE BLENDED VALUE YOU GET FROM BUYING REAL ESTATE
You’re on Real Estate Mortgage Shoppe. I’m your host, Jo Garner, Mortgage Loan Officer. What do YOU want to accomplish with your mortgage? Make your plan. Let’s work your plan if the deal works for you today, let’s do it today. When we come back Alex Craig is going to be sharing more ways to How To Make Money and Build A Good Life Using Real Estate In A Rising Rate Market. See you back in just a moment.
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2ndsegment after 9:15 advertising break – (producer to start the song “Taking Care of Business” by Bachman Turner Overdrive –but bring the volume down before the lyrics start) It’s time to talk shop with Talk Shoppe’s Business Tip For Real Estate Professionals. Talk Shoppe is a marketing company offering free education and networking to anyone interested in real estate or in business. Talk Shoppe is made possible by the financial support of its sponsors and advertisers. For more about Talk Shoppe, go to www.TalkShoppe.com(shoppe) For our Talk Shoppe Business Tip today we have Talk Shoppe sponsors Troy and Lynn McDonald of Erin McDonald Insurance Agency. Troy and Lynn are top producing insurance agents and their secret is in their service and knowing how to get their homeowner insurance clients the best coverage at the best price. Troy and Lynn, what is our Talk Shoppe Business Tip for Real Estate Professionals today? Troy and Lynn share one or two quick insurance tips especially for landlords.
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QUESTIONS TO ASK TROY AND LYNN MCDONALD:
What does the typical landlord insurance policy cover?
Tips like why it is important to have Vacant Home insurance when your property becomes vacant to avoid having a loss not covered by your insurance.
What other types of insurance do you offer? Homeowners Insurance, Car insurance, toy insurance like boats, motorcycles, life insurance and more
How do we contact you? (901) 849-7101 for Lynn McDonald
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QUESTIONS ANSWERED BY ALEX CRAIG OF TURNKEY PROPERTIES IN MEMPHIS (mostly covered in the first and second segment of the show before the 9:30 Fox News)
Interest rates are rising—as mortgage rates go up, is the cash flow from a rental property still a good investment? OF COURSE IT IS! Why? Because buying rental property is a long-term investment, the main goal should be to pay down the mortgages with the end goal of paying off the properties so that all rental income is pure cash flow.
Cash flow has been reduced with tighter inventories and higher rates then last year – but your goal should not be to profit on the spread between the mortgage payment and your net income, it should be to use that cash flow to pay down your mortgage. Buy as many properties as you can with a 30 year mortgage, lock in a 30 year rate and attack the principal. Not only does your net cash flow pay down the principal, your tenant is paying down the principal too. While a net cash flow of $250 is good after all expenses, isn’t $975 better?
Financial freedom begins when investment properties are paid for. It takes discipline to pay down the mortgages aggressively, even if it means breaking even for the year, but the long term goal of paid-for properties is exciting.
IF not real estate, then what? What other asset class give you the blended return Real Estate does? 5 ways Real Estate provides a return:
Cash Flow: This is money out and money in. This is what investors focus the most on, which they should as it accounts for largest portion of the return. But it is more then cash flow
Loan Paydown: This is why the mortgage pay down works even quicker and personally my secondfavorite part of investing. When I place tenants, I look at placing the best tenants as answering the question, “Is this the person I want to partner with that is going to help me pay down my mortgage?”
Appreciation: This is a benefit when I submit my overall personal financial statement to banks for establishing lines of credit for my business and other business I am involved in.
This is my favorite benefit that comes from real estate investing.
Income taxes are my number one expenses and probably your biggest expense too. Owning real estate allows me to keep more of I what I earn.
Consult with your CPA, but the advantages I take off my rental portfolio are: interest deduction, deprecation, cost associated with the portfolio which can include a portion of my cell phone, home office expense, travel cost to go look at my properties outside of Memphis, real estate education, etc.
Every investor should consider this, but surprisingly, most investors will only look at the cash flow that comes from investment properties
Hedge against inflation: This makes real estate a smart investment because you hedge inflation by buying real estate.
Typically hard assets are an excellent hedge against inflation, meaning their value rises as the general price levels for goods and services increases(known as Consumer Price Index or CPI). Other investments, especially bonds and similar fixed-income debt instruments, typically lose value as CPI increases.
Don’t let what is happening today with mortgage rates and rising prices in today’s real estate market effect your financial goals for the rest of your life
The numbers still work for cash flow investing, but the end goal to financial freedom of your mortgages being paid off may take a little longer today than they did 18 months ago.
Think about the 5 ways real estate can offer you returns, that has not changed with rising rates. Those 5 ways make real estate investing stand out as the # 1 asset class to invest.
Look at it as a long-term investment—it’s not a sprint, but a marathon
Enjoy all the other returns that real estate allows while you’re on the road to acquiring wealth and financial freedom
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TOPICS COVERED BY JO GARNER:
What are some of the most popular mortgage products used by real estate investors?
A The most popular and well-known real estate mortgage product is the 30 year fixed rate mortgage where the real estate investor who is buying a home to rent to tenants for income. They typically invest a 20% down payment with some closing costs added too. The interest rate on the 30 year investment loan is about 1% or so higher than the lower rate paid by homebuyers buying a home to use as their primary residence. (And an important note—When you are buying a primary residence, you can get into a home with as little down as 3.5% or zero down payment. If you are buying a primary residence and notrental property, there is also no limit on how many other real estate properties you have financed.)
Here is a story about what a first-time real estate investor can do. Niles Nelson (not his real name) owned his own home but wanted to start slow with real estate investing until he could learn the ropes.
Niles found a house in a stable neighborhood. He did some research on Craig’s List and with his realtor and determined that the area supported a strong rental market too with rents going up about 5% per year on average. Niles paid around $114,000 –not a bargain price since the value came in around $115,000.
Niles got great terms though-a 30 fixed rate with 20% down payment. The principal and interest payment that would never go up was about $ 455 per month and with taxes and insurance added, the total payment was around $630/month. The rent income? Niles was getting in his mailbox every month $1,195/month. He had an almost instant positive cash flow of almost $600 per month. Rents were going up about 5% per year and Niles figured the following year or the year following he could raise the rent and enjoy a $900/month positive cash flow.
Words to the wise on the standard mortgage programs:
Be sure you keep some of the positive cash flow saved back because as you continue to buy real estate investment property, you will have to show more and more cash in reserves after closing to prove to the lenders that you can weather unexpected expenses on your real estate properties.
Niles could have put down only 15% if he did not mind paying a little bit in private mortgage insurance. Niles could have borrowed against his 401k or he could have used funds from his home equity line of credit secured on his primary residence if he was short funds to put down on the house he purchased.
On real estate investment loans, the borrower is allowed a maximum of 10 financed properties in his or her name. He or she can own a lot more than 10 properties but only 10 financed properties—not including commercial buildings. Because of this maximum financed property rule, Niles planned to get about 8 properties over the course of time and eventually pull some of the equity out of a few of them to pay off the rest of the properties completely so he could enjoy 30 year fixed rates on even more of his property purchases.
In a rising interest rate market, real estate investors are trying to buy properties right now using a fixed rate mortgage while the mortgage rates are still relatively low.
Another popular real estate investment property mortgage product is what I call the Quick Cash Back Refinance. For investors who have cash or credit lines set up to purchase fixer upper properties for cash and fix them up, they can get the money they used to purchase the house back right after they finish the repairs without having to wait out the 6 months seasoning requirement. The 6 month seasoning requirement on the traditional 15, 20 or 30 year cash out refinance on investment property means that people buying a home for investment must own the property for at least 6 months before doing a refinance and getting cash back from the loan.
Some common credit lines are borrowing against a 401K (not pulling money out—just borrowing against it)
Home Equity Lines of Credit on a primary residence or other property
Margin loans against tradable stocks and bonds
Cash out refinances on one property to get the funds to buy another real estate property.
Sometimes the real estate investor needs a big part of the credit line paid back quickly so they can use the credit line again to buy another bargain home.
What are some other trends you see with your clients who are trying to play smart strategy in this rising interest rate market?
A Yesterday I was listening to well-known financial radio program and Dan Fuss, known as the Warren Buffett of bonds, gave his warning to homeowners and others who have debt with variable rates in this rising interest rate market. RATES ARE FORECASTS TO GO UP, UP AND UP AGAIN!
The Federal Reserve said this week that all systems are on go to raise the Fed rate once or twice in 2018 and three times in 2019 and maybe even again in 2020. What they see is a continued strong economy. The geopolitical and global financial factors surrounding the tariffs and trade agreements or any other unexpected turn in events could change the current Fed course. For now Dan Fuss says the market is not yet “As Good As It Gets.”
A popular mortgage strategy with my clients recently has been to refinance their home to include paying off variable rate credit cards and the variable rate Home Equity Line of Credit. Most of these homeowners had acquired quite a bit of variable rate debt due to unexpected family needs and other situations. Others were easily able to carry the variable rate debt but were about to retire and did not want the rising payments that come with rising rates while they were on a fixed income.
Priscilla Peterson (not her real name) had a decent house fixed rate house payment and owed about around $125,000 on a house worth about $315,000. She was about to retire and wanted to get a new roof on her house and new carpet about a $25,000 investment which she originally planned to pay for with a variable rate Home Equity Line. After pulling out her calculator and punching in what damage the rising payments could do to her on a fixed income, she decided to borrow about $40,000 and to cover the home improvements AND pay off her variable rate credit cards with a fixed rate that would never go up.
This cash out refinance would cause the loan that Priscilla now only owed 20 years on to go back to a 30 year loan but the payment would only by $149 per month higher and it would stay FIXED. Her calculator told her that if she kept the variable rate credit balances and got the variable rate Home Equity Line, over the course of the next few years, the $40K for home improvements and other credit good cost her a lot more per month. The cash out refinance for Priscilla Peterson was a small investment in peace of mind.
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REAL ESTATE TIP OF THE WEEK
(Troy and Lynn McDonald of Erin McDonald Insurance Agency offer a tip to landlords to require their tenants to get renter’s insurance. This helps both the landlord and the tenant in case of a loss event.
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ANNOUNCEMENTS:
Talk Shoppe offers free networking & education to anyone interested in real estate or in business. Talk Shoppe meets every Wednesday 9A-10A CT at Pinot’s Palette 8225 Dexter Rd Cordova, TN. This Wednesday August 15th, 2018 Shoppe presents: “Whatever Happened To Newspapers and What is Happening At SCORE-Memphis” by Memphis SCORE (Senior Core of Retired Executives)
Talk Shoppe events are free thanks to advertisers like Taylor Eason, videographer and social media guy for Talk Shoppe. Contact Taylor at www.CreatedFlawless.com
Subscribe at www.JoGarner.comand you can get our weekly blog posts with podcasts conveniently in your inbox.
Real Estate Mortgage Shoppe reminds you to MAKE YOUR PLAN. LET’S WORK YOUR PLAN. IF THE DEAL WORKS FOR YOU TODAY, DO IT TODAY.
SPECIAL NOTE: REAL ESTATE MORTGAGE SHOPPE RECOMMENDS THAT YOU CONSULT WITH A FINANCIAL, LEGAL OR OTHER CERTIFIED, LICENSED PROFESSIONAL BEFORE ACTING OR INVESTING ON ANYTHING YOU HEAR OR SEE FROM THE CONTENT ON THIS SHOW OR BLOG POSTS. THE INFORMATION WE SHARE ON REAL ESTATE MORTGAGE SHOPPE IS GENERAL IN NATURE MEANT FOR GENERAL EDUCATIONAL PURPOSES ONLY. ALL EXAMPLES GIVEN FOR ILLUSTRATION PURPOSES ON REAL ESTATE MORTGAGE SHOPPE USE FICTIONAL CHARACTERS AND DO NOT REFLECT REAL PEOPLE OR ACTUAL DETAILS IN ANY OF THE SITUATIONS.
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QUOTE CORNER:
Louis Glickman, real estate investor “The best investment on Earth is earth.”
Warren Buffett, billionaire “Price is what you pay. Value is what you get.”
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REJOINDERS:
Katie Gilliland with BackupRX.com in Hernando, MS Data backup and restoration for your business continuity.
Clint Cooper, Redeemers Group (Foundation Repair) Memphis, TN redeemersgroup.com
Jana Cardona, Executive Director of Mid-South Business Network International bnimidsouth.com
Transitional Music: “Whatever It Takes by Imagine Dragons;” “Good Life” by OneRepublic; “Story of Your Life” by Matthew West; “Taking Care of Business” by Bachman Turner Overdrive for the Talk Shoppe Business Tip For Real Estate Pros.
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ABOUT ALEX CRAIG, PRESIDENT OF TURN-KEY PROPERTIES
Alex Craig became a Real Estate Investor in 2007, after eight years of corporate experience as National Sales Manager and Director of Marketing for Worldwide Adhesive and Plumbing Manufacture. He is a lifetime native of Memphis and a graduate of the University of Memphis with a Bachelor of Science in Education. Alex owns and manages a portfolio of houses in Memphis and in Little Rock, AR. He is the cofounder and president of Memphis Turnkey Properties GP, Little Rock Turnkey LLC, CB Properties of Memphis LLC, and passive owner of Gus’s Fried Chicken in Knoxville, TN. Outside of work, Alex enjoys travel, golf, basketball, and spending time with his wife (cofounder of Memphis Turnkey and CB Properties) and three daughters.
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ABOUT TROY AND LYNN MCDONALD- ERIN MCDONALD INSURANCE AGENCY:
LYNN- I have worked for the same insurance company for 22 years and very much enjoy helping people manage risk through proper insurance coverage. We have a large agency and are well staff to take care of our clients need.
Specialties: Working with Landlords and Investors (901) 849-7101
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ABOUT JO GARNER-MORTGAGE LOAN OFFICER:
WHAT DO YOU WANT TO ACCOMPLISH WITH YOUR MORTGAGE?
www.JoGarner.com (901) 482 0354 jo@jogarner.com twitter @jogarner NMLS# 757308
“Whatever YOUR personal priorities are, my job is to help you get the mortgage terms that will give you bragging rights when you talk about it and help you score on hitting your goals .”
As a mortgage loan officer, my job is to help you get to the benefits you want from your financing terms. What is most important to you? I can help you find the financing terms that will help you get to what you want. What is your comfort level on a house payment? How much are you comfortable paying down,? What type of financing do you need to get the house you want to buy or refinance?
Different clients have different priorities in life—some are buying their first home with very little down payment funds. Some are recovering from medical challenges, divorces or preparing to send children to college and some are embarking on a long term goal of buying properties to build rental income.”
Jo Garner is a mortgage officer with extensive knowledge in tailoring mortgages to her customers who are refinancing or purchasing homes all over the country. She offers conventional, FHA, VA or other loan programs for refinancing and purchases.
Jo can help you look at rent vs buy, when it makes sense to refinance, how to get the best deal on your home purchase financing.
Jo Garner has been in the real estate/financing business for over 20 years. She got her start in Portland, Maine where she first began her real estate career. She received her real estate education from the University of Southern Maine and was personally mentored in San Diego, California by Robert G. Allen, author of Nothing Down, Creating WealthandThe Challenge.
On moving back to West Tennessee in 1987, she went into business buying and selling discounted owner-financed notes secured on real estate. In 1990 Jo went to work for a residential mortgage company and has been a mortgage loan officer for over 20 years. Her goal is to offer excellent, affordable service to her customers, tailoring the loan programs to the specific needs of her clients.
In addition to her work in the mortgage field, Jo Garner is the primary sponsor and founder of Talk Shoppe in Memphis. www.TalkShoppe.com She was also the editor of Power Shoppe, a free weekly e-zine designed for real estate professionals and others indirectly connected to the real estate industry and currently publishes on her blog www.JoGarner.com