When you couple the pace of easing price growth for leveraged single-family rental (SFR) properties and falling mortgage rates, you can see that it’s an opportune time to invest in residential real estate using financing.
In fact, many real estate investors are already making the shift and taking advantage of low interest rates for mortgage loans. According to a new HomeUnion report, the median investment price for financed assets fell 2.7 percent year-over-year in June to $222,500, while the all-cash investment median sales price shot up 5.4 percent to $160,000.
“This summer is a great time to take advantage of low mortgage rates,” explains Steve Hovland, director of research for HomeUnion. “Because cash prices for investment homes have gone up so much, we’re seeing some sales shift from cash to leverage on a year-over-year basis. Homes that would have been acquired with cash at the same time last summer are now leveraged, pulling down the leveraged median sales price.” Sales activity is particularly strong right now for leveraged SFRs priced below $200,000, he adds.
Low Interest Rates Make Financing a Better Option
If you’re looking to purchase an investment property soon, financing is a better alternative to all-cash right now, since interest rates are below 30-year lows. During the week ending on July 14th, 30-year fixed-rate loans averaged 3.4 percent, compared to nearly 4.1 percent during the same period the previous year, according to Freddie Mac.
As a real estate investor, you can expect to typically pay a 50- to 75-basis point premium on loans from Freddie Mac, but if you are looking for lower financing options, they are available for buyers that opt for shorter terms.
Chris Diaz, vice president for HomeUnion Lending says, “Investors can utilize a variety of financing options to acquire rental properties, including 30-, 20-, 15-and 10-year fixed-rate mortgages, as well as adjustable-rate mortgages (ARMs) with a variety of terms to make it more affordable.”
Why Are Interest Rates So Low?
The Brexit vote on June 23 had an almost immediate impact on interest rates as investors flocked to the safety of U.S. Treasurys. The 10-year Treasury note dipped to a near all-time low before rebounding into the mid-1 percent area after the United Kingdom’s decision to withdraw from the European Union, and rates have remained low ever since.
Financing Versus Cash – Decide Which One is Right for You
With the current market climate of low interest rates, real estate investors who are looking to acquire investment properties soon should look into their financing options. The decision of using cash versus financing ultimately comes down to your investment goals and what funding method will best help you achieve them. If you’re unsure of which funding method is right for you, we can help! Call 888-276-0232 or sign up for a consultation on your own schedule with one of our experienced Solutions Managers.