Real Estate WEALTH Magazine Real Estate WEALTH Magazine - DOWNLOAD IT HERE! | Page 42
GROWTH
F
or the leveraged investor,
today’s financial tools
will continue to provide
predictable, stable, and
secure double-digit returns for the
foreseeable future.
In an attempt to put this positive
outlook in perspective, let’s con-
sider four critical topics. This will
help confirm, bring caution, or even
deny our opening statement.
plained away by sound reasoning and
good explanation. The pendulum
had swung. Yet in response, a dual
market for financing was created to
meet demand.
Let’s develop this. Most Investors
of “1 -4 units”, understand 30-year
fixed rate mortgages and the rule of
10 financed properties. Most know
this market now falls under the new
“TRID” rules, or just for fun, TILA
DOUBLE -DIGIT
RETURNS
with Leverage
by Michael Ryan
• Dodd-Frank, CFPB
and Government Restrictions
• Lending TRID &
Non-TRID Leverage
• Interest Rates
• Non-TRID Lending
RESPA Integrated Disclosures.
What is little known, is the plethora
of “NON-TRID” lenders. Why so?
Because TRID technically, is only
for owner-occupied. Yet to keep
lives simple, most lending portals
now include non-owner, 1 to 4 units.
A healthy way to assure liquidity in
this market.
Beyond this, a number of lenders
are providing mortgages for rental
units, but ones based upon a modified
set of rules. Though these rules are
guided by Federal oversight, they are
not as restrictive. Hence the num-
ber of leveraged properties is more
flexible and required levels of cash
reserves are less stringent.
Bottom line: Markets adapt to con-
sumer demand and lending options
are available.
What about interest rates? Truly
a favorite topic of mine. After 35
plus years of success in real estate,
driven by ever trending lower rates,
we maybe on the verge of a season
of rising rates. Should this concern
us? My answer is: “No.”. Why so?
Because rates are but one component
of overall market fundamentals. Fur-
The Dodd-Frank financial reform
created a new layer of government
oversight called the “Consumer
Finance Protection Bureau” or
CFPB. It was signed into existence
by former President Obama, as a
solution to the financial crisis of
2008. It took full effect in 2013.
Will it be changed anytime soon?
Not likely, though promised. Keep
in mind, Congress seldom “undoes”
what it has done and an executive
order is pointless.
Let’s be clear, the after shocks
of 2008 brought about a significant
shift within the lending industry.
In effect, it made “protection” of
the public, a top priority. This was
quite a shift from the traditional
viewpoint of lending, one based
upon risk-taking and risk aversion.
Further it locked into place, barriers
to lending, which could not be ex-
Realty411Guide.com
PAGE 42 • 2017
ther, rates tend to rise in response
to a growing economy, one where
wages, property appreciation, and
rents are showing real signs of last-
ing strength.
Thus the key to success, is not
rates alone, but instead “locking”
in a lending rate below the “cap
rate” of the investment. This is the
disciple able to push one’s “re-
turn-on-capital” into the mid-teens.
Often in history, the time to in-
vest or shift one’s portfolio, is when
rates first begin to rise; when wage
growth and increasing property
values exceed changes in rates and
inflation. Now seems a good time.
With this, is the growing aware-
ness that today’s interest rates take
into account more than just finan-
cial fundamentals. They also con-
sider the overall economic, social,
and political stability of Europe, the
Mideast, Russia, China, and else
where.
This uncertainty may help ex-
plains why US rates did not start
increasing in 2014, even though
Continued on pg. 97
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