Northwest Atlanta Properties

Home | Client Forms | Contact | (770) 726 -1454
  • Property Management
    • Property Management Services
      • Property Management Forms
      • Properties Recently Rented
      • Rental Value
    • For Tenants
      • Tenant Information
      • Tenant Forms
      • General Information for Tenants
      • General Questions and Answers
      • Tenant Move-Out Information
      • Emergency Procedures for Tenants
      • Utilities
  • Real Estate Sales
    • Looking to Purchase? Search Here!
      • Search Our Listings
      • Our Recent Sales
    • 1031 Exchange Overview – GA Edition
    • What Is My Home Worth?
    • What to Expect in an Offer
    • For Sale By Owner Resources
  • About Us
  • Testimonials
    • We Want to Hear from You!
  • Blog & Newsletters
    • Blog
    • Newsletters

Welcome to the New Normal and What’s Next?

June 24, 2022 by Mike Stott

A recent survey of over 100 market experts and economists still predict home prices to rise for the next 4 years.

Even the most pessimistic are saying prices will rise over the next 4.5 years by almost 10%

 

A recession is not necessarily bad news for home prices at 4 of the last 6 recessions saw price increases. And the fifth saw a nominal decrease. Many are comparing this coming recession to the ones in 1980 and 1981 in which we see the number of sales decrease dramatically but prices to increase.

 

With the Mid June dramatic rise in interest rates, it’s anyone’s guess as to where we go from here. What we do know is that our expert advice can help you to make the best decision possible.

Real Estate Stats and Thoughts

Our primary areas of service are below, and it continues to be a strong sellers’ market. Average appreciation is now at 24.7% year over year, but we expect the brakes have been applied with the rise in interest rates.

Active listings are at historic lows in Cherokee County Active Listings – we have 7 homes for sale under $200,000! 5 Are lots, 1 is a rundown mobile home on leased land, and 1 is an 874 square foot home built in 1948. Our buyer’s agent Josh helped a friend find a first-time condo and get it under contract. The buyer’s requirement to be under $140,000 narrowed down the search to 3 homes within 50 miles of our office that were livable.

More Exciting Stuff in Woodstock

Named #31 Top Place to live by Money Magazine. The new city center is moving forward. Just released details here Anyone going there at lunch time will appreciate the new 650 multi-level parking deck at the site of the former Morgan’s Ace Hardware which moved up the road into a sparkling new larger home.  We talked with mayor Caldwell and he’s planning on traffic modifications also to ease the congestion after concerts etc. into Towne Lake by making some streets one way. Even more exciting is the likelihood of a boutique hotel with conference space, office and commercial space and residential apartments. This should enhance the value of every property within 5 miles. And none of this will increase property taxes.

 

Property Management: 9 Ways to come up with the down payment for your next investment

 

Despite the high cash requirements for buying investment properties, you have plenty of options to come up with the cash for a down payment on a rental property.

 

Before we dive in, it’s worth pausing to note that the best source of funds for a down payment was, is, and always will be cash from your savings. When you borrow a down payment from someone else, you leave yourself vulnerable to overleverage, to slimmer cash flow margins and returns, and to possible rate hikes or called loans.

This is why we’re so big on boosting your savings rate and cutting your spending. The more of your own savings and cash you can invest with, the better position you’re in to earn high returns from your rental properties.

All right, we’re finished proselytizing, let’s dive into some alternative ideas for coming up with the down payment for an investment property!

 

1. Home Equity

Have some equity in your primary residence?

One of the most effective ways to borrow money for a down payment on an investment property is to take out a home equity line of credit (HELOC) against your primary residence. It’s relatively affordable, it’s flexible, and if you have a lot of equity, you can borrow a lot of money!

HELOCs can be fixed interest or variable, based on the prime rate. They typically have a 10-15 year draw period, during which borrowers can use the line of credit like a secured credit card. During this time, the borrower often only pays interest on the credit balance and does not have to pay any money toward principal each month.

After that, there’s a 15-20 year repayment period, when the borrower can no longer pull money from the line of credit, and must make regular monthly payments to pay off the balance. Many real estate investors use a HELOC to cover the initial down payment or the renovation costs when they buy a new property. After renovating, they then refinance to pull some cash back out and pay off their HELOC balance, and then go out and do it all over again.  You can also tap your equity with a home equity loan. Usually a second mortgage, home equity loans could theoretically be a first mortgage if you own your home free and clear. But home equity loans don’t offer the same flexibility as HELOCs, as standard mortgage loans with a fixed repayment schedule. As a final note, keep in mind that conventional lenders won’t like you using HELOCs to come up with the down payment for an investment property. First, they don’t want to see any part of the down payment borrowed, and second, it will add more debt to your debt-to-income ratio (DTI).

It may also lower your credit temporarily, like any other new debt.

 

2. Rental Equity Line of Credit (“RELOC”)

All right, so “RELOC” may not be a term, but it’s still a thing. Landlords can take out HELOCs against rental properties, rather than their homes, if they have enough equity. As with mortgages, expect the interest rates and fees to be higher on credit lines against an investment property compared to a HELOC. That’s because the risk to lenders is higher, as borrowers are more likely to default on investment property loans than on their home loans. You can also expect the maximum LTV (loan to value ratio) to be lower, with RELOCs compared to HELOCs. That means that lenders will lend you less of the property’s total value, again because their risk is higher.

Like HELOCs, rental property lines of credit make for flexible sources of financing for new investment properties… if you have the equity.

 

3. Cross-Collateralization

Another option if you have equity in your home or other rental properties is cross-collateralization.

Wait, cross-collate-what?

Also known as a blanket mortgage, you can offer to let your lender put a lien against your home or another rental property, as additional collateral. Say you apply for a loan to buy a new rental property, and they require a 20% down payment (plus closing costs, plus cash reserves). You don’t have enough cash, but let’s say you do have another property with $100,000 in equity in it. So, you tell the lender about your equity, and they agree to use that other property as additional collateral and waive your down payment requirement. They now have two properties secured for one loan, and feel confident that even if you default, they can recover their money by foreclosing on both of your properties.

 

4. Your 401(k)

Thinking about raiding your nest egg? It gets tricky quickly when you borrow money from your retirement accounts to buy investment properties, beware!

But here are the basics. First, if you know — with 100% certainty — that you will be able to pay the money back in under 60 days, you can withdraw the money from your 401(k). As long as you return it within 60 days, it doesn’t count as a distribution, and you don’t suffer the IRS’s wrath with penalties and back taxes owed and lots of tears.

Since that’s a risky play, you have another option: you can borrow the money from your 401(k) administrator. Sure, it’s technically your own money that you’re borrowing against, but until you reach 59 ½, you don’t have access without the aforementioned penalties. But the good news is that 401(k) loans are very cheap, since you’re basically borrowing money from your future self. Money that, incidentally, is already in your account.

You can borrow up to around $50,000, or up to around 50% of your 401(k) balance,

 

5. Your Roth IRA

Like 401(k)s, you can pull money out of an IRA for up to 60 days penalty-free, as long as you put it back promptly. Which is just as risky with IRAs as it is with 401(k)s.

Another option with IRAs is to use a self-directed IRA to buy investment properties. With that said, it requires you to set up a self-directed IRA with a custodian, which involves some work.

Alternatively, you can pull contributions back out of your Roth IRA any time, penalty-free. But not earnings — any gains in your Roth IRA must stay put until you’re 59 ½, or you’ll face IRS penalties.

One final option is to pull money out of your account to buy a primary residence for house hacking (more on that coming). The rules are different in Roth IRAs when you pull money out to buy a home:

  1. It must be your first home,
  2. Your Roth IRA must have been open for at least five years,
  3. The funds must be used directly toward the home purchase, and
  4. You can’t withdraw more than $10,000.

 

6. Seller Financing

Why not ask the seller to lend you the down payment? It’s rare in this market but could become a thing.

Seller-held second mortgages were common, although expect the loan term to be significantly shorter than for traditional mortgages. No seller wants to hold a loan for 30 years; they want their money sooner rather than later. But as with everything else in real estate investing, seller-held seconds are negotiable. That goes for everything from the loan term to the interest rate to any up-front fees. Perhaps you offer to pay higher interest for a longer repayment term or negotiate a 30-year amortization period with a three-year balloon. In fact, if you’re planning on refinancing or selling the property within the next few years, a balloon payment can be an excellent compromise between you and the seller. In a balloon note, the remaining balance of the loan becomes due by a certain day; in the example above, your monthly payments are based on a 30-year amortization schedule, but you must pay the entire balance of the loan within three years, through either refinancing or selling the property. That way, your monthly mortgage payments remain low, but the seller still gets their loan repaid in its entirety within a few years.

 

7. Gap Funding

There are companies that specialize in lending real estate investors their down payment for investment properties.  Known as gap lenders, they either charge high interest and fees, or they require an ownership stake in your deal. That’s the price of investing in real estate with no money down.  And it makes sense: gap lenders take on enormous risk, lending you your down payment. They take second lien position behind your main lender, and they’re effectively lending 100% LTV.  Still, a piece of something is better than all of nothing. If you have no other way to close a great deal, gap funding can make sense. Just make sure the combined monthly payments leave you with positive cash flow if you’re buying a rental property — the last thing you want is to lose money each month.

 

 

8. Loans from Friends & Family

Like so many other options on this list, you can’t borrow money for a down payment if you’re using a conventional loan. But portfolio lenders usually allow it.

Your parents, siblings, aunts, uncles, friends, grandparents are all viable sources to borrow from, to help you accumulate the down payment for your next investment property. And they’re not likely to rake you over the coals on interest or fees, either. As with seller financing, all terms are negotiable. One other perk: the debt won’t appear on your credit report, and the lender may not include it when calculating your DTI. If they bother calculating it at all, which many portfolio lenders don’t. Just make sure you confirm that the portfolio lender you’re using allows it, before begging your family and friends for a private loan!

 

9. Co-Investment from Friends & Family

A loan isn’t the only option, when raising money from friends and family. They might want in on the action, as a partner.

If your friends and family balk at the idea of a loan, ask if they want to go in on an investment property with you. You’ll have to negotiate terms: who’s providing how much of the down payment for the rental property, who’s overseeing contractors and renovations (if any), who’s managing the property and tenants.

Most of all, agree on an exit strategy. Will one partner buy the other one out at a certain point? For how much? Or will you eventually sell the property on the market to cash out? When? The only wrong exit strategy is not having one and leaving the partnership open-ended. Because inevitably the day comes when one partner wants to cash out, and the other wants to keep holding the property.

Filed Under: Newsletters Tagged With: #Atlanta, #atlantarealestate, #investment, #Investmentproperty, #Investors, #NorthwestAtlantaProperties, #realestate, #sellyourhome, Agent, Broker, Build a home, Build your home, buyers, consumer spending, CoreLogic, Down Payment, Economist, Equity, Fast Expert, Freddie Mac, Georgia Real Estate, homeownership, homes, housing, Housing Bubble, Investment Property, Luxury Home, Luxury Homes, Luxury Living, Mike Stott, National Association of Realtors, new home buyers, New Home Construction, Property Management, real estate, Real Estate Advice, sellers, selling your home, Top 10, Top Agent, Unemployment, Wealth

About Mike Stott

Latest From Our Blog

We’re in a Sellers’ Market. What Does That Mean?

Even though activity in the housing market has slowed from the frenzy we saw over a year ago, … Read More...

4 Key Tips for Selling Your House This Spring

Spring has arrived, and that means more and more people are getting their homes ready to sell. But … Read More...

How Homeownership Is Life Changing for Many Women

Throughout Women’s History Month, we reflect on the impact women have in our lives, and that … Read More...

View Full Blog >>

More from Our Clients

“You can invest in the best markets in the country but if you don’t have a great management team looking after your investments you can still lose money. That is why I stick with Northwest Atlanta Properties. I tell people it is like buying a mutual fund. You buy a property and the fund manager does the rest. If he does a good job you buy more. That is why I am buying more.”

Jamie Neely
Jamie Neely

“Great Service, everything was wonderful”

Gary Thurman
Gary Thurman

“What a Fantastic Job you guys did! I knew I wanted to hire the team the moment I met them. They are spot on. They did all of the legwork, and at times seemed to move mountains for us. We truly could not be happier!”

Johnston
Kim Johnston

“You guys are the best! I was so scared to pull the trigger on this and you have gone above and beyond to make things go smoothly. You guys are the best!! Many mahalos”

Maili
Maili

“Mike and Jon are the best! They made everything so easy!”

Andy Sexton
Andy Sexton

“This is our second transaction with Mike, Jon, & Donna. I Recomend them to everyone I know!”

Vic & Tammie Pecora
Vic & Tammie Pecora

“I just bought a home in the Woodlands! If you need a great realtor, Jon Burke with Northwest Atlanta Properties was Awesome! He was very knowledgeable and there for me every step of the way!”

Patty Cunningham
Patty Cunningham

“Many Thanks, Jon, Mike for outstanding service & support”

Ritesh Betala
Ritesh Betala

“We went from knowing that we could never buy a house to owning our new home!”

Don & Kris
Don & Kris

“Couldn’t be happier. Looked at houses one weekend, picked our favorite. That’s the one we bought. Got everything we wanted and more in negotiations. They held our hands through the entire process, going above and beyond at every opportunity. NWATLP Introduced me to my now lender, my inspector, and even helped me pick a home warranty! ‘One and Done’ should be their new catch phrase!!!”

Elizabeth W.
Elizabeth W.

“Wow, we ended up being one of those people who sold their house in a day. Mike and Donna delivered exactly what we asked them to do and we are so happy we trusted intuition and our friends.”

Chris G.
Chris G.

“Seriously, you were great!”

Dan & Mimi Murray
Dan & Mimi Murray

“This was our eight transaction. It went as smoothly as possible and sold in two days!”

Marc Bootman
Marc Bootman

“We were blessed to have Mike and Jon sell our house. They were extremely professional and stayed in great contact with us. We interviewed 7 agents and they were simply the most prepared and had the most logical marketing plan. Their pricing spreadsheet really made a big difference. We highly recommend them.”

Daren & Sandra Woods
Daren & Sandra Woods

“I can hardly believe we made it. Thanks for your patience with me and the loving guidance you
gave.”

Lynn Bodenstein
Lynn Bodenstein

“Just wanted to take a moment to thank God for sending you to us. You made the sale of our house grace-filled andeven fun with your humor. And, literally, you have driven all over the place trying to help us find the right home nowthat you sold ours. You get 5 stars and my personal recommendation which I don’t give out lightly. Thank you forbeing a man of excellence!”

Jay & Becky Harmon
Jay & Becky Harmon

“Mike and Jon helped us find a home that we love! They answered every question with professionalism and ease. They made the homebuying process so smooth! 5 stars to Northwest Atlanta Properties, we will recommend them to anyone looking to buy or sell their home!”

The Kornegay's
The Kornegay's

“Wow. Service with a smile. Knowledgeable and gave me all the info needed to find and buy our perfect house.”

Adam Winnie
Adam Winnie

“First of all, I want to tell you how happy and fortunate we are to be working with you. I love the way you are with people. You’re so calm & attentive and present. And it was wonderful how you had taken pictures before the meeting. So we are so lucky to have you on our team. Thank you, Jon!

The Fabozzi's
The Fabozzi's

“The BEST out there. I loved how I would get an email when the house was shown. I was always super informed! Super professional in all aspects!! Thank you, Mike!”

Kristy Haines
Kristy Haines

“Northwest Atlanta Properties sold our house for the highest price in the neighborhood; EVER! That can’t be beaten! “

The Louder's
The Louder's

“My Wife and I became first time home owners in Sept. Northwest Atlanta Properties guided us every step of the way. They introduced us to several lenders, Home inspectors, and Appraisers. They were always concerned with what we thought and our preferences. We went out One Saturday and saw 6 listings. We put in an offer on the one we liked and Got it!!! They stepped in and made negotiations easy as well as prepped us for the eventualities we faced. They should change their slogan to “One and Done” We will never use anyone else.”

Josh
Josh

“This family-owned business was a joy to work with! They listed to exactly what we wanted and put our priorities above their profit margins. I never felt pressured to go into a higher price point then we were comfortable with. They showed us several homes in the areas we were considering and worked with us every step of the way. We were new to the state so relied on their expertise to find us the perfect community for raising our children. I was in constant contact with Donna, Mike, & Josh who never made me feel like I was bothering them. Their many years of expertise made me feel safe and confident while looking for our home. I couldn’t recommend them enough!!!”

Katherine B
Katherine B

“If you are looking for carefully curated experience combined with friendly and understanding customer service then this is the place for you! This is a company that puts their every effort into finding you the perfect home. I spoke with Donna and Mike Stott, Jon Burke, and Josh Weinberg and they were absolutely fantastic. I never felt rushed and they listened to my idea of my perfect dream home with rapt interest that resulted in a selection of beautiful properties and houses. I can’t thank them enough for their experience, time, and attention to detail.”

Alexis
Alexis

“It was a pleasure working with Mike and Donna on getting their properties scanned for 3D tours! Responsive and fair, I would love it if all my clients were this way 😉 Thanks so much for the great relationship!”

Sasha B
Sasha B

“Mike was my listing agent and I had what we both knew would be a hard sale. I went though several other agents and Mike was the one who put in the hard work to get a contract and most importantly closed. It was not an easy process but he made it happen. I highly recommend.”

Ryan Jacobs
Ryan Jacobs

Mike, we had the best realtors in GA❣️😘 thanks to you and Donna we found our dream home! We highly recommend Northwest Atlanta Properties!

 

Ellen Rich-Fox
Ellen Rich-Fox

“Outstanding! I wish every realtor was this thorough! Thanks!”

Frank MUSCENTE - Owner, a closer look
Frank Muscente, Owner, a closer look

“Couldn’t of been easier, best realtor service I have ever had”

Amos Cordell
Amos Cordell

Donna, you and Mike are not at the top of my list of Realtors — YOU AND MIKE ARE THE LIST!!📣

Aileen

Northwest Atlanta Properties

Home Sales & Property Management Services

Professional real estate services for Sellers, buyers, owners & tenants. Specializing in the Northwest Atlanta communities of Roswell, Marietta, Alpharetta, Milton, Woodstock, Kennesaw, and the Surrounding Areas.

Contact Us

We look forward to hearing from you!
Office: (770) 726-1454 anything@nwatlp.com

3380 Trickum Rd Bldg #1300 Suite 100 Woodstock, GA 30188

Be sure to follow us!

Follow by Email
Facebook
Facebook
fb-share-icon
LinkedIn
LinkedIn
Share

Copyright © 2023 · Northwest Atlanta Properties · Website by Visule Web Media

Copyright © 2023 · Executive Pro Theme on Genesis Framework · WordPress · Log in