I know it may seem like the sky’s falling in loans are so expensive now that we may be missed our window to buy good investment properties it is true interest rates are higher than they were just recently but are they actually more expensive I want to break down why that might not necessarily be the case stick with me as we jump into loans and a couple alternative financing options this week on the short-term rental riches podcast.

Welcome to short-term rental riches will discuss investing in real estate but with a specific focus on short-term rentals quick actionable items to acquire manage and scale in your portfolio I’m your host Tim Hubbard.

Welcome back to short-term rental riches podcast I just closed on a refinance for 7.5 percent. For some of you that have been in the real estate game for a long time that might not seem bad at all I’ve been a real state for about 12 years this is the most expensive loan that I’ve ever taken out but it’s not necessarily expensive so I want to break that down but first of all I want to just talk about what happens when we raise interest rates when interest rates go up in an economy this is an effort to lower inflation right where it very very high inflation rates right now 89 percent based on the government’s terms and a lot of us know that it’s very realistically much higher than that because the types of things that they used to come up with 8 or 9 percent are not necessarily accurate housing costs for example is something that they create on their own so but let’s just say it’s 8 or 9 percent what happens to the real stay world when interest rates go up less people can buy properties. If they’re using financing that is that is just be honest. With less people can buy properties because money is more expensive it costs more if someone is going to buy $0 property in their loan was going to be $5000 a month but interest rates have gone up and now that monthly payments $10000 a month well it’s gonna be much harder to afford that property and if that property was a potential rental investment then the cash flow or the numbers on that are gonna be way more difficult to make sense so that is just the honest truth as interest rates go up less people can afford to buy properties now what happens to rents that is flipped rents are not related to interest rates in fact rents are very likely going to continue going up if interest rates go up because it forces more people become renters the same people that wanted to buy a property maybe can’t afford it now and so there’s more demand on the rental all of course is really depends on which market you are end but in general Fentress rates go up that means more people are going to be raining and that means more pressure pushing rents up so couple sort of macroeconomic things there on interest rates as they go up money is more expensive less people buy properties and the cost of properties can go it down right I say can because again this depends on every market so now let’s get to these rates that seem so high but are they really high hopefully can stick with me on this one but let’s say inflation right now is 9 percent I just close on a loan for 7.5 percent that’s a 30 year fixed loan that means that I borrowed that money for less than the cost inflation so the real interest rate I paid was -1.5 percent essentially means the bank paid me to pull out that money. Not a bad deal right of course inflation can go down and if I walked into a 30 year loan which I can refinance but if I’m locked into it for a few years and interest rates job then maybe I’m over pain on the cost of that mortgage but for right now I’m technically getting that money for free at least that’s the way I look at it now if we compare this to a year ago or 2 years ago when let’s just say inflation rate was 2 percent and I took out a loan for 4.5 percent that sounds awesome right that’s really low but if we look at the real interest rate which is the difference between the interest rate inflation I mean those pain positive 2.5 percent for that money that means the money I borrow back then was more expensive than the money that I just borrowed I hope you’re able to just to get follow me on that one and get the gist that interest rates are really not unreasonable right now in the great thing is you know for locking these interest rates and of course we don’t wanna take Paul mortgage on a property that doesn’t make sense we don’t ever want to do that but if we pull a loan out for property that makes sense today with a 7.5 percent interest rate and interest rates go down in the future which hopefully they do we can refinance that property and then we’re going to be cash flowing even more with that property so there are deals out there still keep in mind that this money is not actually as expensive as it seems before we get into a couple options that don’t even use a bank that might be really good option for some of you out there I just want to reiterate how important it is to talk to lots of different lenders they all have different terms they all have different requirements when I was first getting started investing specifically in short term rentals I was buying apartment buildings out of state out of this state that I was a resident in at that time. Him and I’d flown out there I done inspections I had the whole game plan together I was ready to sign and about a week or so before I mean we were right down to the wire there was basically a done deal and I was excited and I had spent a fair amount of money on it already appraisal inspections and all that plus travel costs my letter calls and says sorry to him we cannot do this deal. They just didn’t want to do it they didn’t feel comfortable doing it was first time I ever worked with them and so I’m like totally bombed out right and I called a friend of mine a friend that actually had a property on the same street and was operating those properties as short term rentals she’s like old school woman she was doing this before Airbnb and she gave me her lender. And she knew what I was doing I was buying that property for shorter miles actually became really good friends but she gave me her Leonard said why don’t you try to Colin heath and see what he says so I call a piece and he says sure temp we can find that deal no by the way. Do you want some money for the renovation and I was like. Yeah well my gosh I couldn’t believe it you know and when I call them I was a little nervous I was definitely nervous because I thought this was a done deal so just make sure that you’re shopping around you’re talking to multiple lenders because there are all different okay a couple real quick options that you might want to consider. Without a bank then the biggest 1 hears owner financing and what is owner financing that’s essentially buying a property that you don’t use a commercial bank for you’re not taking out a bank loan the owner the existing owner of the property is going to sell you the property and the land back to you the balance of the property so to make it simple let’s say the property is $100000 and those don’t really exist anymore well let’s just say the property is $100000 the owner wanted to 20 percent down payment he gave 20000 but you still owe $80000 on the property right normally you would go to a bank and say Hey Mr bank can you give me a loan for $80000 so that I can buy this property well if we’re not using the bank in this example and the owner owns a property out right so he doesn’t have any doubt on the property he can offer to finance the balance for you so let’s just say that $80000 that you still owe the owner says yep I want to sell this property I know that interest rates are higher for you right now and making it more difficult to qualify for this property potentially so why don’t I loan you the balance over a 10 year period 46 percent. Now this is this can be a really good deal for both you right on the owners’side let’s say the owner really wanted the cash for the down payment but also wanted a monthly income stream all this can be a good solution for that at the same time allows you to buy the property now that loans not going to go on your credit report either which is also kind of a nice thing of course we want to make sure that we do this professionally we wanna make sure we have a lawyer drop all the docs and everything is squeaky clean and just as it should be but it can be a win win for you and the owner if we think about it there are a lot of people don’t have loans on their properties in the U. S. actually one of the recent stats I heard is that like around 50 percent of the homes in the US are owned outright that means in any one of those people that owns one of those homes and doesn’t have that on it they could potentially sell their property and offer you owner financing so there are a lot out there not necessarily as easy to find sometimes people advertise it straight out that they are open to lending but the owners lending you might see the call phys bow for sale by owner and a lot of times those owners don’t have loans on the property so take a look at that if you see property do like ask ask if that is a potential that’s the only way we’re going to find out right is whether we ask or it’s advertised that way so we have a lot of people that own homes in the U. S. and don’t have that on them there’s also a little R. and we have an aging demographic in the U. S. all the baby boomers have reached retirement age is now living on fixed incomes but they also have a lot of equity in their properties so this could be really good solution for them to sell their property maybe they want to downsize and they want that 20 percent down payment or 10 percent or whatever you work out with the owner that’s the beauty the owner financing as well it’s. Super flexible it’s whatever terms you guys agree on so maybe that owner wants that initial chunk of money but but they have a fixed income which is being sort of disintegrated by inflation unfortunately and they want a little extra spending money well receiving that monthly payment from you for 10203040 years whatever you work out with them can be a really good option for them so consider owner financing if you haven’t already it is a good option and you can always refinance out of that in the future to a course that has to be in your terms but let’s say interest rates do go back down in a couple years you pull out another loan from a bank and you pay off the balance that you owe from out owners sell very very flexible can be a really good option 1 last alternative financing option 1 and leave you with not necessarily financing option like with a banker with an owner but that’s just partnering if properties are out of reach for us maybe we don’t have the down payment or we don’t have the background and the skills partnering is 1 of those beautiful things that real state allows us to do we don’t partner when we buy stocks right we don’t partner when we buy precious metals are some these alternative investment options but with real estate that is an option we have and it’s a really good 1 I’ve done it myself so maybe a topic we can explore more in the future but consider those options and just to recap interest rates may seem high right now but if we look at the rate of inflation it’s actually still cheap money doesn’t mean you can’t refinance in the future if you pull out a loan today just make sure loan terms allow for that. Make sure you talk to all the lenders you possibly can to get a good idea and explore your best options and if you don’t find any options with them consider owner finance scene if you can find a property one owner that’s willing to do that and lastly consider partnering kommen excellent option for us as real estate investors I hope I gave you some good insight into loans and hope your sticking with it and still looking for deals and until next time I hope you have a wonderful wonderful day cheers. I want to get on the fast track to financial freedom for short term rentals what all searching the properties you acquire you want to make sure that you acquired the right properties I want to give you my you doctor will show you how to do just that there is no charge to my gift to you for being one of our subscribers just go to restmethods.com that’s R E S T methods.com.

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