Going by Freddie Mac’s mortgage rate survey, the average 15-year fixed rate mortgage rate is now 3.27% nationwide with an accompanying 0.8 discount points. 1 discount point is a closing cost equal to 1 percent of your loan size. That is a large difference.

The current 15-year fixed rate reading is just one tick above the all-time, 15-year fixed rate mortgage low of 3.26% set in 10 / 2011.

If you’ve ever thought of “going 15″, it’s a terrific time to talk to your lender.

The primary benefit of using a 15-year fixed rate mortgage as opposed to a 30-year fixed rate one is that a 15-year fixed rate mortgage dramatically cuts the long-term interest costs of your loan. The downside is that monthly payments are relatively large.

At today’s mortgage rates, per $100,000 borrowed :

• 15-year fixed rate mortgage : $704 principal + interest monthly
• 30-year fixed rate mortgage : $477 principal + interest monthly

So, for many investors opting for a 15-year fixed rate mortgage, the monthly principal + interest payments will be 48% higher compared to a 30-year fixed rate mortgage of the same loan size, with less going to interest and much more going to principal.

Long-term, however, because the 15-year fixed rate mortgage interest rate is lower and because it pays off in half the time of a 30-year loan, a homeowner will save $45,000 in interest costs per $100,000 borrowed.

$45,000 per $100,000 borrowed is a significant amount of savings.

But the 15-year fixed rate mortgage is not the best for everyone.

Because it requires higher monthly payments, a 15-year fixed rate mortgage may add stress to your household budget. Furthermore, once you commit to a 15-year loan term with your lender, you can’t revert back to a 30-year loan term without a refinance and refinances can be costly.

Therefore, be sure of yourself when selecting a 15-year fixed rate loan. The rewards are great, but the risks can be, too.

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Real estate IS a good investment when made prudently.  It is a good investment when made for the right reason.  You can make money in real estate with speculation but with speculation comes risk and that is something many of us are averse to and it really does not make sense for most people.

Take a look at the annual appreciation rates by city in Greater Phoenix since 2001 .  This is a short period of time but it’s not a one year or a few month hold.  Despite the carnage out there if you purchased in 2001 your appreciation rate is still rather good.  If you purchased even earlier it’s good. 

On average in Greater Phoenix it’s been about 5% over the last few decades.  I won’t say it will be that but: it may be negative for a year or two more and it may be flat after that but at some point normal inflationary pressures will resume and even if you get 3% it’s good when you’re leveraged, that of course is in addition to cash flow which will increase your real return and cumulative wealth. 

We are seeing prices at 40% to 50% below peak -which was an excess- in some places and often prices below current normal market trends.  These are mostly outlying cities and neighborhoods but these are often newer communities that are very attractive to residents and tenants in common.  This drop in pricing has occurred while rental rates are stable: it is easy for a landlord to find homes that will "cash flow".

And it is these magic two words "cash flow" that makes real estate such a wonderful wealth building product. 

A $110,000 home can rent for $950 competitively: That means that with a normal down payment that property will cash flow and provide a decent return for the investor.  This is not an anomaly it’s quite normal now.

Investors still need to pick investment homes using certain criteria which will better their re-saleability in the future. 

Would you like to see examples of such homes?  Contact us and we’ll send over a selection of homes that can make good rental investments that will cash flow.  Sometimes these may need as little as a few thousand dollars in repairs but sometimes a bit more: on average $5,000 will do wonders.  Put a good home together with a competitive rental rate and you’ll be more likely to attract good tenants for the long term and built wealth with little risk.

original post at PMT

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What is your goal?  Is it cash flow: appreciation: a combination of the two?  Then of course, what type of investor are you? Short term speculator or long term passive income investor?  

When the market was rapidly appreciating or even if it was appreciating at a steady pace then single family homes may be a better investment.  In such a scenario you’re giving up cash flow completely and often adding to the property on a monthly basis because in an appreciation market you will rarely get any sort of cash flow: people are buying homes and the home rental market is usually not as good.  You hope to make your money by realizing the gain in appreciation. 

While this can work an investor has to be on top of the market trends because a change in the cycle can quickly diminish the return or make a home more difficult to sell. 

In a stale market like we are in now an investor can purchase a home, lease it and realize a small cash flow but you’re still hoping for some king of appreciation to realize a solid return.

Small multifamily properties follow different market rules and serve a different purpose but any building up to 4 units does take on some of the characteristics of a single family home.  Small multifamily properties, in general, do not change hands as often as homes because there is a smaller pool of buyers for them and they are usually purchased for long term cash flow rather then short term price speculation.  It’s rare that a family will buy a multifamily property to occupy. 

Where a single family home and multifamily property up to 4 units are similar is in financing.  Financing for both is in general similar or was similar.  In both cases a buyer can receive conventional residential financing with very similar interest rates.

But to get to the point.  If your goal is to create a stream of passive income then your more likely to achieve such a goal with a multifamily property then a house.  A multi-family’s purpose as an investment is cash flow and not appreciation.  Of course appreciation is expected but it often depends on the rental rates because this is a business: as the business generates more revenue the value grows and vice-versa.

In the current market more people are renting because financing is difficult to obtain in it will be even more difficult in the next few years as the financing markets readjust.  Multifamily property prices have corrected as well.  they are down from the speculative heights. 

What is it that your are after in real estate: if it’s cash flow then you’re more likely to get it with a multifamily property. 

Other things to consider:

A single family home and multifamily are still different beasts.  In a fourplex you have more people to deal with, 4 kitchen vs. 1, at least double the amount of bathrooms and 4 heat-pumps, 4 water heater, more pipes and just more of everything so the risk increases.  Management is different as well.  A multifamily property is truly a business, much more so then a single family home.  

There is no easy answer to the question first posed.  It can only be answered through a thorough discussion of your goals and tolerances.  One of the better solutions is to have both types of properties. 

Call us if you would like to discuss your options.  We have direct and indirect experience with both types of investments over 10 years and we’ll be glad to share what we learned.

posted from PMT

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1.  Install water sub-meters.
Sub-meters are cheap and so is the installation.  This is a way to put some of the cost of water use if you have a master meter.  Set a limit for use and anything above that you can charge for.  Just make sure this is spelled out clearly in the lease agreement.  This is especially useful for properties that have a washer and dryer in each unit, as use can get excessive if not controlled.

2.  Get rid of the grass and put in desert landscaping.
Grass, especially in Greater Phoenix can be a nuisance.  It’s expensive to maintain, with high water demands, trimming etc.  The cost can easily escalate.  Putting in a low water use desert landscape with native desert plants will not only make your yard beautiful but low maintenance.  Don’t just trow a bunch of gravel on the yard, put some thought in to the design and don’t skimp on plants, they are cheap when purchased young and it does not take long for them to mature. 

3.  Put in grass.
Some areas just scream out for grass; areas like the older historic neighborhood in central Phoenix.  If you study a sub-market and see that people will pay more for having grass, at least enough to offset the cost of maintenance then it may be worth it to put in grass, otherwise stick to #2, desert landscaping.  Desert landscaping  pays, and I’m speaking from experience.

4.  Paint.
The exterior needs to be fresh.  Just as with anything a good looking product will attract a better client.  Even the cheap apartments could easily look much better with minimal cost.  Tenants won’t maintain a property that is messy and unkept, unlike a clean one.  Paint is cheap and painting can be done for a low cost as well.

5.  Install ceiling fans.
Ceiling fans in apartments are a big bonus and a luxury, even if they are the cheap $40,00 fans.  Just don’t put in the $20 dollar big box white small fans, they are hideous.  What I have noticed over the years is that apartments with fans tend to lease out quicker then ones without, thus lowering vacancy and increasing cash flow.

6.  Separate storage rental from apt. rental.
If your property usually includes a storage space consider separating the storage rental from the apartment rental.  Many tenant lease out off site storage units and why not get some additional cash flow by offering storage at an additional rate.  A decent sized storage unit can be leased out for an additional $15-30 per month.  That does not sound like much but it does increase the value of your property and when combined with other things, it adds up, especially over a year and longer.

7.  Put in covered parking.
Covered parking in the heat of the Phoenix summer is a big seller.  Not only can you charge more for rent but you’ll have lower vacancy rates buy having covered parking.  This can be done easily with a metal structure and a canvas type shade for reasonable cost.

8.  Install efficient bulbs.
One of the easiest ways to decrease the cost of maintaining the common area is to install energy efficient bulbs.  You’ll see immediate savings, especially in large buildings.  With the cost of these bulbs so low, there is no reason to buy regular bulbs.

9.  Get your own washer and dryer.
Some communities have leased equipment for common washers and dryers.  In some of the complexes we manage we did a study to see the feasibility of having our own coin operated washer and dryer vs. having leased equipment.  It depends on the community but its worth having your own equipment even with the occasional repairs.  Another thing to consider to increase the rent by $15-$20 per month and include the use of a common washer and dryer.  This is useful for a 4plex.  You’ll get a little bit less revue but the equipment will be less expensive as well because it does not need to be coin operated.

10. Dispute property taxes.
Taxes can be a big expense and are not often calculated correctly and there are mistakes at the assessors office.  Check with them to see what criteria they are using to assess your property.  The cost of disputing your taxes is minimal and often it pays off with lower taxes.  I have seen returns for previous years mistakes as well.

11. Hire a private company to pick up trash.
There are private waste management companies that can handle your trash pick up even in a small property like a fourplex.  In several properties we have been able to reduce this cost by up to 30% by using a private company vs. the city trash service.

12. Don’t put ads in the print paper.
Rental adds in the paper are rarely effective anymore and they are very costly.  Try to avoid them for more efficient methods like No. 13

13. Expose your vacancy online.
Utilize free advertising or limited cost advertising.  Craigslist.com is free and effective, then Propertynut.com is fee based but its cheap and effective.

14. Lower the rent.
Are your tenant considering moving to another apartment because it cheaper.  Do some calculation and it may be worth lowering the rate for the current tenant to have them stay vs. remodelling the unit for the next tenant at lease for a time; If a tenant is moving out November 31st then you’ll have a harder time finding a new tenant.  December is one of those periods not good for having a vacancy.  Even better when writing your leases stagger them so that they don’t expire during slow periods or at the same time.

15. Put in a washer and dryer at additional rental cost.
Some apartments have a washer and dryer hookup in the units.  Why not offer to include a washer and dryer at additional cost.  Take it further by doing a rent to own type of deal on the washer and dryer.

In each case calculate your cost to the potential return.  How long will it take to break even?  Most of the above items are easy and low cost and the return is quick, making it a smart move.

If you’d like more details about how to take advantage of some of  the above tips give us a call. 

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