{"id":2769,"date":"2021-01-05T16:55:00","date_gmt":"2021-01-05T20:55:00","guid":{"rendered":"https:\/\/propertyonion.com\/education\/?p=2769"},"modified":"2021-01-12T16:56:05","modified_gmt":"2021-01-12T20:56:05","slug":"profit-from-the-latest-covid-19-low-interest-rates","status":"publish","type":"post","link":"https:\/\/propertyonion.com\/education\/profit-from-the-latest-covid-19-low-interest-rates\/","title":{"rendered":"Profit from the Latest Covid-19 Low Interest Rates"},"content":{"rendered":"\n<p><p>If you\u2019re reading this, you\u2019re probably in real estate.<span style=\"font-size: inherit;\"> <\/span>And if you\u2019re in real estate, you\u2019re probably aware that the world is experiencing two situations right now:<\/p><ol><li>A global pandemic<\/li> <li>A historically low interest rate environment<\/li><\/ol><p>While we are reliant on top-tier medical professionals to help solve the first situation, the second situation is one we, real estate investors, should take advantage of.<\/p><\/p>\n\n\n\n<p>Historically low interest rates equate to one thing for real estate investors: historically low mortgage rates.<\/p>\n\n\n\n<p><p>Whether you own multiple investment properties or have not had the chance to buy your first one, <strong>this interest rate environment is not something you want to miss out on<\/strong>.<\/p> <span style=\"font-size: inherit;\">Here are ways we can profit from the current interest rate environment.<\/span> <div id=\"ez-toc-container\" class=\"ez-toc-v2_0_81 ez-toc-wrap-left counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">In this Article:<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/propertyonion.com\/education\/profit-from-the-latest-covid-19-low-interest-rates\/#1_Buy_More_Real_Estate\" >#1: Buy More Real Estate<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/propertyonion.com\/education\/profit-from-the-latest-covid-19-low-interest-rates\/#Take_Advantage_of_Low_Interest_Rates_Before_Its_Too_Late\" >Take Advantage of Low Interest Rates Before It\u2019s Too Late!<\/a><\/li><\/ul><\/nav><\/div>\n<h2><span class=\"ez-toc-section\" id=\"1_Buy_More_Real_Estate\"><\/span>#1: Buy More Real Estate<span class=\"ez-toc-section-end\"><\/span><\/h2><p>I believe that leverage is one of the most powerful tools that real estate investors \u2014 and all consumers \u2014 have at their disposal.<\/p><\/p>\n\n\n\n<p>When you leverage something, you put some of your own money down and <a href=\"https:\/\/propertyonion.com\/education\/why-you-need-to-find-a-good-mortgage-broker-how\/\" target=\"_blank\">borrow the remaining purchase price<\/a>. This loan (i.e., a mortgage) is typically given over 15 or 30 years and has a fixed interest rate that you pay back the loan on.<\/p>\n\n\n\n<p>In 2018, those interests averaged 4%. In December 2020, the average 30-year interest rate was in the high 2s!<\/p>\n\n\n\n<p><span style=\"font-size: inherit;\"> Financially, this means one thing: <\/span><strong style=\"font-size: inherit;\">you can afford more bang for your buck<\/strong><span style=\"font-size: inherit;\">. <\/span><\/p>\n\n\n\n<p><span style=\"font-size: inherit;\">Let\u2019s say you were looking to buy a home in the pre-COVID-19 interest rate environment. Rates for a non-owner occupied property in 2019 moved around 4.5%.<\/span><\/p>\n\n\n\n<p>When figuring out how much mortgage you can afford, the interest is critical. In 2019, a 30-year mortgage payment on a $150,000 loan at 4.5% would be $760 (not including escrows).<span style=\"font-size: inherit;\"> <\/span><\/p>\n\n\n\n<p>In 2020, the average interest rate just hit 2.65% on a 30-year, owner-occupied mortgage. Let\u2019s use 3% to err on the conservative side for a non-owner occupied loan. A 30-year mortgage payment on a $150,000 loan at 3% would be $632.\u00a0<strong>That\u2019s a difference of $128\/month, $1,536\/year, and a whopping $46,080 over the life of the loan.<\/strong><\/p>\n\n\n\n<p><span style=\"font-size: inherit;\">What if your mortgage was $300,000? Using the same rates, your 2019 payment at 4.5% would be $1,520 and your 2020 payment at 3% would be $1,265. That\u2019s a difference of $255\/month, $3,060\/year, and $91,800 over the life of the loan!<\/span><\/p>\n\n\n\n<p><strong style=\"font-size: inherit;\">With lower interest rates, real estate investors can afford a property that is higher in value compared with higher interest rate environments.<\/strong><\/p>\n\n\n\n<p>Any type of purchase money financing that you do in today\u2019s low interest rate environment will be a good decision. Now, that is not to say go out and buy <a href=\"https:\/\/propertyonion.com\/education\/absolutely-bonkers-terrible-mls-listing-pictures\/\" target=\"_blank\">anything that has a chimney<\/a>, but if you can find a deal that works, financing it with today\u2019s interest rates will only make it sweeter.<\/p>\n\n\n\n<p><strong style=\"color: inherit; font-size: 1.25em;\">#2: Refinance Your Current Portfolio<\/strong><\/p>\n\n\n\n<p>Refinances can seem complex but, like most mortgages, they are really just a financial tool to help you get what you want.There are two types of refinances.<\/p>\n\n\n\n<p><strong style=\"font-size: inherit;\">Rate and Term Refinance<\/strong><span style=\"font-size: inherit;\"> <\/span><\/p>\n\n\n\n<p>A rate and term refinance is where you simply change the rate on your mortgage and the term of the payment. Maybe you purchased a home in 2017 with a 30-year mortgage and got a bit of a higher rate at the time because the home is non-owner occupied \u2014 let\u2019s say 5%.<\/p>\n\n\n\n<p><span style=\"font-size: inherit;\">Today, the rate is still 4.75% and you have 27 years left on your mortgage.<\/span><\/p>\n\n\n\n<p><span style=\"font-size: inherit;\">If you don\u2019t have enough equity in the property, a rate and term refinance today for a non-owner occupied home may have an interest rate closer to 3.5%.<\/span><\/p>\n\n\n\n<p><span style=\"font-size: inherit;\">Take the investor who has 10 doors and a $100,000 mortgage on each property.<\/span><\/p>\n\n\n\n<p><span style=\"font-size: inherit;\">If this investor refinances all of his mortgages from 5% to 3.5%, each door will not only save $88 in monthly payment for a total of $880 in increased cash flow on a monthly basis, but they will also reduce the amount of interest they pay on the life of the loan by almost $50,000!<\/span><\/p>\n\n\n\n<p><strong>Reducing expenses and increasing your income is what it\u2019s all about, and both can be achieved by extending the term back to 30 years and reducing your interest rate.<\/strong><\/p>\n\n\n\n<p><strong>Cash-Out Refinance<\/strong><\/p>\n\n\n\n<p>The other kind of refinance is a cash-out refinance. To take advantage of a cash-out refinance, you need equity in your home \u2014 typically, more than 30% equity to really utilize a cash-out refinance mortgage.<\/p>\n\n\n\n<p>Let\u2019s says your home is worth $100,000. You have a mortgage of $50,000 at 4.75% interest. Here, you could do a cash-out refinance by getting a new mortgage for $75,000.<\/p>\n\n\n\n<p><strong>The new mortgage will pay off your old $50,000 mortgage, and you will be left with $25,000 cash. <\/strong>That money could be used to fix and flip or <a href=\"https:\/\/propertyonion.com\/education\/book-review-the-brrrr-rental-property-investment-strategy-made-simple\/\" target=\"_blank\">buy, rehab, rent, refinance, and repeat (BRRRR)<\/a> another property.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Take_Advantage_of_Low_Interest_Rates_Before_Its_Too_Late\"><\/span>Take Advantage of Low Interest Rates Before It\u2019s Too Late!<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Interest rates have gotten so low that, despite increasing your mortgage from $50,000 to $75,000 as outlined above, you may actually net a lower monthly payment (!), thus increasing the cash flow on your property. All the while you\u2019re putting more cash in your bank account so you can purchase your next property.<\/p>\n\n\n\n<p>That is how you profit in a historically low interest rate environment.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>If you\u2019re reading this, you\u2019re probably in real estate. And if you\u2019re in real estate, you\u2019re probably aware that the world is experiencing two situations right now: A global pandemic A historically low interest rate&hellip;<\/p>\n","protected":false},"author":19,"featured_media":2777,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5],"tags":[244,217,316,315,229,245,43],"class_list":["post-2769","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-real-estate-investing-articles","tag-brrrr","tag-covid-19","tag-interest-rates","tag-mortgages","tag-pandemic","tag-refinance","tag-rehab"],"_links":{"self":[{"href":"https:\/\/propertyonion.com\/education\/wp-json\/wp\/v2\/posts\/2769","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/propertyonion.com\/education\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/propertyonion.com\/education\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/propertyonion.com\/education\/wp-json\/wp\/v2\/users\/19"}],"replies":[{"embeddable":true,"href":"https:\/\/propertyonion.com\/education\/wp-json\/wp\/v2\/comments?post=2769"}],"version-history":[{"count":7,"href":"https:\/\/propertyonion.com\/education\/wp-json\/wp\/v2\/posts\/2769\/revisions"}],"predecessor-version":[{"id":2776,"href":"https:\/\/propertyonion.com\/education\/wp-json\/wp\/v2\/posts\/2769\/revisions\/2776"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/propertyonion.com\/education\/wp-json\/wp\/v2\/media\/2777"}],"wp:attachment":[{"href":"https:\/\/propertyonion.com\/education\/wp-json\/wp\/v2\/media?parent=2769"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/propertyonion.com\/education\/wp-json\/wp\/v2\/categories?post=2769"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/propertyonion.com\/education\/wp-json\/wp\/v2\/tags?post=2769"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}