FHA Mortgage, Interest Rates and Marketing

In my last post I talked about residual income in regards to real estate investing and how such income can free up your time. Of course this additional time can come now or later. For example, let’s say you’re operating monthly on a relatively high positive cash flow by successfully owning and renting out a few duplexes. Potentially, this extra income could allow you to cut back on hours spent at the office. Or, how about this example: you decide to invest in a long-term hold, selling after forty years of appreciation. This could provide you with an earlier retirement and more time to travel or pursue other passions.

This all sounds lovely and lucrative–and it certainly can be–but here’s the truth of it–none of the above arrangements is arrived at quickly. To set up successful investments, it takes time. Sure, there the stories you hear about someone who purchased a home at 130k, the market surged suddenly, and they sold for 230k after minor cosmetic repairs.

Stories like that are amazing and fun to tell around the water cooler (even more fun if it’s your story) but this is not normal. And if beginner investors expect immediate success such as this, reality–quick and hard–will demolish such dreams. And doesn’t that just make sense?

‘If it sounds too good to be true, it probably is.’

But what about those smart investors from the first paragraph. They are real people making real money through real estate investing. But, these are the folks who didn’t believe some guru pitching ‘get rich quick’ products. (Of course, for the sake of fairness, there are gurus/teachers who don’t sell the ‘get rich quick’ lie.) Instead, these folks did their research, worked with professionals, saw a lucrative opportunity before them, and pounced on it.

So don’t discount real estate investing. It’s been around a long time and isn’t moving. More and more people are become real estate investors as more emphasis is being placed on retirement planning. Of course, I always recommend a diversified financial portfolio–that’s just prudent planning–but consider this time-honored, moneymaking investment option as a profitable addition.

Well, after conducting a thorough analysis (talking to some of my good friends on the phone) I’ve come to the conclusion that most people are incredibly busy. There are different kinds of busy, of course. There’s the student, trying to finish up a group project on top of finals. There’s the stay at home mom, dealing with a teething baby. And there’s the office exec, too busy to take a vacation–and many more examples, definitely too many for any writer to convey in a single post.

I, like the people described above, struggle with busyness. As I get older, my responsibilities expand and so do the demands for my time.

But perhaps one of the biggest tools I’ve found to combat this nationwide epidemic of busyness is residual income. You’ve probably heard those words before–they’re big buzzwords right now as more and more people are trying to escape the daily grind of work requiring a time clock. Most have heard them associated with multi-level marketing companies or with the royalties writers and actors receive as their book or movie continues to sell after its completion.

Real Estate investing, however, is one of the strongest and most popular avenues for residual income, also referred to as passive money. I began to research real estate investing, tentatively at first, by reading a few different authors. Everything just sort of clicked at that point; I thought, ‘If they can, I can.” Most importantly, I realized that this could be a way to ensure that elusive residual income I read and heard so much about.

And I had options.

There was foreclosure investing, flipping, wholesaling, long-term holds, short-term holds, and everything in between. For example, I could invest in a property, rent it out (equaling monthly residual income) and sell it after years of growing equity and appreciation. While this is, admittedly, over-simplified a bit, it’s a viable investment option that utilizes creativity and ownership–and a chance to escape from the busyness.

So, I got back from a trip yesterday (my sister competed in her first triathlon and I was her cheering section) and on the plane ride home the people sharing my row were discussing the rising mortgage rates.  Instead of joining in the conversation, I restrained myself and simply listened.  Their discussion echoed the fears of many—rates will keep spiking upwards causing all sorts of negative effects.   And news analysts are saying the same thing.  You can’t surf the web without finding endless articles talking about the rising mortgage interest rates and the predictions from various sources that this increase will hold steady for some time.
 

As an investor, these ominous rising rates means higher monthly payments which equates to higher holding costs—rather that investment requires a short hold-time or a longer hold-time (and keep in mind how sometimes short-term holds turn into long-term holds due to external factors like market fluctuations.)  While this might mean a $25 monthly increase for some, the number increases exponentially as the loan amount increases.
 

While openly acknowledging that rising rates and higher holding costs affect the market in a complicated, multi-variable way, I refuse to believe that real estate investing is no longer a viable, lucrative way to invest.  There are alternatives, viable alternatives, for investors hoping to avoid the rising rates found in mainstream lending streams.  Two examples, private lending/hard money and certain types of adjustable loans, are avenues that–if approached wisely and used correctly–can be effective tools. 
 

But, investors beware and do your research before pursing either.  In the same way you wouldn’t use a hammer on a screw; an adjustable rate mortgage is a tool appropriate for certain investment endeavors.   This caution also applies when addressing hard money or private lending.  Side stream lending programs such as this varies extensively from lender to lender; each program has certain strengths and weaknesses that cater to different types of investments.  Take your time and find one that fits your needs.