Category: Housing Market (Page 8 of 36)

The Benefits of Owning Investment Property

June 20, 2023 / Tom Bonetto

Investing in real estate, specifically purchasing an investment property, can offer a multitude of advantages that go beyond traditional investment opportunities.

Buying an investment property provides individuals with a unique opportunity to grow their wealth, generate passive income, and gain long-term financial security.

Let’s take a look at five key benefits of investing in real estate…

Appreciation and Wealth Accumulation

One of the primary advantages of investing in an income-generating property is the potential for property value appreciation over time.

Real estate almost always increases in value year-over-year, making it a reliable long-term investment – and you can find more on that here. As the property value increases, so does your net worth!

Moreover, you can leverage this appreciation to build equity, enabling you to secure additional loans or invest in other properties, leading to further wealth accumulation.

Steady Cash Flow and Passive Income

Owning an investment property allows individuals to generate consistent cash flow in the form of rental income.

By renting out the property, you can earn a steady stream of passive income, even while you sleep. This reliable income can be used to cover mortgage payments, property maintenance expenses, and other financial commitments.

With careful management and regular tenant screening, you can maximize your rental income and achieve financial stability.

Tax Advantages and Deductions

Investment properties come with several tax advantages that can significantly benefit property owners.

These include deductible expenses such as mortgage interest, property taxes, insurance premiums, and maintenance costs. Additionally, real estate investors can take advantage of depreciation deductions, which allow them to offset their taxable rental income.

These tax benefits can help reduce your overall tax liability and increase your net income from the investment property. Please contact your tax accountant for the specifics!

Portfolio Diversification and Risk Mitigation

Investing in an income property provides an opportunity to diversify your investment portfolio.

Real estate typically has a lower correlation to other asset classes like stocks and bonds, which means it can act as a hedge against market volatility. By diversifying your investments, you can spread the risk and reduce the impact of a single investment’s poor performance.

Real estate’s stability and relatively consistent returns can provide a solid foundation for your overall investment strategy.

Long-Term Financial Security and Retirement Planning

Investing in an income property offers a long-term strategy for building financial security and planning for retirement.

By consistently collecting rental income and building equity, you can create a reliable income stream for your retirement years. Furthermore, as you pay off the mortgage on the property, your monthly cash flow will increase significantly.

Real estate investments can serve as a tangible asset that appreciates in value and provides financial stability for your future.

In Conclusion

Purchasing an investment property offers numerous benefits that are easy to understand and can be advantageous for individuals seeking financial growth and stability.

The potential for property value appreciation, steady cash flow, tax advantages, portfolio diversification, and long-term financial security are compelling reasons to consider investing in real estate.

While investing in property requires careful research and management, it can be a rewarding endeavor that provides both immediate and long-term benefits. Do reach out to me for more and how to finance the purchase of an investment property.

Consumer View of US Housing Market Reach New Lows – But Is It Correct?

May 22, 2023 / Tom Bonetto

Only 21% of Americans say it is a good time to buy a house, the lowest percentage ever in Gallup’s polling sample.

Prior to 2022, for example, 50% or more respondents unfailingly thought it was a good time to make a home purchase, and you can find the specifics of the poll here….

Graph of Percentage of People Who Said It Was a Good Time To Buy a House

The latest results are from Gallup’s annual Economy and Personal Finance poll, conducted over 3 weeks in April. Unbelievably, 78% percent of those surveyed say it is a bad time to buy a house right now.

To add some context, Gallup first asked Americans about their thoughts on the housing market in 1978, when 53% thought it was a good time to buy.

Per Jeffrey Jones’ report, “thirteen years later, when the question was asked again, 67% held that view. The record high of 81% was recorded in 2003, at a time of growing homeownership rates and housing prices.”

No doubt the respondents are sure of their positions, but does the data really bear that out? And what does the future hold?

The Current Situation – Two Viewpoints

Per Jones, “in the past two years, as housing prices have soared and the Federal Reserve has raised interest rates to try to tame inflation, houses have become less affordable for many Americans, and views of the housing market have tumbled.”

Graph of Americans That Expect Home Prices to Rise

However, another housing survey, this one from the industry specific MBS Highway, showed in April another solid increase in buying activity as the spring selling/buying season kicked into high gear. This marks the 4th-straight month of improving sentiment for their report. You can find out more on that here…

68% of respondents characterized their market as ‘active’ and 33% of respondents indicated that they were now seeing price increases.

Media Bias Might Be To Blame

The latest Existing Home Sales report showed that the median home price declined on an annual basis for the first time in almost 11 years. That seems like a big headline, right?!

ABC News of Red Flags in Mortgage Market

This is a classic case of the media trying to gain and keep viewership with shock headlines.

In many ways, our mainstream media is not truly interested in digging deeper for the facts and truth. You can find out more on that here…

First of all, the decline was only 0.2% – and it was for the median home price, which is NOT the same as appreciation.

FHFA’s latest appreciation report showed that home prices rose 5.3% year over year. And according to Case-Shiller, they rose 3.8% year over year.

These are the two best ways to measure home price appreciation.

The Real Inside Scoop

Although no one can deny that higher mortgage rates are keeping would-be buyers on the sideline, the story that no one is talking about is the lack of housing supply. You can find out more on that here…

More importantly, let’s take a closer look at active listings in the US:

Graph of Active Existing Home Listings in the US

You might remember from your Econ 101 class that supply and demand is what sets prices. Smaller supply means that a higher price is to be paid…so I do believe that home prices will not be going down any time soon!

Cartoon Graph with House in the Background

All things considered, the opportunity in this market appears to be very favorable. If you are trying to wait to time the market, that home you are waiting for will just be more expensive down the road.

And if you make that purchase now and interest rates fall (as many think will happen), you can easily refinance into a lower rate!

In Conclusion

Per Jones, “it is likely that Americans’ pessimism about homebuying reflects the high prices and high interest rates that are conspiring to make mortgage payments less affordable. These attitudes may keep many prospective homebuyers out of the market.”

If that’s the case, that means there is a window of opportunity for buyers ready to act today.

Do reach out to me to find out more, as it would be my pleasure to help you finance that investment property or the home of your dreams.

Recession and the Housing Market

May 17, 2023 / Tom Bonetto

Many experts are once again predicting recession as economic production seems to be slowing.

The definition of a recession has been typically recognized as two consecutive quarters of economic decline, as reflected by Gross Domestic Product (GDP) in conjunction with monthly indicators such as a rise in unemployment.

Many are concerned that the recession will dramatically and negatively impact the housing market…but historically that isn’t the case.

Real Estate During Recession

Believe it or not, outside of the “great recession” of 2007 (which was caused, in part, to a housing crisis), home values and real estate generally appreciate historically during times of recession.

That seems counter intuitive…but because interest rates generally drop during recessionary periods, homes become MORE affordable to potential buyers. Even though property values are higher, buyer see lower payments provided by those lower rates.

When more people can qualify for homes, the demand for housing increases – and so do home prices.

Mortgage Rates During Recession

When a recession hits, the Federal Reserve prefers rates to be low. The prevailing logic is low-interest rates encourage borrowing and spending, which stimulates the economy.

During a recession, the demand for credit actually declines, so the price of credit falls to entice borrowing activity.

Here’s a quick snapshot of what mortgage rates have done during recessionary periods:

Obtaining a mortgage during a recession might actually be a good opportunity. As mentioned, when the economy is sluggish, interest rates tend to drop.

Refinancing or purchasing a new home could be a great way to get in at the bottom of the market and make a healthy profit down the road.

With that said, borrowers should be market-wise and financially savvy when considering large real estate purchases in a recession.

The Great Recession and Home Prices

Home price appreciation continued during previous downturns, except for what is called the “Great Recession”. While the recession officially lasted from December 2007 to June 2009, it took many years for the economy to recover to pre-crisis levels of employment and output.

So what made the Great Recession different? The housing boom that preceded the last recession was largely driven by an explosion in both home-building activity and mortgage credit.

Home buyers were able to get mortgages with no documentation of their income and no down payment. Many loans had introductory 0% interest periods that made them cheap to start but more expensive as time wore on.

Today, those loan products are no longer in existence.

Today’s Market

The growth in home prices seen during the current economic expansion has not been fueled by increased access to mortgage credit. In essence, today’s recession isn’t at all similar to the prior one.

Rather, it’s a simple reflection of supply and demand. Many Americans want to become homeowners, but the supply of homes available for sale is very low, pushing prices upward.

Mortgage rates are much higher than they were a few years ago, but I have a feeling that they will be coming down relatively soon. And more activity will push home prices higher.

In Conclusion

Although no one likes to see recession, you can observe that it actually can be beneficial for homeowners and would-be purchasers to refinance or purchase during these periods.

If you have more questions and or would like to strategize about purchasing or refinancing, don’t hesitate to contact me, as it would be my pleasure to help you!

Using Gift Funds for Down Payments and Closing Costs – A Primer

May 1, 2023 / Tom Bonetto

When it comes to buying a home, one of the biggest obstacles for many buyers is the down payment. But did you know, borrowers can use gift funds for that down payment?

Believe it or not, many homebuyers turn to family and friends for financial help.

25% of homebuyers ages 23 to 31 and 17% of those ages 32 to 41 received gifts from relatives or friends to help with their down payment, according to the National Association of Realtors.

Secondly, down payment requirements are much different today than they have been in the past, as FHA loans and some conventional loans often have low down payment requirements, as little as 3% in some cases.

And, yes, borrowers can absolutely use gifts from family members toward those down payments!

Who Can Gift Down Payment Funds?

Lending regulations won’t allow borrowers to use a cash gift from just anyone to qualify for a mortgage. The funds usually must come from a family member, such as a parent, grandparent, or sibling.

It’s also generally acceptable to receive gifts from your spouse, domestic partner, or significant other if you’re engaged to be married.

Restrictions on Down Payment Gifts

Both conventional loans and FHA loans allow gifts as down payments. There is no minimum borrower “contribution” for a one-unit, primary residence, even when bringing in less than 20% down for conventional loans.

House Made of Puzzles Pieces with Money Printed on It

That gift can cover the entire down payment and the closing costs.

For 2-4 unit primary residential properties, the borrower must make a 5% minimum borrower contribution from their own funds, per lending regulations for conventional loans. FHA loans do not have this requirement.

After the minimum borrower contribution has been met, gifts can be used to supplement the down payment, closing costs, and reserves.

It’s important to know that gift funds may NOT be used for investment property purchases.

Mortgage Gift Rules by Loan Type

FHA loans: The Federal Housing Administration (FHA) backs mortgages with a minimum down payment of 3.5 percent. The entire amount can be gifted, but the FHA requires a letter and supporting documents from the gifting party. Bank/asset statements showing the giver has had the funds for 60 days will be required.

Conventional loans (Fannie Mae/Freddie Mac): When purchasing a single-family residence, the entire down payment can come from a gift. These funds can come from a relative, employer, close longtime friend, or a nonprofit. Freddie Mac also allows borrowers to use wedding gifts, so long as you provide a copy of your marriage license.

VA loans: The U.S. Department of Veterans Affairs (VA) guarantees home loans for eligible military borrowers. VA loans require no down payment, but VA guidelines allow borrowers to put gift funds toward closing costs or a down payment, if they so choose. The documentation rules are similar to those of FHA loans.

USDA loans: The U.S. Department of Agriculture (USDA) guarantees no down payment-mortgages to borrowers with low to moderate income in rural corners of the country. Like the VA loan program, gift money can be used to pay closing costs. Borrowers must provide a gift letter and supporting documents consistent with the gift letter rules of other loan programs.

Documenting a Down Payment Gift

Lenders require the borrowers to provide some detailed documentation any time a down payment gift is used. Specifically, the borrowers will need to produce a letter which includes the name of the donor, their relationship, the date and amount of the gift, and a statement that says the money has no expectation of repayment.

Both parties will need to sign the letter and the lender may also require additional documents. For FHA loans, borrowers will need to show copies of the donor’s bank statements to prove that they’re actually in a position to make a gift.

In Conclusion

If your family decides to help you out with a down payment gift, you as the recipient should be extremely grateful.

However, like any large financial move, there are some rules and regulations to consider. So please do reach out to me for more, as it would be my pleasure to help you structure your loan and down payment options.

Real Estate Buying Activity Picking Up – April 2023

April 17, 2023 / Tom Bonetto

MBS Highway’s April 2023 Housing Survey showed another solid increase in buying activity as the spring selling/buying season kicked into high gear. This marks the 4th-straight month of improving sentiment.

68% of respondents characterized their market as ‘active’ and 33% of respondents indicated that they were now seeing price increases.

This uptick in activity will lead to an increase in home prices, as supply is still extraordinarily low, based on historical norms. Reach out to me for more information…

Category: Housing Market (Page 8 of 36)

The Benefits of Owning Investment Property

Appreciation and Wealth Accumulation

Steady Cash Flow and Passive Income

Tax Advantages and Deductions

Portfolio Diversification and Risk Mitigation

Long-Term Financial Security and Retirement Planning

In Conclusion

Consumer View of US Housing Market Reach New Lows – But Is It Correct?

The Current Situation – Two Viewpoints

Media Bias Might Be To Blame

The Real Inside Scoop

In Conclusion

Recession and the Housing Market

Real Estate During Recession

Mortgage Rates During Recession

The Great Recession and Home Prices

Today’s Market

In Conclusion

Using Gift Funds for Down Payments and Closing Costs – A Primer

Who Can Gift Down Payment Funds?

Restrictions on Down Payment Gifts

Mortgage Gift Rules by Loan Type

Documenting a Down Payment Gift

In Conclusion

Real Estate Buying Activity Picking Up – April 2023

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