All Forum Posts by: John Bradley

After speaking with about 5 or 6 mortgage companies, I found one that was more than happy to do an FHA streamline refinance on my rental house. ($51k, 3.375% down from 5.5%). The companies that said no did so for various reasons; they either didn't do them on investments, the loan amount was too small, or they flat out denied that an FHA streamline could be done on a rental. (Whatever).

Anyway, the company I'm working with said that I was going to have to bring 2 months worth of interest, ($460), to closing, and cited this as an FHA stipulation for streamline refi's on investment properties. It didn't make much sense to me, but I told them to go ahead and send me the paperwork. (Figuring this stuff out over the phone can be daunting. I'd rather have the numbers in front of me so I can look them over and do my own research).

The loan docs arrived and this amount, ($460), shows up on a rate-lock agreement. Nowhere is it found on anything that says pre-paid interest. I called a HUD rep and asked if they knew of any FHA rule that stipulates interest up front simply because its an investment property. The HUD rep told me there was no such stipulation exclusive to streamlines on rentals.

So I called the mortgage agent and asked him to go over this with me, because I couldn't make heads or tails out of it. He immediately went into a spiel about how he has a concussion and how his father just passed away, but because he's a "workaholic" and wants me to be satisfied, he's gonna talk to me. Now I'm not going to call the guy a liar, but this is just weird and off-putting at the very least. Our conversation ended with him saying he didn't like how that was worded in the documents, (the $460 as a rate-lock), and that he would look into it. Ugh.

Does anybody have any idea what this guy is talking about? Because either he or the HUD rep is wrong about bringing interest specifically to an investment property streamline refi. I'm 95% sure its the mortgage rep because of the amount being represented as a rate-lock and because of the uncomfortable phone conversation. Thoughts? Advice? Know anyone that will do this refi for me?

Thanks everyone!

The federal funds rate is the basis for all other rates. Anytime there's speculation that the Fed is going to alter this rate, the market waits with baited breath. The have a few methods by which they control the interest rate.

http://www.forbes.com/sites/davidmarotta/2014/03/30/how-does-the-fed-control-interest-rates-in-a-free-market/#6e85e6afc226

The Austrian school economists, (Americans named for their Austrian heritage, not because of any government/economic policies of Austria), explain booms and busts quite clearly. It's called the "Austrian Business Cycle Theory." (ABCT). In a nutshell, because the interest rate is determined by a central bank authority, (The Fed), instead of the market, malinvestment occurs. This malinvestment causes prices to artificially inflate. Of course, this investment is not happening because of actual market price signals, so it is artificial. As the bubble inflates, investors chase the money in order to get in on the action. Couple this with government programs that are also extra-market, and you get the makings of a catastrophe. Eventually, the prices are driven upwards to a point of unsustainabilty. The market corrects and the bottom falls out. Paper wealth disappears in the blink of an eye. So then, people clamor for government to fix things. The finger pointing begins and the free market is blamed. Some politician comes along promising to save the day, and the cycle starts all over again.

Wow. Excellent work! Looks great! You and your team should be very proud!

I know for sure that I'm undercharging on rent. I just haven't bothered with it because they're good tenants and I don't want to be bothered with the work and lost income that comes with a vacancy.

Having said that, I know that I'm in the wrong position here. This is the attitude, (and predicament), that I've created for myself by being far too complacent with my rental. If I was doing things the right way, then I'd have my ducks in a row so that I can treat my rental business as just that; a business. And its true, you don't want to needlessly run off excellent, long-standing tenants because you want to squeeze an extra dime out of the place. However, you don't want to let yourself get run-over, either. For me, taxes and insurance have done nothing but increase over the years, but I've just absorbed the cost because I don't want the extra headaches. If I maintained that attitude towards being a landlord, then I'm sure I'd never be as successful as I could be owning multiple units, which is my goal.

My advice to you would be to do what I'm doing right now. Run a comparison of rental houses and apartments in your area. Especially for the houses, watch to see how long they stay advertised before they are rented. Get a feel for how long you might have to deal with a vacancy while looking for new tenants. Thats because the worst case scenario is that your tenants will pull the plug. (Unlikely, but possible). If you find that an increase is legitimate, and you've considered your vacancy costs and can get through them without creating too much of a hardship, then by all means do it.

Another thing I plan on doing is letting them know ahead of time. If the lease is going to expire in a few months, let them know whats in store. Be precise with the new figure, too. This way, the both of you can plan accordingly. Ask them point blank, "Will the increase cause you to look elsewhere?" If they say yes, then you can get a jump on marketing the home so as to limit the vacancy as much as possible.

Also, its not a bad idea to talk with future tenants about the possibility of rent increases. (Another thing I plan on doing from here on out). This way, they know what they're getting into. If they aren't going to be able to weather a $25-50 increase in a year, then chances are they won't go to the trouble of signing the lease and moving in, knowing that they're just going to be moving out soon. Plus, if they go a year without an increase, they'll feel like they've dodged a bullet and will be more likely to stay when an increase does finally come their way. Good luck!