***Disclaimer - Real Estate Investing involves inherent risk and does not promise guaranteed returns. Listed below are arguments as to ways consumers can make the most of a volatile market, but profits are not guaranteed. Consult with your accountant or finance professional prior to investing.

The constant barrage of headlines hitting your inbox doesn’t paint the brightest picture for the Real Estate market. Record levels of inflation, increasing mortgage and rental prices, and declining housing prices are causing Americans everywhere to think twice about where they call home. The news cycle may be concerning, but history tells us that now is the time for the next generation of millionaire's to make their mark. Here’s how you can be the next “millionaire made in a recession.”

State of the Market Today

Say what you will, but it’s undeniable that 2022 has been a record breaking year. Here are some headlines that may have hit your inbox so far this year.

• “U.S inflation reached a new 40-year high” - July 14, 2022 - LA Times
• “Mortgage Rates Hit 6.92%, a 20-Year High” - October 12, 2022 - WSJ
• “Housing affordability fell to a 3-decade low, but it’s not all bad” - August 12, 2022 - NBC News

With home prices falling and mortgage rates increasing, it’s unsurprising that consumer confidence in the market is falling with them. However, a stable labor market and declining US trade deficit also signals that we still have the tools we need to rise out of this market correction. Combine this with the fact that housing will always be an important necessity in every single person’s life, and you get the perfect opportunity for investors like you to make this your millionaire moment. 

DSCR Refinance any Flips That Aren’t Selling

We’ve seen many investors who were in the process of flipping a home now feeling stuck and uncertain when the property they invested sweat and funds into doesn’t sell for a profit. The question of whether it is better to sell lower and break even or wait for a buyer who will pay your list price is a difficult one to answer. Luckily, there is a third option that not all investors are aware of. Debt Service Coverage Ratio (DSCR) refinancing is a long term financing option for rental investment properties that asks whether the rental income of a property can pay for itself. With 30 year fixed or 10/1 ARM financing at rates of 6.5-7.5%, this loan product may be exactly what you need. Similar to a private/hard money loan, DSCR is considered asset based financing where the lender is more concerned about the merits of the property than that of the borrower. This means that qualifying for a DSCR refinance is much easier to accomplish with your newly renovated flip. This type of loan typically comes with a hefty prepayment penalty (typically 5 years), so make sure you are committed to the rental route before signing on the dotted line. Increased rental values as housing affordability goes down makes this a valuable route for investors who want to maximize the value of a flip that isn’t selling. 

Focus on Cash Flow

Increased shelter costs may be a large contributor to current inflation in the US, but it also can help mitigate any changes in the cashflow being produced by your rental property. Upward pressure on rental prices and downward pressure on home prices means that more and more cashflow is on the table for investors who are smart about their financing. Flipping houses can be a great way to rapidly increase your capital position, but can also be a riskier prospect when the value of your flip could decrease in the time it takes to complete the work. Don’t underestimate the impact additional cash flow can have on your financial situation. Let’s look at a hypothetical rental investment in Texas using a Bench Equity hard money loan.

Imagine the difference an extra $921.03 a month would make on your family finances. Remember that this is after the expenses of owning your property have already been paid other than occasional minor repairs. Now do deals like this a dozen times and you will see how big of an impact owning rental properties can have on your finances. 5 deals like this would bring in almost $55,261.80 a year not including any appreciation in value of the home. For more information on the 4 ways rental properties add value to your portfolio, click here to read Robert Kiyosaki’s article “How to Profit From Real Estate in Four Powerful Ways”

Househack

Househacking has become increasingly popular over the last few years as a way for first time homebuyers to participate in the investment real estate market without access to large startup capital. The term refers to purchasing multi-family housing (duplex, triplex, quadplex) with an FHA loan and using the rental income of the other doors to contribute towards qualifying for the loan and simultaneously paying down your own mortgage. For younger investors looking to get their foot in the door, househacking is a great foray into real estate investing that can teach you many valuable lessons about the industry while living right next door to the other doors you own and manage. 

Invest in Markets Built Around Strong Industries

Houses are all different, and so are the markets they reside in. Much of the inflation in the US currently is disproportionately affecting service industries more than goods industries. Hence, markets like those in Texas and Utah that have strong manufacturing, technology, and natural resource industries have seen more resilient home prices and will maintain a high demand for rentals for employees moving to fill new jobs. Even Private Money lenders like Bench Equity don’t have unlimited capital, so the fact that we are committing our funds to Texas and Utah real estate should be an indicator of our confidence in those markets. The job market of an area has major impacts on the value of real estate, so following strong labor markets can help you turn volatility into wealth. 

Get Investment Financing

Not all financing options are created equal. Investors need fast and flexible financing to navigate investment real estate markets where wholesalers and motivated sellers are looking to offload properties as quickly as possible. This is where Private Money Lenders like Bench Equity come into play. These types of lenders focus on non-owner occupied investment properties and can fund your next deal in 3-5 days with little to no documentation required about yourself as the borrower. Compared to the 30+ days long process of a conventional mortgage, private/hard money financing can be the edge you need to win a contract. 

On top of the speed and flexibility of Private Money, interest only payments with rates that have grown slower than the increase in conventional rates gives you a valuable tool to keep costs to a minimum. Here at Bench Equity, we have only raised rates 1-2% this year while traditional rates have increased 3-4% across markets. Short term, non-owner occupied loans from Bench Equity can help you get in and out of a flip fast or lock down the purchase of a rental before transitioning to long term rates with a DSCR refinance.