All Forum Posts by: David S.

Thanks for reminding me Anthony Gayden; We first looked at the HELOC route but found the interest rates to be significantly higher and the terms a bit more restrictive. Part of this has to do with our primary being zoned as agricultural property. Rules rules rules. With the HELOC we can do one or the other, with the 30yr we can do both and at a lower rate.

Thanks for your thoughts! 

Hey guys! Looking for advice on a good problem. My wife and I are talking to a lender for an addition to our primary home; we're adding a 3 stall garage with a MIL suite above it that we intend to rent out along with use of half our barn so the tenant can board a horse on site since we don't need the entire barn. It's likely the best way to unlock the value in our property; call it a house and farm hack. 

In speaking to the lender we qualify for more money than we need. If we take out a mortgage for the maximum amount offered, it would leave us with an extra $150k that we could put to work. I'm in Denver but have been scouting the KS City market for a while with an eye on starting an out of state rental portfolio. So this could be a perfect scenario of creating two rentals off of one loan, all using the same origination and closing costs as well as appraisal costs. If I don't use the extra money right away and park it in a CD my holding cost would be $300-$400 a month till I do use it. 

What would you do? Take out the larger loan to pull the trigger on a rental in KS City AND do the addition, or focus on the addition first. I have baked in an extra $50k for unforseens and overruns fyi. 

What considerations come to mind for any of you finance and mortgage experts? 

Thanks kindly! 

Hands down the dog face Joe. What is it with people's fascination with putting a dog snout on their face in a picture? The worst is those who ONLY have a few Snapchat pictures of themselves and that's it, nothing else. It screams "I have no goals in life and watch TV most of the day". 

I kid guys, but I admit I hate all those stupid dog faces and sparkles on FB and am much less likely to rent to somebody who posts pics like that. The thought crossed my mind so I had to have some fun with it! Subconsciously is't probably true for a lot of us! 

I have a policy of not renting to people who use Snapchat on FB profiles. Is this legal? 

@Robert C. I think you're both right and wrong interestingly enough. The Fed can't raise rates much without seriously hurting the deficit that's already out of control (half a trillion just on debt servicing). 

So let's suppose they print away our deficit (what other option is there?) and thus enact in a policy of inflation, what happens to mortgage rates? I think they have no choice but to decouple from the Fed rate, and I think they will in the next 10-20 years. Think about it; who can lend you money at 5% if inflation itself is at 8%? Nobody, not even the government for long. So I may take back what I said to Logan; A 5/1 ARM is great if you hope to refi or plan to sell. But locking in that rate for 30 years sure does help one sleep at night longer term when we're navigating uncharted waters.

It's just a matter of time of course, but when I say that I do believe we're getting close to a recession and I do agree that little has been done to really cure the economy's vulnerability outside of housing. 

There's so many things that can precipitate a recession. The fact that we're at maximum employment right now doesn't help things. At best the economy will chug along at 2% but the days of 3% are a fallacy when the labor force is already effectively fully employed because now we're reliant predominately upon productivity gains for growth. Discretionary spending power continues to dwindle and household debts continue to increase. For me these factors are enough to potentially trigger a recession, but even if they don't, the don't bode well for rising home prices. There comes a point where people just can't afford more than 40% of their take home on housing and we're about there. Then we have the fact that housing creation has apparently finally caught up with housing need in the US. Historically this points to a slowdown in construction as well as a cooling of the market.

That said, with winter coming, economic headwinds prevalent, an already extended housing market, an inverted yield curve, and an election coming up, I don't see why one would rush into this market. I'm looking to buy one home in the next 12 months, maybe two if the right deal presents itself, but I'm not looking to jump in guns blazing. Wy is right; be conservative. If you can have rentals with more than 20% equity I'd do it. I'd also use a 5/1 arm if the rates are better because good ole uncle Sam can't afford his own debt if rates go much higher than where they're at, but don't get me started on that.

Cheers. 

So I'm looking at a market that's rather homogeneous and at the same time I realize that there will always be ups and downs in the rental market. With that said, what improvements are your head turners that set your rentals apart from the one next door? 

Example:(but please don't focus on just this) I've always loved real stone counter tops. Give me two essentially identical homes to rent and I'm subconsciously willing to spend $50 more per month for the one that has granite counters in the kitchen rather than your run of the mill laminate. Assuming I'm not the only one, this would translate to $600 a year in increased rent, possibly lower vacancy, and increased resale value. For $2500-3000 I have to think this is actually a decent long term improvement if your home happens to need new counters anyway (heck, you'll spend $700-1000 for cheap counters anyway if they're installed for you). 

For the extra money I also think that stainless is a worthwhile upgrade. We're not talking big bucks here, especially if you can install yourself and buy gently used. 

So what are your eye catchers or deal makers that set your units apart from the rest? Shouldn't every landlord strive to have a stand out feature in every home even if it's not always a slam dunk return on investment in and of itself? 

Thanks all. 

I'm curious what the thoughts are on future mortgage rates, say 5-10 years out. 

It would seem to me that most subscribe to the philosophy that rates will stay low indefinitely, in part because that's the new precedent, but also because the Fed has to keep them low to keep payments manageable on our national debt. Traditionally I've subscribed to this view myself, but I've started to question this thinking:

Fed rates are a major aspect of mortgage rates. So long the economy and deficit are deemed stable by the market, Fed policy seems to be the number one factor that influences mortgage rates. 

But what happens when debts start to spiral out of control (as they will)? At a certain point, the market will perceive increased risk in the bond market (already happening), and the way our national debt is going this will eventually happen with US treasuries too. I'm starting to suspect that longer term, market forces will start to prevail over Fed policy, pushing up bond yields -and thus mortgage- rates, as investors rightfully seek higher yields as debt ratios keep climbing. 

I think most in this nation have fallen asleep at the wheel assuming that treasuries really are 100% guaranteed. And sure, if you can print money to pay them off, you'll get paid, but what will those dollars be worth when they have to flood the monetary supply (M2) to make investors whole? In other words, we can't just keep raising the debt ceiling forever without treasury investors eventually taking it on the chin, but as of yet this is the plan for the future. When this happens, rates will go up regardless of Fed policy. Seems to me it's another housing crisis waiting to happen, though not for another 10-20 years.

Am I missing something? Would love constructive feedback on this. The notion that low rates will prevail long term seems based on the view that market forces can be overcome by Fed policy alone, which they can't, at least not naturally. 

OK, that helps. Now for the valuation part. Is a home on a slab worth less generally?