Author: The Loan Genie

Real estate investments are a good way to build wealth and have financial freedom. A key part of successful real estate investing is finding the best real estate deals on the market. When purchasing an investment property, clever investors ensure that they are getting a great deal. However, getting a good real estate deal is usually not easy, particularly for first-time investors. So, how do you know if a real estate deal is a good one? In this article, we discuss what makes a good deal in real estate. Read on to find out.

What Is a Great Real Estate Deal? Things to Look For

1. Low listing price

An investment property’s listing price is critical when looking for a good real estate deal, depending on your financial capacity. As a real estate investor, you should never purchase what you can’t afford. An expensive real estate investment property will usually have high operating costs too. Purchasing an investment property below market value could provide you with a higher return on investment.

To know whether the purchase price of an investment property for sale is reasonable, you need to compare it with its fair market value. If the listing price is lower than the fair market value of the property, it would probably be a good real estate investment deal. Consider doing a real estate appraisal to estimate the value of the rental property for sale.

2. A profitable location

Location is one of the most important factors when it comes to investing in real estate. A rental property’s location will determine the rental income and occupancy rate. When looking for a good real estate venture, you first have to research the real estate market at both city and neighborhood levels. A great location can make up for some of the limitations of a rental property. However, there is little you can do if you invest in a poor location.

Here are some general features of a good investment location:

• Job opportunities
• Low crime rates
• High population growth
• Nearby amenities like hospitals, restaurants, etc.
• No zoning issues
• Public transportation
• Future developments
• Booming tourism industry
• Safe from natural disasters like earthquakes and floods

3. High rental income

The main purpose of purchasing an investment property is to generate income. As a real estate investor, it’s best to find an investment property with a high monthly rental income. If your monthly rental income is high enough to cover your monthly rental costs, you will be able to create positive cash flow. And as you know, cash flow is a top priority! Before making an offer on a property, research the average rental rates of comparable rental properties in the area, and estimate its rental income.

A good way to find a great real estate deal based on the rental income is to follow the 1% rule in real estate. The 1% percent rule measures the ability of the rental property to generate rental property cash flow. This rule of thumb states that the monthly rent should be equal to or higher than 1% of the total purchase price of a real estate investment property. This rule is used to determine whether or not the monthly rent from a rental property will be enough to cover its monthly mortgage payments. Worst-case scenario, you should break even on the rental property.

4. Low rental expenses

Rental expenses are also essential in finding a good real estate deal since they will also affect rental property cash flow. Before purchasing an investment property, you should find out all costs associated with purchasing and operating it. Expenses may be in the form of repair and maintenance costs, insurance, property taxes, HOA fees, and mortgage payment.

If rental expenses are too high, they will eat into your rental income and likely lead to negative cash flow. If you are wondering how to determine a good rental property, rental expenses are something that you should unquestionably take into consideration.

5. Low repair cost

While purchasing below market value rental properties has its benefits, a beginner real estate investor should be cautious about buying a fixer-upper. If a rental property needs a lot of repair work before it can be rented out, it can wash out any profit you may have made from rental income.

Therefore, when looking for a good real estate deal, you should do a home inspection to know the repairs required and how much they will cost. A rental property that is in excellent condition can be rented out right after purchasing. You don’t have to wait long before you start earning rental income.

Nevertheless, you can also buy an income property that needs repairs. Just make sure you account for those costs when determining your return on investment. This will help you understand if purchasing the property is a good deal or a bad real estate deal.

6. Real estate appreciation

Aside from the profitability of an investment property now, an investor should also consider its potential to grow in value over time. Real estate appreciation is normally realized when one is selling a property after an increase in the selling price. To get a good estimate of whether an investment property will appreciate, check local real estate market trends.

How to Find Good Real Estate Deals

Now that you have the answer to the question “what is a good real estate deal”, the next thing is to know how to find real estate deals. With many people getting into real estate investing, it’s becoming even more challenging to find a good real estate deal. As a real estate investor, what can make the difference is using the right tools to do your due diligence in real estate. If you are thinking of how to analyze real estate deals in the best way, consider working with VRM Lending LLC.

The best way for investors to find good real estate deals in the United States housing market is by using the Listing Portal (vrmproperties.com). With this tool, you can search for the best performing investment properties in your market of choice that meets your search criteria. The portal allows you to set your search criteria using filters like budget, the number of bedrooms, location, and property type.

The Bottom Line

Successful real estate investing starts with understanding how to manage a good rental property. The above features provide the solution to the question “what is a good real estate deal?” So, next time you are looking for a real estate investment property to buy, be sure to consider the above features.

What the Fed’s Emergency Rate Cut REALLY Means for Mortgage Rates and Borrowers

On March 15th, The U.S. Federal Reserve implemented further emergency measures to help limit the economic harm from the coronavirus. As part of the newest measures, they announced another emergency benchmark interest rate cut. This is the second emergency rate cut in two weeks and brings the federal funds rate to between 0% and 0.25%.  As during the ’07-’09 financial crisis, the Fed is working to combat the growing number of shutdowns and cancellations by pumping the financial system with cash to ensure markets keep functioning and banks maintain sufficient funds to keep needed credit flowing to businesses and consumers. But what do these cuts ACTUALLY mean for the consumer and for the industry as a whole? It’s a complicated issue and is changing every day, but we will do our best to break it down.

#1  Mortgage rates were already near record lows. The most recent fed cuts may indirectly push mortgage rates lower, but will not necessarily directly impact the mortgage industry as a whole.

The most common misconception is that a zero percent benchmark interest rate means mortgage rates will drop to zero percent. However, this next part is very important: do not expect those kind of mortgage rates anytime soon. The Federal rates that were cut apply to ‘short-term’ interest rates.  This rate cut affects home equity lines of credit, credit card rates, and any other similar short term rate (typically a loan that is less than 10 years).

Because mortgages are long-term loans, their interest rates tend to follow long-term bond yields rather than short-term interest rates like the federal reserve benchmark rate. There are multiple other factors that also come into play as it relates to mortgage rates, such as the strength of the economy and inflation. The bonds that dictate mortgage rates trade thousands of times a day. Mortgage rates themselves can change many times throughout the day. The Fed, however, only meets to decide rate changes eight times a year, with the exception of emergencies like this. This is not to say that the virus has not had a significant impact on mortgage rates, however. It has caused already low rates to drop even lower and may lead to record low averages. It just doesn’t mean rates are going to drop to zero.

We can see this in the trends of the mortgage industry during the time following the 2008 recession. The fed held a benchmark rate of zero until 2015 to bolster the economy. But even through all that, the average mortgage rate was 4.2% during that period. According to Realtor.com’s Chief Economist, Danielle Hale, “Because mortgage bonds are considered riskier than government bonds, they tend to be slightly higher than 10-year rates. Even if the market spread were to return to normal, given where 10-year rates have been in the last week or so, we’re looking at mortgage rates around 2.5%.”

“Even the government can’t borrow at zero percent,” said Greg McBride, chief financial analyst at Bankrate. “The most creditworthy consumer carries a higher risk than the US Treasury, so you are going to pay at least a couple percentage points more than that.”

#2  All actions taken by the Fed are to not only keep banks afloat, but to indirectly maintain consumer spending.

The Fed’s decision is part of their emergency action plan to protect the economy from the impact of coronavirus. This is following the fastest 20% plunge in U.S stock market history. That decline impacts not only the market but the way the average consumer spends money. U.S. consumer spending drives the world’s biggest economy. Reversely, consumer spending is influenced by the strength of the economy and market.

In addition to the rate cuts, the Fed announced the reimplementation of the crisis-era program of bond purchases known as “quantitative easing,” in which the central bank buys hundreds of billions of dollars in bonds to further decrease rates and keep markets flowing freely. These moves by the Fed make interest rates extremely low for banks to ensure they are able to keep loans available for businesses and consumers hardest hit by an economic downturn. As the Fed purchases more bonds as part of quantitative easing, some will be mortgage-backed securities as they aim to stabilize home loans.

Jerome H. Powell, Chair of the Fed, emphasized that their goal is to do all they can to help the nation “weather this difficult period” and “foster a more vigorous return to normal once the disruptions from the coronavirus abate.”  The low rates are expected to remain until the economy recovers from the coronavirus downturn.

#3   Should you rush to get a mortgage or refinance your existing mortgage? 

Mortgage companies are flushed with mortgage applications as a result of the low interest rates. Experts say you shouldn’t be rushing to the banks. The lowest rates aren’t widely available right now because banks are marking up rates to give them a chance to work through the initial wave of demand. There are many factors to consider and of course nothing is set in stone, but the conditions are set for mortgage rates to stay low throughout the rest of 2020. McBride says “Once lenders ease the backlog of applications, rates should normalize and that will make for an opportune time to get in. “

It is also important to emphasize that there isn’t a general piece of advice that applies to everyone when it comes to mortgage lending. Every borrower is in a different scenario with different levels of risk tolerance, especially when the future impact is so widely unknown. The best advice we can give to current borrowers is to have open communication with your loan originator. Let them know what rate you want to lock in so they can keep an eye on rates and lock yours in when the time is right.

Bottom Line:

The Fed interest rate cut does not mean you can get a near zero percent mortgage rate. It may however lead to lower mortgage rates as the impacts are felt in the mortgage industry. Monetary policy changes like those enacted by the Federal Reserve are not quick-acting tools. It will be a while before we know the long-term impact of these changes.

*We are not financial advisors and any decisions should be made by each individual themselves, based on their own economic situation. *