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Archives for September 2023

New FHFA Mortgage Rule: Fees Structure to Change on May 1

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New FHFA Rule on Mortgage Fees

The Federal Housing Finance Agency (FHFA) recently announced changes to the loan-level price adjustments (LLPAs) for borrowers with conventional mortgages backed by Fannie Mae or Freddie Mac. The changes, which are set to take effect on May 1, 2023, will impact the pricing structure of mortgages for borrowers.

New Mortgage Pricing Structure

The FHFA's new pricing structure will vary based on credit scores and down payments made by borrowers. Borrowers with higher credit scores and lower down payments are likely to see a reduction in fees, while those with lower credit scores and higher down payments will see an increase in fees. For instance, a borrower with a 700 credit score and a 20% down payment will now pay a fee of 1.375% compared to the previous 1.25% upfront.

Who Benefits and Who Pays More?

Borrowers with a credit score of 780 or higher who put down 3% will pay a fee equal to 0.125% of their loan amount, as opposed to the previous 0.75% of the loan amount. This could translate into significant savings for borrowers. However, the National Association of Realtors has pushed back against these changes, citing affordability concerns for borrowers and compliance issues for lenders.

Another fee change is expected to take effect on August 1, following pushback from the mortgage industry. This change would add an upfront fee for borrowers with a debt-to-income ratio (DTI) above 40%. While some industry leaders have urged the FHFA to reconsider the rule, the FHFA has yet to make any announcements about delaying this particular rule.

What New Rules Mean for People with Higher Credit Scores

While the new pricing structure may have unintended consequences for homebuyers with higher credit scores, it is still better than having a lower score. The new rules could lead to higher closing costs for buyers with higher credit scores, but they will still get a better deal than those with lower scores. It's important to note that these changes will not apply to FHA, VA, or USDA loans, and homebuyers should continue to pay their bills on time and avoid purposely lowering their credit scores.

Potential Risks for Borrowers with Lower Credit Scores

While the new pricing structure may benefit borrowers with higher credit scores, those with lower scores could be at risk of paying higher fees, making it harder for them to qualify for a loan or to afford a home. As a result, industry leaders have expressed concerns about affordability for these borrowers. Furthermore, some experts have pointed out that the new pricing structure could exacerbate existing inequalities in the housing market, particularly for marginalized communities who already face barriers to homeownership.

Lender Compliance Concerns

Lenders face compliance concerns as they try to adapt to the new pricing structure. Many lenders have already invested heavily in their systems to comply with the previous pricing structure, and the new changes could require additional investments in technology and personnel. The National Association of Realtors has urged the FHFA to delay the implementation of the new pricing structure until January 2024 to give lenders more time to adapt.

The new pricing structure will also impact borrowers who are looking to refinance their existing mortgages. Borrowers who have built up equity in their homes may be able to benefit from lower interest rates, but they may also have to pay higher fees if they have lower credit scores. The changes could make it more difficult for these borrowers to refinance their mortgages and access the savings that come with lower interest rates.

FHFA's Response to New Mortgage-Fee Rule

The Federal Housing Finance Agency (FHFA) recently updated the pricing framework for Fannie Mae and Freddie Mac (the Enterprises). This change has attracted a lot of attention and unfortunately, much of what has been reported is based on a fundamental misunderstanding about the fees charged by the Enterprises and the reasons behind their update.

FHFA's Objectives and Actions

The FHFA is primarily a safety and soundness regulator, and the Enterprises were chartered by Congress to provide liquidity, stability, and affordability by facilitating responsible access to mortgage credit through their activities in the secondary market. To achieve this mission, the Enterprises charge fees to compensate them for guaranteeing borrowers' mortgage payments. A portion of these fees are “upfront” fees that are based on the risk characteristics of the borrowers and the loans they are obtaining.

It had been many years since a comprehensive review of the Enterprises' pricing framework was conducted. FHFA launched such a review in 2021, with the objectives to maintain support for purchase borrowers limited by income or wealth, ensure a level playing field for large and small lenders, foster capital accumulation at the Enterprises, and achieve commercially viable returns on capital over time.

FHFA took several steps over the past 18 months to achieve these objectives. First, targeted fee increases were announced for second home loans, high-balance loans, and later, cash-out refinances. Next, upfront fees were eliminated for certain groups core to the Enterprises' mission, such as first-time homebuyers with lower incomes who nonetheless have the financial capacity and creditworthiness to sustain a mortgage. Finally, in January, the upfront fees for most purchase and rate-term refinance loans were recalibrated. These actions work collectively to create a more resilient housing finance system.

Addressing Misconceptions

The final step, in particular, seems to have attracted a series of recent misconceptions despite being announced over three months ago. Director Thompson addresses these misconceptions directly:

Higher-credit-score borrowers are not being charged more so lower-credit-score borrowers can pay less. The updated fees, as was true of the prior fees, generally increase as credit scores decrease for any given level of down payment.

The new framework does not incentivize a borrower to make a lower down payment to benefit from lower fees. Borrowers making a down payment smaller than 20 percent of the home's value typically pay mortgage insurance premiums, so these must be added to the fees charged by the Enterprises when considering a borrower's total costs.

The targeted eliminations of upfront fees for borrowers with lower incomes – not lower credit scores – primarily are supported by the higher fees on products such as second homes and cash-out refinances.

The changes to the pricing framework were not designed to stimulate mortgage demand.

Why This Matters

Since entering conservatorship in 2008, the Enterprises have remained undercapitalized and maintain a taxpayer backstop should they confront significant losses. This change will better protect taxpayers in the long term and put the Enterprises on more durable footing, which will allow them to support affordable, sustainable mortgage credit across the economic cycle to the benefit of all Americans.

The updated pricing framework will further the safety and soundness of the Enterprises, which will help them better achieve their mission. They will provide reliable liquidity to the market while also providing more targeted support for creditworthy borrowers limited by income or wealth. And they will do so with a pricing framework that is more accurately aligned to the expected financial performance and risks of the loans they back.

Summary

The updates made to the pricing framework of Fannie Mae and Freddie Mac are designed to bolster safety and soundness, better protect taxpayers, and support affordable, sustainable mortgage credit across the economic cycle. These changes were made after a comprehensive review of the Enterprises' pricing framework to ensure a level playing field for large and small lenders, foster capital accumulation at the Enterprises, and achieve commercially viable returns on capital over time.

Contrary to recent misconceptions, the updated fees do not unfairly charge higher-credit-score borrowers more to benefit lower-credit-score borrowers, nor do they provide incentives for borrowers to make lower down payments. The targeted eliminations of upfront fees for certain groups, such as first-time homebuyers with lower incomes, are primarily supported by higher fees on other products.

The updated pricing framework will help the Enterprises better achieve their mission of providing liquidity, stability, and affordability in the mortgage market, while also promoting safety and soundness and protecting taxpayers.

References:

  • https://www.businessinsider.com/personal-finance/biden-fhfa-new-mortgage-fee-structure-2023-4?IR=T
  • https://www.fhfa.gov/Media/PublicAffairs/Pages/Statement-from-FHFA-Director-Sandra-Thompson-on-Mortgage-Pricing.aspx

Housing Shortage in the US: Challenges and Solutions

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Housing Shortage

Housing Shortage in the U.S.

The United States is facing a housing shortage, and it is affecting millions of Americans. The demand for housing has increased dramatically in recent years due to factors such as population growth, a strong economy, and low-interest rates. However, the supply of new homes has not kept up with the demand, resulting in a housing shortage. This has led to rising housing costs, increased homelessness, and other social and economic problems.

The housing shortage is a complex issue that affects different groups of people in different ways. Renters, home buyers, and low-income families are among the most affected by the shortage. For renters, the shortage has led to rising rents and increased competition for affordable housing. For home buyers, the shortage has made it harder to find a home and has driven up home prices in many areas. Low-income families are especially vulnerable to the effects of the housing shortage, as they are often unable to afford rising rents or the high cost of homeownership.

The shortage of affordable housing has also become a significant issue. The rising housing costs have made it increasingly difficult for many people to find affordable housing, which has led to an increase in homelessness and other social problems. Finding solutions to the housing shortage and the lack of affordable housing has become a top priority for policymakers, housing advocates, and community leaders across the country.

In this article, we will explore the housing shortage in the US, including its causes, effects, and potential solutions. We will also look at the challenges of finding affordable housing in the current market and the policies that are being proposed to address the issue. Finally, we will provide an outlook on the future of the housing shortage in the US, including potential trends and projections.

Causes of Housing Shortage in the US

The housing shortage in the United States is a complex issue that has been building up for decades. There are several reasons behind the shortage, ranging from demographic shifts to regulatory barriers. One of the primary causes of the housing shortage is the lack of new construction. According to the National Association of Realtors, the United States is currently experiencing a housing shortage of between 5.5 and 6.8 million units, with the gap between supply and demand widening every year. This shortage is partly due to a decline in new construction, which has failed to keep pace with population growth and demand for housing.

Another significant factor contributing to the housing shortage is the rising cost of construction materials, including lumber, steel, and concrete. The COVID-19 pandemic has disrupted global supply chains and caused shortages of raw materials, driving up costs and delaying construction projects. In addition, tariffs on imported materials have increased costs for builders, making it more challenging to construct affordable housing.

Regulatory barriers also play a role in the housing shortage. Many local and state regulations, such as zoning laws and building codes, can drive up the cost of new construction and limit the supply of affordable housing. For example, minimum lot sizes and setback requirements can increase the cost of land and reduce the number of units that can be built on a given parcel. Similarly, building codes can add significant costs to new construction projects, making it more challenging to build affordable housing.

Impact of Housing Shortage on Society

The housing shortage in the United States has significant consequences for individuals, families, and communities. One of the most obvious impacts is the rising cost of housing, which has made it difficult for many Americans to find affordable homes. According to the National Low Income Housing Coalition, there is a shortage of 7.2 million affordable and available rental homes for extremely low-income renters, defined as households earning less than 30% of the area median income. This shortage has contributed to a rise in homelessness, particularly in urban areas.

The housing shortage also has economic consequences. The lack of affordable housing makes it more difficult for businesses to attract and retain workers, particularly in high-cost areas like California and New York. This can limit economic growth and harm productivity. In addition, the high cost of housing can leave families with less disposable income, limiting their ability to spend on other goods and services.

The housing shortage also has social consequences. Housing instability can lead to poor health outcomes, including increased rates of mental health issues and chronic illnesses. It can also exacerbate existing inequalities, particularly for low-income and minority households. For example, Black and Hispanic households are more likely to experience housing insecurity than white households, with Black households experiencing the highest rates of homelessness.

In conclusion, the housing shortage in the United States is a complex and multifaceted issue that requires a comprehensive approach to address. From increasing new construction to reforming regulatory barriers, policymakers and advocates must work together to ensure that all Americans have access to safe, affordable housing.

Effects of the Housing Shortage

The housing shortage in the US has had a significant impact on various groups of people. Renters have been hit particularly hard, with a shortage of available rental units leading to rising rents and increased competition for housing [6]. This has made it difficult for low-income families to find affordable housing, leading to housing insecurity and potential homelessness [7]. Homebuyers have also been affected, as the lack of inventory has led to increased competition and rising home prices [8]. Additionally, the shortage of affordable housing has contributed to a widening wealth gap, as low-income families are unable to afford housing in desirable areas with good job prospects [9].

Affordable Housing

The shortage of affordable housing in the US has become a major challenge for many Americans. Rising home prices, stagnant wages, and a lack of affordable housing options have made it difficult for low-income families to find housing that meets their needs [10]. According to a report by the National Low Income Housing Coalition, there is a shortage of more than 7 million affordable and available rental homes for extremely low-income renters in the US. This shortage has led to an increase in homelessness and housing insecurity, particularly among vulnerable populations such as seniors, veterans, and families with children.

Policy Solutions for Housing Shortage

Addressing the housing shortage will require a multi-faceted approach that involves a range of policy solutions. Increasing funding for affordable housing programs, such as the Housing Choice Voucher program and Low-Income Home Energy Assistance Program, can help to provide more affordable housing options for low-income families. Relaxing zoning regulations and incentivizing developers to build more housing, particularly in high-demand areas, can help to increase the supply of housing and reduce housing costs. Additionally, programs that provide down payment assistance and other forms of financial support to first-time homebuyers can help to increase access to homeownership for low- and moderate-income families.

Future Outlook

The future of the housing shortage in the US is uncertain, and projections vary depending on a range of factors, such as population growth, economic trends, and policy decisions. However, it is clear that addressing the shortage of affordable housing will require a concerted effort from policymakers, developers, and advocates. With a growing awareness of the importance of affordable housing and the impact of the housing shortage on vulnerable populations, there is hope that the US can move towards a more equitable and sustainable housing system in the coming years.

Sources:

  • https://www.nar.realtor/research-and-statistics/housing-statistics/americas-housing-crisis
  • https://reports.nlihc.org/gap
  • https://www.cbpp.org/research/housing/federal-rental-assistance
  • https://www.hud.gov/program_offices/comm_planning/affordablehousing/library/first-time_homebuyer_programs

How To Retire Early With Real Estate?

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How To Retire Early With Real Estate?

So, how does it feel to Retire Early with Real Estate? When you talk about retiring early with real estate, the default answer for many is, “I’ll pay off the house.” A common second answer is, “I can borrow against my home equity if I need the money.” The best answer would be, “That’s how I pay for my early retirement.” Real estate is often viewed as an effective way to hedge against market volatility. The best way to retire early with real estate is by investing in rental properties as they generate passive income.

The short answer is: yes, real estate is a good investment for retirement if done right. Too many people think that you cannot retire early with real estate because it requires becoming a handyman. In reality, you can outsource that work to a property management company, generally for 10% of the rent collected on the rental property. This means you could buy five to fifteen rental homes and have someone else do the bulk of the work. If you invest in apartment buildings, commercial real estate, or other projects, you are even more removed from the day-to-day operations of the property.

<<<Also Read: Housing Market Predictions>>>

The wrong answer to this question is to start buying properties to rehab and hope that you can sell them at a profit. Yes, house-flipping shows are popular. No, it is not a good way for retirees to invest in real estate. You risk losing a large portion of your nest egg if the property takes longer to sell than expected or if the rehab costs of the property are far higher than expected.

For skilled contractors, this may be a viable real estate investing strategy, but they risk owning their job because they only clear as much money per flip as they’d earn working for others. In summary, house flipping is not a viable method for most to retire early with real estate. When you choose to invest in real estate for your retirement or otherwise, don’t buy properties in an area where people are moving out. Yes, the properties are cheap.

No, you won’t earn much in rent and your ability to sell the property if you want to get out is declining. Be careful of buying rental properties in markets going up, since the property in a good school district may be desirable but the rents you could get are not as high as a percentage of the property’s value. After all, if the rent is too high, they may find it cheaper to simply buy the house next door. Do buy properties to rent that you can sell as required, since those who retire early with real estate may need to sell the property to pay major medical bills or for long-term care.

Can You Retire Early With Real Estate?

retire early with real estate

Before we answer this question, let’s compare real estate to some alternative forms of investments that can be included in your early retirement strategy. Government bonds are theoretically the safest investments around, but they’ve often failed to pay interest rates above the inflation rate. Savings accounts are hardly better. Corporate bonds pay slightly better, but they are hard to find. The higher the interest rate, the greater the risk the business will go under. Nor can you assume that your corporate bonds will pay back your principle.

During the Obama administration, the federal government overturned years of established precedence and said the unions get their money ahead of bondholders, most of whom were retirees.

Stocks that pay dividends were considered a gold standard, but the sheer volume of money pouring into the market via tax-advantaged retirement accounts has driven up their cost relative to the dividends they may or may not pay. You cannot plan a retirement budget off of praying for capital gains. A viable rental income retirement strategy balances income with security.

And this brings us back to the question, “can you retire early with real estate?” Yes, you can retire early with real estate by owning a portfolio of rental properties. The rental real estate retains its value as long as you vet tenants, supervise the properties and maintain proper insurance. It generates cash flow every month the tenants pay, and you can ensure this by vetting tenants and evicting those that don’t pay rent. The return on investment for rental income is in the 5% to 10% range, depending on the type of investment. It is difficult to find those rates of return without far greater risk than rental real estate. This is why it is a good idea if you choose to retire early with real estate than go out for risky investments.

How Investing in Real Estate Can Boost Your Retirement Income?

Yes, you can retire early with a passive real estate income if you do it right. You can follow these successful real estate investment strategies to boost your retirement income.

Investing In REITs For Early Retirement

While owning real estate can be lucrative, it's not necessarily the most feasible option for every investor. Acting as a landlord for some can be both costly and overwhelming. Investing in a real estate investment trust is considered a sound way to secure your retirement.

REITs by comparison, offer many of the same benefits associated with direct property ownership without the hands-on management responsibilities. In this retirement strategy, you're buying shares in REITs or real estate investment trusts. You’re buying shares of a corporation that builds apartment buildings, commercial real estate, or other types of property. They are required by law to pay out 90% of their taxable income as dividends to shareholders. You receive regular income from them, though it may only be paid out annually.

The main benefits of this approach towards securing your retirement are liquidity since you can sell the shares, and the ability to diversify since you can buy shares in medical property developers and apartment builders. Many real estate-related investments have done quite well in the last decade or so. The median sales price of single-family homes hit $315,700 at the end of the third quarter, up 23 percent from the prior peak for values in 2007 before the financial crisis hit.

Compare this to the risk of putting all of your money into a single commercial building or several single-family rental homes. A better way to assess REITs is to look at their funds from operations or FFO. Whereas reported earnings treat depreciation on real estate holdings as an expense that lowers results, FFO adds depreciation back, which more accurately reflects the value of a trust’s property. As you're planning your early retirement strategy for 2019 and beyond, it's important to ask yourself whether a real estate investment trust belongs in your portfolio.

According to Scott Crowe, chief investment strategist at CenterSquare Investment Management, “REITs offer significant advantages to investors who are seeking access to real estate relative to direct property ownership, including much lower asset management costs, improved liquidity in terms of geographic and property sector exposure and greater transparency.”

Rental Income Retirement Strategy

A second viable strategy is retirement through rental income. There are many ways to make passive income in real estate. One of them is direct income from rentals. A rental income retirement strategy is the best option for retiring early with real estate. Once the income surpasses the expenditures, then you are on the winning side. In this strategy, you'd be buying detached single-family homes to rent out. You receive a higher rate of return on these properties than duplexes or triplexes. The properties are easier to sell if you want to get out of them.

We recommend single-family homes over owning condos because condo homeowner association rules could limit how the property is used – including as a rental unit. Another issue is the boom and bust cycle of condos. While you could find a condo at a deep discount during a bust, the lower limit of rent you could charge is set by the surrounding apartments. If you buy at the peak, your return on the investment is lower while the rent you charge is still determined by what surrounding apartments go for. The only potential benefits to condos are the elimination of yard work and the occasional ability to get a bulk discount for buying several properties.

While you can replace your income with a good rental income retirement strategy, you will have to pay the bills either upfront or over the long term. Don’t delay paying for that new roof and have to gut the house to fix the rotting walls. Don’t ignore pest control and have to pay for termite treatment of the property. Don’t skip the process of vetting tenants and end up paying for the damage they cause. Shortcuts will cost you dearly.

These issues arise even if you’re buying condos instead of single-family homes. If you don’t want to do the work or hire someone else to do it, consider investing as a partner in an apartment complex or buying REIT shares instead. Remember, to retire early with real estate, you must choose a property that is “turnkey” and “rent ready.” A good rental property is fully refurbished or a new construction residential property. The property must be in growth markets and must produce a positive cash flow. The property must have a good appreciation potential.

Norada Real Estate Investments can help you retire early with real estate investing. By researching top real estate growth markets and structuring complete turnkey real estate investments, they help you succeed by minimizing risk and maximizing profitability. For below-market value rental properties for sale (Click on the hyperlink).

How Many Rental Properties Do You Need To Retire Early?

The answer to this question depends on how much money you need to retire early on. If each property clears $300 a month, then you need 10 filled properties to replace a $3000 a month income. If you need $6000 a month in income, then you’d need to rent out 20 single-family homes.

According to a recent study, single-family homes in large U.S. cities have generated returns of about 9% annually between 1986 and 2014. Half of that gain was rental income, and half of it was in capital appreciation. This means that rental real estate yielded an average 5% ROI each year after expenses like insurance, property taxes, and maintenance. Those who chose to sell a home gain about 5% per year of capital gains. Average rents were about 10% of the value of the property, but 40% or more went to pay bills like the mortgage, insurance, taxes, and maintenance.

This suggests that if you invest $100,000 into one or two single-family rentals, you’d reap about $5000 a year in rental income. However, that figure is based on purchasing the property outright. In reality, since those figures assume you’re carrying at least a partial mortgage on each property paid in part by the tenant’s rent, you could invest $100,000 into two large single-family homes or four smaller ones worth around $200,000 and reap $10,000 or so in rental income per year.

The more money you put down on a property, the more you clear each month. At the other end of the spectrum, if you put 10% down on each property, you may only clear $300 a month in passive income and need ten homes to generate that $3000 a month income stream. If you can buy the properties outright, you could clear $700-$1000 a month – and in the last case, you only need three single-family homes to pay your bills. Note that the rental income retirement strategy will depend in part on the level of debt you take on and the interest rates you pay on the debt, so run the numbers before you buy a rental property.

This means that your rental income retirement strategy depends on several factors. How much income do you need to pay your bills? And how much risk are you willing to take in the form of debt? Greater debt levels could yield many properties that end up paying your bills, but if you don’t manage costs and make sure the rent is paid, it can all collapse on you.

Conversely, you have significant upside potential if you can live on less than the generated cash flow and start paying down the mortgages. Once a house is paid off, you clear far more income from it each month without additional expenses. If you have a small portfolio and aggressively pay down the debt, you have an inflation-proof way to retire early with real estate since your income will automatically go up with time.

If you are a beginner in rental property investing, it is very important to read good real estate books. You must also learn from successful real estate investors who have retired early on in their lives by investing in some of the best real estate markets like the Dallas Housing Market. Dallas housing market is a great market because it has a strong economy and a constant population growth which will make your pockets bigger. As rents go up smart investors should invest in Dallas for their early retirement.

Another great market for investing for your early retirement is the Houston Housing Market. The Houston Real Estate Market is becoming a hotbed of buyer activity that could be beneficial for real estate investors; just ask the multitude of overseas investors who are choosing Houston as the city of choice to invest in for the foreseeable future.

We also recommend these hottest real estate markets for investors looking to build their portfolio of single-family rental homes for their early retirement. The single-family market is particularly hot right now. Following the housing market decline in 2007, single-family rental properties became favorable options for investors, saving on construction or refurbishment prices. The quick turnaround for an owner to rent out their property means cash flow is almost immediate.

Almost all the housing demand in the US in recent years has been filled by single-family rental units. Between 2019 and 2020, the number of built-to-rent residences – single-family homes designed specifically for rental purposes — grew by 30%. They currently account for around 6% of all new homes built in the United States, a figure that is expected to grow in the next decade. Rent growth is strong in every price tier, but strongest at the very top and some markets are hotter than others.

Remember, caveat emptor still applies when buying a property anywhere. The information contained in this article was pulled from third-party sites mentioned under references. Although the information is believed to be reliable, Norada Real Estate Investments makes no representations, warranties, or guarantees, either express or implied, as to whether the information presented is accurate, reliable, or current. All information presented should be independently verified.

References

Condo restrictions
https://www.nolo.com/legal-encyclopedia/which-better-return-investment-condos-single-family-homes.html

ROI of single-family homes
https://www.usatoday.com/story/money/personalfinance/columnist/2018/05/24/real-estate-heres-how-much-you-can-expect-earn-landlord/618206002/

Property management
https://www.marketwatch.com/story/5-things-to-know-about-investing-in-single-family-rental-homes-2018-05-29

40% of rent goes to expenses, not including mortgage
https://www.forbes.com/sites/erincarlyle/2016/03/31/the-best-markets-for-investing-in-single-family-homes-right-now/#77eed9184496

REITs
https://money.usnews.com/investing/articles/2017-02-21/are-reits-right-for-your-retirement-portfolio

Do People Make a Lot of Money in Real Estate or is it Hard?

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Do People Make a Lot of Money in Real Estate or is it Hard?

Real estate, often hailed as a path to financial prosperity, has captured the imagination of countless individuals seeking wealth and financial security. But beneath the promise of lucrative returns lies a fundamental question: Do people truly make a lot of money in real estate or is it hard to make money in real estate?

The answer is yes, but it's not easy. There are a number of factors that can affect your return on investment (ROI), including the type of property you invest in, the location, and the market conditions.

In this article, we'll take a closer look at how people make money in real estate and what you can do to increase your chances of success.

How much money people make in real estate varies depending on a number of factors, including:

  • The amount of money they invest
  • The type of property they invest in
  • The location of the property
  • The market conditions
  • Their investment strategy
  • Their experience and expertise

Some people make a lot of money in real estate. For example, a study by the National Association of Realtors found that the average real estate investor in the United States made a profit of $100,000 over a five-year period. However, it's important to remember that this is just an average, and some investors make much more than this, while others make much less.

There are a number of ways to make money in real estate. Some of the most common ways include:

  • Rental income: This is the most common way to make money in real estate. When you rent out a property, you collect rent from the tenant. The amount of rent you can charge will depend on the location, the size of the property, and the amenities it offers.
  • Appreciation: This is the increase in the value of the property over time. When you sell the property for more than you paid for it, you make a profit on the appreciation.
  • Renovation and flipping: This involves buying a property that needs some work, renovating it, and then selling it for a profit.
  • Wholesaling: This involves finding a property that is undervalued, and then finding a buyer for it without ever taking ownership of the property yourself.
  • Real estate investment trusts (REITs): These are companies that own and manage income-producing real estate. You can invest in REITs by buying shares of stock.

The factors that affect your ROI in real estate include:

  • The type of property you invest in: Different types of properties have different potential for appreciation and rental income. For example, single-family homes tend to appreciate more slowly than apartment buildings, but they also tend to generate more rental income.
  • The location of the property: The location of the property is one of the most important factors affecting its value. Properties in desirable locations tend to appreciate faster and command higher rents.
  • The market conditions: The market conditions can affect the demand for real estate and the prices that you can charge for rent or sell for. For example, if the market is hot, you may be able to charge more rent or sell the property for more money.
  • Your investment strategy: The way you choose to invest in real estate will also affect your ROI. For example, if you buy a property with the intention of renting it out, you will need to factor in the cost of repairs, maintenance, and property management.
  • If you're thinking about investing in real estate, it's important to do your research and understand the risks involved. Real estate investing can be a great way to build wealth, but it's not without its risks. Make sure you're prepared for the challenges before you get started.

Basic methods to make money through real estate

Real estate, touted as a surefire way to make money, has been a lucrative investment form for centuries. But how does one actually make money through real estate? In this blog, we delve deeper into the basic methods, alternatives, and factors to consider before investing in real estate.

The three primary ways of making money through real estate are appreciation, inflation, and income. Appreciation is when the property's value increases and is realized upon selling the property. It can be achieved through location, development, and improvements. Inflation occurs when the value of money decreases, causing real estate prices to go up. Income can take the form of residential or commercial property rent, royalties from raw land, and contractual option fees.

Appreciation of Real Estate

Real estate appreciation is one of the most common ways to make money in real estate. It happens when the value of a property increases over time, resulting in a higher selling price when you decide to sell. There are three main factors that contribute to the appreciation of real estate: location, development, and improvements.

Location is a critical factor, and buying in a desirable location can significantly increase the value of the property. First and foremost, a good location should be accessible, with good roads, comfortable transport, and other necessary amenities such as shopping centres and schools. It’s important to do research before purchasing and find out about current and upcoming infrastructure projects in the area that could have an impact on future property values.

Development is another factor that leads to real estate appreciation. When an area undergoes development, such as the construction of new buildings, roads, or public amenities, the value of the existing properties in that location may increase. However, it’s important to note that not all development leads to appreciation- choosing the right location is critical for success.

Lastly, property improvements such as renovations and renovations, can also increase the value of real estate. While these improvements can be costly, the return on investment can be substantial when the property is sold.

Overall, investing in real estate is a viable long-term investment strategy. However, it's important to note that real estate markets have both boom and bust cycles, and there are risks and rewards involved. Nonetheless, with smart investments, you can make a lot of money in real estate.

Inflation and Real Estate

Real estate's profitability depends not only on appreciation but also on income. Income can take the form of rent or royalties received from companies that use the land for their business. Raw land has value for the minerals, oil, and other natural resources that it may contain. Farmers may also rent the land for production, while land with trees is valuable for timber harvesting.

The vast majority of residential property income comes in the form of basic rent. Tenants pay a fixed amount per month, which will go up with inflation and demand, while landlords take their costs from it and claim the remainder as rental income. A desirable location is critically important to ensure that landlords can secure tenants easily.

Commercial properties can produce income from the same sources as residential properties. Basic rent is the most common, while tenants also pay premiums for exercising their options like the right of first refusal on the office next door.

Commercial tenants who hold contractual options are the major income contributors. Although options income sometimes exists for raw land and even residential property, it's not common. Overall, income from real estate forms a significant portion of the industry's wealth-creation sources.

Income through Real Estate

Real estate investors earn income in diverse ways, and different investment vehicles fit distinct lifestyles and investing preferences. Raw land may attract investors seeking gradual income growth as companies rent land for production. In contrast, residential and commercial properties provide regular payments in the form of rent.

While residential property income comes primarily from fixed rent, commercial properties provide various forms of rent and option income. The commercial property income can become lucrative when you secure tenants willing to pay a premium to hold onto contractual options like the right of first refusal.

Rent levels increase over time, and inflation and economic growth can also boost returns. Investors ought to research and determine the best investment strategy while balancing the risks and returns. Legal and tax implications are also crucial factors to consider when investing in real estate.

Alternative ways of Making Money in Real Estate

Lease options and contract flipping offer alternative ways of making money in real estate. Lease options are agreements where you lease a property with an option to buy it at a later date, usually at a preset price. This can be advantageous in a real estate market that's trending upwards. In such a market, you can sign a lease option for a lower price, wait for the market to increase the value of the property, then buy it at a predetermined lower rate and sell it at the new higher rate.

Contract flipping, on the other hand, is the transfer of the rights of a purchase contract to another buyer. If you can find motivated sellers and buyers and bring them together, you can make a profit by having the buyer pay more than your purchase price. The key to doing this successfully is to choose deals where there is a discrepancy between the price and the value of the property.

While lease options and contract flipping offer alternative ways of making money in real estate, they're not fail-safe strategies. You'll need to have the right skill set to identify good opportunities and take calculated risks. Above all, it's important to do your due diligence and fully understand the risks before you invest. Successful real estate investors have a knack for timing the market and identifying good properties, but they also have the patience and astute business sense needed to make sure that they come out ahead.

Factors to Consider Before Investing in Real Estate

Investing in real estate may seem lucrative, but like any investment, it has its risks and rewards. Before putting down a large sum of money, make sure you consider the following factors.

Firstly, understand the risks and rewards associated with the property. Even if you think the property is ideal, ensure that it has a good location, development potential, and can attract a good income. Take into account the current stage of the real estate market as well as potential shifts in the market in the near future.

Next, assess your investment strategy for the property. For example, are you a short-term investor who aims to flip the property quickly, or are you looking for a long-term commitment? Your investment goals will determine which type of property to buy and how much you should invest.

Lastly, make sure you consult legal and tax experts before making an investment. Legal and tax implications of an investment in real estate can vary widely, so it is important to cover all bases.

Overall, investing in real estate can create wealth for you, but only if you are well-informed and prepared for the associated risks. Realistically weigh the pros and cons before making any decision with your hard-earned money.

Conclusion

Congratulations, you made it to the end! Real estate is a great way to build long-term wealth and create multiple income streams, but it's not for everyone. Investing in real estate requires extensive research, careful planning, the right investment strategy, and an understanding of the legal and tax implications. Don't forget to consider the inherent risks and potential rewards. We hope this article has given you insight into the many ways you can make money in real estate and helped you decide if it's the right investment choice for you. Happy investing!

Real Estate Income: How to Generate Income from Real Estate?

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Real Estate Income

What is Real Estate Income?

Real estate income is a passive income stream that can be generated from rental properties, real estate investments, or other real estate-related activities. It is a popular way to build wealth and financial security, as it can provide a steady stream of income that is not dependent on employment.

Methods to Generate Real Estate Income

  • Renting out properties: This is the most common way to generate real estate income. Rental properties can be single-family homes, apartments, condos, or commercial properties.
  • Investing in real estate funds: Real estate funds are a way to invest in a group of properties without having to buy them individually. This can be a good option for people who do not want to deal with the day-to-day management of rental properties.
  • Real estate crowdsourcing: Real estate crowdsourcing allows people to invest in real estate projects without having to put up a lot of money. This can be a good option for people who want to get involved in real estate investing but do not have a lot of capital.
  • Wholesaling properties: Wholesaling is the process of finding properties that are undervalued and then selling them to other investors for a profit. This can be a good option for people who are looking to make quick money in real estate.

Real estate income can be a great way to build wealth and financial security. However, it is important to do your research and understand the risks involved before getting started. There are many factors to consider, such as the location of the property, the type of property, and the current market conditions.

If you are interested in generating real estate income, there are many resources available to help you get started. You can talk to a real estate agent, read books and articles about real estate investing, or take online courses. With careful planning and execution, real estate income can be a great way to achieve your financial goals.

Exploring Different Real Estate Income Streams

Real estate can be a great way to generate passive income. There are many different ways to do this, each with its own unique risks and rewards. Here are a few of the most popular real estate income streams:

  • Rental properties: This is the most common way to generate real estate income. Rental properties can be single-family homes, apartments, condos, or commercial properties. The amount of income you can generate from rental properties will depend on the location of the property, the type of property, and the rent you charge.
  • Real estate funds: Real estate funds are a way to invest in a group of properties without having to buy them individually. This can be a good option for people who do not want to deal with the day-to-day management of rental properties. Real estate funds typically charge management fees, so it is important to compare the fees of different funds before investing.
  • Real estate crowdsourcing: Real estate crowdsourcing allows people to invest in real estate projects without having to put up a lot of money. This can be a good option for people who want to get involved in real estate investing but do not have a lot of capital. Real estate crowdsourcing platforms typically charge fees for their services, so it is important to understand these fees before investing.
  • Wholesaling properties: Wholesaling is the process of finding properties that are undervalued and then selling them to other investors for a profit. This can be a good option for people who are looking to make quick money in real estate. However, it is important to be aware of the risks involved in wholesaling, such as the possibility of being sued by the seller if the property does not sell.
  • Lease options: A lease option is a contract that gives you the right to buy a property at a specified price within a certain timeframe. This can be a good option for people who are not sure if they want to commit to buying a property long-term. However, it is important to understand the terms of the lease option before signing it, as you may be obligated to buy the property even if you do not want to.
  • House flipping: House flipping is the process of buying a property, renovating it, and then selling it for a profit. This can be a very profitable investment, but it also involves a lot of risk. It is important to have a good understanding of the real estate market and renovation costs before getting started.
  • Short-term rentals: Short-term rentals, such as Airbnb, can be a good way to generate income from your property. However, it is important to comply with local regulations before renting out your property.

The best real estate income stream for you will depend on your individual circumstances and goals. If you are looking for a passive income stream, rental properties may be a good option. If you are looking to make a quick profit, wholesaling or house flipping may be a better choice. It is important to do your research and understand the risks involved before investing in any real estate income stream.

Tips for Successful Real Estate Income Generation

Here are some tips for successful real estate income generation:

  • Do your research. Before you invest in any real estate, it is important to do your research and understand the market. This includes understanding the demand for rental properties in the area, the cost of properties, and the potential for appreciation.
  • Choose the right property. Not all properties are created equal. When choosing a property for investment, you need to consider factors such as the location, the condition of the property, and the potential for rental income.
  • Manage your property well. Once you have purchased a property, you need to manage it well in order to maximize your income. This includes finding good tenants, collecting rent on time, and making repairs as needed.
  • Be patient. Real estate investing is a long-term investment. It takes time to see a return on your investment. Don't expect to get rich quickly.
  • Get professional help. If you are new to real estate investing, it is a good idea to get professional help. A real estate agent or investor can help you find the right property, manage your investment, and avoid making costly mistakes.

Here are some additional tips that can help you achieve successful real estate income generation:

  • Choose a niche. It can be helpful to focus on a specific type of real estate, such as single-family homes, apartments, or commercial properties. This will help you become more knowledgeable about the market and make better investment decisions.
  • Network with other investors. Networking with other investors can be a great way to learn from their experiences and get advice. There are many online forums and groups where you can connect with other investors.
  • Stay up-to-date on the market. It is important to stay up-to-date on the real estate market so that you can make informed investment decisions. This includes following the news, reading industry publications, and attending industry events.
  • Don't be afraid to take risks. Real estate investing is inherently risky, but it is also possible to make a lot of money. Don't be afraid to take calculated risks in order to achieve your financial goals.

Resources for Learning More About Real Estate Income

Here are some resources for learning more about real estate income:

  • Books: There are many books available on real estate investing. Some of the most popular books include:
    • “Rich Dad Poor Dad” by Robert Kiyosaki
    • “The Automatic Millionaire” by David Bach
    • “The Millionaire Next Door” by Thomas J. Stanley and William D. Danko
    • “The Intelligent Investor” by Benjamin Graham
    • “The Little Book of Common Sense Investing” by John C. Bogle
  • Online courses: There are many online courses available on real estate investing. Some of the most popular courses include:
    • “Real Estate Investing 101” by BiggerPockets
    • “The Real Estate Investing Masterclass” by Grant Cardone
    • The Complete Guide to Real Estate Investing” by Robert Allen
    • “The Art of Real Estate Investing” by Brandon Turner
    • “The Millionaire Real Estate Investor” by Gary Keller
  • Blogs and websites: There are many blogs and websites dedicated to real estate investing. Some of the most popular blogs and websites include:
    • BiggerPockets
    • PassiveRealEstateInvesting.com
    • Investopedia
    • Forbes
    • Entrepreneur
    • The Motley Fool
  • Real estate investment clubs: Real estate investment clubs (REICS) are groups of people who pool their money together to invest in real estate. REICs can be a good way to learn about real estate investing and get involved in the market.
  • Real estate professionals: Real estate agents, brokers, and investors can be a great resource for learning about real estate income. They can provide you with advice and guidance on finding the right property, managing your investment, and avoiding costly mistakes.

These are just a few of the many resources available for learning more about real estate income. The best resources for you will depend on your individual learning style and preferences. Do some research and find the resources that work best for you.

Conclusion

Real estate income can be a great way to build wealth and financial security. However, it is important to do your research and understand the risks involved before getting started. There are many factors to consider, such as the location of the property, the type of property, and the current market conditions.

If you are interested in generating real estate income, there are many resources available to help you get started. You can talk to a real estate agent, read books and articles about real estate investing, or take online courses. With careful planning and execution, real estate income can be a great way to achieve your financial goals.

Here are some key takeaways from this post:

  • Real estate income is a passive income stream that can be generated from rental properties, real estate investments, or other real estate-related activities.
  • There are many different ways to generate real estate income, each with its own unique risks and rewards.
  • The best real estate income stream for you will depend on your individual circumstances and goals.
  • It is important to do your research and understand the risks involved before investing in any real estate income stream.
  • There are many resources available to help you learn more about real estate income.

SVB Collapse & Housing Market: Any Potential Impact?

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SVB Collapse Housing Market

According to the provided web search results, Silicon Valley Bank (SVB) collapsed in March 2023 after customers began frantically withdrawing their deposits following the announcement of a $1.8 billion loss and credit downgrade. The collapse is the biggest bank failure since Washington Mutual in 2008 and the first to fail since late 2020. HSBC plans to purchase the UK portion of SVB, and the US government stepped in to protect customer deposits.

The actual cause of SVB's downfall can be traced to decisions made several years earlier, such as heavy investments in US government bonds amidst an unstable interest rate environment. Additionally, overconfidence and mismanagement have been suggested as factors contributing to the collapse. The collapse of SVB is significant as it was a 40-year-old financial institution that catered to the tech industry and was the 16th largest U.S. bank before its sudden collapse, affecting major companies that had funds in SVB.

Impact of SVB Collapse on the Housing Market

The collapse of Silicon Valley Bank (SVB) has sent shockwaves through the financial world, with experts warning of broader implications that could impact housing markets. Zillow's Chief Economist, Skylar Olsen, released a memo in March outlining how SVB's difficulties could lead to lower mortgage rates and potentially push property prices downward in tech-heavy areas like San Francisco and Seattle.

First of all, bank collapses can have significant impacts on the housing market. One common impact is a decrease in available credit, which can make it more difficult for buyers to obtain mortgages. When banks collapse, they may be less willing or able to lend money, which can make it harder for potential homebuyers to secure financing. This can lead to a decrease in demand for housing, which can in turn lead to a decrease in housing prices.

Another common impact is an increase in foreclosures. When banks collapse, they may be forced to foreclose on properties that they hold as collateral. This can lead to an increase in the number of foreclosures on the market, which can in turn lead to a decrease in housing prices. Foreclosures can also impact the overall health of the housing market, as they can make it more difficult for other homeowners to sell their properties.

Finally, bank collapses can impact the overall health of the economy, which can, in turn, impact the housing market. If a bank collapse leads to a wider economic downturn, this can make it more difficult for potential homebuyers to secure financing and for homeowners to sell their properties. It can also lead to an overall decrease in demand for housing, which can lead to a decrease in housing prices. Let's delve into the potential impact of the collapse of Silicon Valley Bank (SVB) on the housing market, as analyzed by experts in the field.

SVB's Missteps and Broader Implications

The swift downward spiral of SVB has raised concerns among experts about the broader implications it could have on the financial industry. Olsen's memo highlights how SVB's missteps could lead investors to seek safer investments, nudging the Federal Reserve to tamper with aggressive rate hikes that were previously expected in the coming weeks.

Lower Mortgage Rates and Homebuyers

One of the key takeaways from Olsen's memo is that a drop in mortgage rates could “thaw what was shaping up to be a fairly frozen spring home shopping season.” Homebuyers have been sensitive to swings in mortgage prices in recent months, and a decrease in rates could alleviate financial stress for those struggling with affordability.

Retrenchment of the Housing Market

The housing market has retrenched over the last year, with U.S. home sales falling for the 12th straight month in January, according to data from the National Association of Realtors. Higher mortgage rates are keeping homeowners locked into existing mortgage contracts, choking off the supply from the market.

Mixed Impact on Housing Markets

Olsen's analysis suggests that the repercussions of SVB's difficulties could have a mixed impact on the housing markets of tech-driven regions like Seattle and San Francisco. While lower mortgage rates could alleviate financial stress for homebuyers struggling with affordability, the bank's collapse could signal a prolonged downturn in the tech industry.

Replenishing Supply for the Next Generation of Buyers

Improved mortgage rates could finally push homeowners to list their properties, replenishing the supply for the next generation of buyers. This could potentially lead to an increase in home sales, which have been declining for some time.

Conclusion – SVB Impact on Housing Market

The collapse of SVB has raised concerns about the broader implications it could have on the financial industry, with experts warning of potential ripple effects that could impact housing markets. Olsen's memo suggests that a drop in mortgage rates could alleviate financial stress for homebuyers struggling with affordability, but the repercussions of SVB's difficulties could have a mixed impact on the housing markets of tech-driven regions like Seattle and San Francisco.

Improved mortgage rates could push homeowners to list their properties, replenishing the supply for the next generation of buyers. However, it remains to be seen how the housing market will be impacted in the long term, and whether SVB's collapse will lead to a prolonged downturn in the tech industry.

While the recent bank failures, including that of Silicon Valley Bank, have caused many to wonder whether the housing market will collapse, it is important to understand the fundamental differences between then and now. While both the current banking issues and the 2008 financial crisis are issues of risk management, the current problems are short-term liquidity issues, rather than actual fundamental asset problems.

In 2008, the central problem of the global financial crisis was that banks were lending money to people and companies that they shouldn't have. Banks were lending money to people with “no income, no job, no assets,” which meant that the bank had no way of ensuring that they would get paid, other than the expectation that the property asset itself would go up in value.

In contrast, today's mortgages and the mortgage-backed securities that they are packaged into are not sinking ships like they were in 2008. While housing prices are falling, there aren't currently any concerns that the underlying assets are worth significantly less than what was originally loaned against them.

That being said, the collapse of SVB is still a significant event that could have far-reaching consequences. The housing market has been struggling for some time, with declining sales and rising prices making it difficult for many people to afford a home. If lower mortgage rates do result from SVB's difficulties, it could provide some relief for homebuyers and potentially lead to an increase in sales.

However, the impact on tech-driven regions like Seattle and San Francisco could be more complex. These areas have already been experiencing a slowdown in the housing market, and the collapse of SVB could signal a prolonged downturn in the tech industry, which could have a further negative impact on housing prices.

Overall, the collapse of a bank can have implications for the housing market, as it could lead to changes in mortgage rates and impact the ability of homebuyers to secure financing. While lower mortgage rates may provide some relief for homebuyers, broader economic factors could also affect the housing market's ability to recover. As such, it can be difficult to predict the long-term impact of any bank collapse on the housing market.

References:

  • https://www.forbes.com/sites/qai/2023/03/22/will-the-silicon-valley-bank-fallout-collapse-the-housing-market/?sh=2ff107242563
  • https://twitter.com/skylarolsen9/status/1635397730985189376?s=20
  • https://www.geekwire.com/2023/how-svbs-collapse-could-impact-housing-markets-according-to-a-zillow-economist/
  • https://news.yahoo.com/housing-market-could-see-relief-from-shock-move-in-treasury-market-after-svb-collapse-204322910.html?fr=sycsrp_catchall

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