How to use these low-interest rates to our advantage?

Question

Mortgage rates continue their slide lower and lower. I think it is a great time to buy if you were going to move anyway. We moved back in March and got 3.25% on a 30 year fixed mortgage before the Houston market got really hot.

Wondering is anyone else considering moving up in House (price) because house values can be a hedge against inflation and/or, good use of credit to borrow at these 50-year record low-interest rates?
Maybe now is the time to move up to high-end rentals with less cashflow but better appreciation?

The 30-year fixed-rate mortgage 2.67%, the lowest rate ever recorded by Freddie Mac, with records dating back to 1971. reference

https://magazine.realtor/daily...

I do feel pressure to look for ways to use this low rate environment to my advantage. I am still actively looking for more rentals, but I see lots of money chasing deals in this low-interest-rate environment. You have to be quick! I feel like everyone is looking for better returns on their money than the .5% you get on saving accounts!

I would love to hear everyone's thoughts on how to use these low-interest rates to our advantage?

Scotty Gifford · Answer

@Cody L.

Truth! :)

Brian G. · Answer

@Scotty Gifford 1) Buy more RE with 30 year fixed 2) Refi 3) Cash-out Refi

Cody L. · Answer

"I would love to hear everyone's thoughts on how to use these low-interest rates to our advantage?"

REFI REFI REFI REFI REFI REFI REFI REFI

Henry Clark · Answer

@Scotty Gifford

Returns.  I look at cash flow versus returns.  Our project targets are 25 year term loan with a cashflow (principal/interest/expenses) payback of 8 to 12 years.  Most banks have a 5 year loan % restructure.  We get a maximum rate increase rider.  The only way we get "caught" is if interest rates go to 9% and we are not more than 6 years into a deal.

Answer to your original question of moving up in house and debt; to me is the back end pluses and minuses and if they fit your risk reward.

Scotty Gifford · Answer

@Henry Clark

All great points!

I do believe know values are being pushed up  because of low inventory and the super low rates. And that at some point the rates will have to Increase and more inventory will come on the market.  So you are right prices could drop when that happens. And there are many other factors government, banks, the economy that could cause this market to crash down.

I just don't know when that will happen, as I doubt any expected 2020 to be up this much. The home values are up 5% or more in most markets across the US.

With that said.  I wasn't thinking about half million dollars or more homes but more in the 300s price range homes. I play more in the "starter" homes 3/2 or 4/2 under 2000sqft as they cash flow nicely.  It just nicer neighborhood normally appreciate faster...but to you point maybe they won't!

I have thought about self storage many times.  It does make a great play in any market in America, as we love our stuff!

I definitely need to learn more about that arena, But I can see the possibility and potential!

Can you share your projected or actual returns on these projects?

Henry Clark · Answer

The numbers say do it.  We are all looking at upward curves on REI, and downward curves on Interest rates.

The answer to your question is on the back end of a bubble burst for the industry or you personally.

1.  What if your 30 year 2.67% mortgage gets "called".  Divorce, move cities- you don't rent out a $700,000 home, oil industry goes bust and your impacted.  Are you liquid enough to take the house going down to $450,000 and being forced to sell in that market?

Weigh that versus your potential upside.  Will the $700,000 house go above $800,000 in the next few years?  Is it worth it with a 7% sales commission (note your a realtor).  Will interest rates go further below 2.67%; how much if any will that improve your value or increase the Buyer action.

2.  If you buy up, how do you protect yourself from the "downward Trend" that will come.  Buy into a neighborhood that has no downside in market.  Your in Houston.  Do your neighbors have little miniature ponies running around on the lawn.  Then your fine, your market won't go down.  I wouldn't buy into a new subdivision.

Just thoughts.  Not an area we are investing in or doing.

We are actually in the countryside and subdividing off and selling land into this market.  Also do Self Storage.  Have two large projects we are currently adding on.  Self Storage is good whether the economy is bad or good.  Only down side is when its stagnant, and that okay if your rented up already.

Just opinions, your dollars.  Good luck