REALTY411 Magazine - A FREE Real Estate Magazine for Investors! REALTY411 - A COMPLIMENTARY MAGAZINE FOR INVESTORS - 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- 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