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Friday, September 14, 2012

The Power of Low Interest Rates to Generate Real Estate Wealth



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Imagine a business investment in which you can know – to the penny – your costs for your two largest expenses. Wouldn’t that make earning money on your investment much simpler?

Of course it would. And that’s why real estate is such a great investment. Your two largest costs – interest and the depreciation deduction – are exact for the entire life of your mortgage loan. You sure couldn’t buy a restaurant or a small business where such variables are pinned down for you.

Not only that, but our local real estate market is stable and forecasts predict that it should remain strong for decades to come. Rates are low and not rising significantly anytime soon, and we no longer expect home values to decrease after our real estate purchases.

As an active real estate investor in Washington D.C. , Maryland and Virginia, one of my obsessions is to get all of my loans at fixed 30-year rates that, as you know, are at historic lows. When buying homes as investments, you need to appreciate the power of a low interest rate.

When I started in real estate almost 20 years ago, interest rates were nearly 10 percent. Today, the rates are around 4 percent. And some of my clients are getting rates at 3.5 percent, depending upon variables such as loan size, property type and the borrowers’ financials. Securing this “cheap money” is crucial to increasing your net worth and establishing your long-term financial health. The only way to borrow such money is if you have value to borrow against. So property can become the means to which you obtain such a loan.

Right now, every $100,000 you borrow will cost between $400 and $500 a month. That’s $300 to $400 less than when I started as an investor back in the early ’90s.

In real estate investing, it’s important to know the power of interest rates and how that and the depreciation deduction is fixed and easily calculated. Combine this with today’s environment of rising rents, and you have a great time to invest in real estate.

So do the math or, better yet, contact us if you’d like us to do the math. There’s nothing more we love than to run your numbers!