Diamonds are not forever but Real Estate Is … Make Wise Investing Choices!

Would you ever think to compare diamonds and real estate? At first glance, they seem like two completely different things.  However, they are both hard assets that are cost-prohibitive to acquire for the average US worker.  However, you can sell both “assets” quickly and not realize their full value in the marketplace.    Let’s first compare the similarities and then differences from an investment perspective.

Real Estate is a better long term investment than diamonds

Similarities

Hard Assets:

  • Both Diamonds and Real Estate are Hard Assets similar to other commodities
  • Negatively correlated with bonds and stocks, so when stocks crash both appreciate in value

Long Term Investments

  • Suitable for investors who are not looking for fast returns on their investment
  • Risk losing money if you try to “flip” your investment too early or didn’t acquire at the right price below market value

Additional Utility

  • Provide the investor with enjoyment and value
    • Diamonds are pretty to look at and make the person or people associated with the diamond have better social value 
    • Real Estate provides rental income and in the case of short-term rentals – owners can enjoy the property and generate revenue when not in use.

Differences

As investors, we all know that not all hard assets, such as real estate or diamonds, have the same return on investment.  In fact, ROI performance varies greatly even among real estate classes:  residential property, commercial real estate, agricultural property, etc.  Financial crises prove time and again that real estate is a highly volatile asset.   Diamonds are a closed market that is stable and less risky.  However, there are still differences among the rate of returns on diamonds such as the colored diamonds are less risky.

  • Maintenance Fees
    • Diamonds don’t have a maintenance fee … you’re ROI is based on the price you paid upfront for the diamond
    • Real Estate requires maintenance and repairs and possibly property management fees.  All these factors need to be carefully considered before acquiring property and affect your return on investment.
  • Portability
    • Several millions of dollars can fit in your fist and transport in a pocket … the irony for not being the rarest stone they have the highest size to value ratio of the natural resource category.   This is how historically (since the silk road trail) wealth was transported long distances and across borders.
    • Real estate can’t be moved. Real estate is not physically portable and the value does not transfer easily either.  However, 1031 exchanges are a great way to transfer appreciation as you sell your property.

At REI Capital Resources, we prefer real estate investing to diamonds.  In fact, diamond prices are extremely volatile – shooting up 249% from 1978 to 1980 before falling 77% by early 1986 – but the value of diamonds has also long been propped up by a number of artificial sources.   Real estate can be utilized and provide rental income.  As the number of cloud and work from home startups rise, commercial real estate is increasingly valuable to investors to provide “server farms” to meet bandwidth demands.

We are not saying diamonds aren’t valuable or important – especially as emergency currency and making your future or current spouse a little happier this valentine’s day.  We’re saying don’t buy a diamond as an investment with the idea of retained value.  If you look at diamond prices since the 1970s, there has been “Too Much Price Volatility & Demand Uncertainty To Be Considered Investable” by numerous sources.  Also, the use of diamonds as a symbol of a woman to be married is only about a 100-year-old custom.  There are numerous other stones considered rarer.  Thank you, Madison Avenue for making weddings a thing to save money for and cause the intelligent investor to consider generating a new stream of revenue.

We love this quote by Milton Friedman, “The speculator is looking for hidden weak spots in the market,” and acts as “the advance agent of the investor, seeking always to bring market prices into line with investment values.”   Diamonds don’t provide an adequate hedge against inflation, and most people would be better off with more practical financial planning, than investing for catastrophe purposes.  The diamond while a modern symbol of one’s love and commitment to another is expensive and ranks low when compared to value stability.

Diamonds vs. Gold vs. S&P 500

YearGold ROI  %Diamond ROI  %S&P500 ROI  %
2004000
200536-110
200657323
200797291
200811911-22
200917619-7
2010254507
20112763915
20122182437
20131852061
2014172873

*Data courtesy of the Rappaport Diamond Index, Kitco, the World Gold Council and Yahoo Finance. Diamond prices reflect monthly averages based on a 1-carat diamond. Gold prices are based on average annual London PM fixed prices. S&P 500 prices reflect average monthly adjusted closing prices. ROIs are cumulative.

The chart shows when the stock market suffered historic losses, diamonds at best served as a short-term hedge and very quickly fell behind the returns of alternative investments.

Therefore, I would recommend a 3 bedroom house that generates a positive return on investment that you can set aside the money after a year to buy your sweetie her diamond.  If she loves you, she’ll wait a year knowing a diamond is coming.

Deferment Fog

Although real estate agents are seeing increases in inquiries about homes in the suburbs compared to the same period last year and house sales are up slightly in the second-home market, consumers are not applying for as many loans and banks are not lending as much.

Millions of Americans, 29 million, filed for unemployment last week for the first time according to Investopedia.com, slightly more people than expected, but less than the previous week.

As they lost their jobs or were forced to close their businesses, homeowners who could not make their mortgage payments asked their mortgage servicers for permission to pause their payments. Once a rare occurrence, the number of accounts in deferment, forbearance, or some other form of relief rose to 100 million between March 1 and the end of May according to today’s Wall Street Journal article by Anna Maria Andriotis.

For lenders and borrowers, these are difficult times because the coronavirus stimulus package includes a provision that says lenders that allow borrowers to defer their debt payments cannot report these payments as late to the credit reporting companies, making credit scores an unreliable marker of how a borrower is doing paying their loans back.

Banks are pulling back on credit because lenders are having a difficult time determining if applicants’ credit scores and credit reports reflect their true levels of risk. Not only do they not know who to lend to, but they cannot tell how much their loan losses will be if the economy remains a mess.

Across the board, lending standards have been tightened. Even mailed credit card solicitations fell from 316 million in February to 74 million in May. (Wsj.com)

It takes more work to find borrowers who will pay their loans back. A lender will have to sort through more data. Some lenders are asking borrowers for permission to look at their payment history on accounts not appearing in their credit report and to analyze their banking accounts.

If you need funding, apply now. I am working online with the rest of you.

Patrick St. Cin

W – 512-213-2271

M – 505-239-3026

Patrick@REICapital.cash

http://www.reicapital.cash/

References

Andriotis, June 29, 2020, Flying Blind Into a Credit Storm’: Widespread Deferrals Mean Banks Can’t Tell Who is Creditworthy, available online at https://www.wsj.com/articles/flying-blind-into-a-credit-storm-widespread-deferrals-mean-banks-cant-tell-whos-creditworthy-11593423001?mod=hp_lead_pos5

Fluctuating LTV

The loan-to-value (LTV) ratio is the amount a borrower can borrow from a lender compared to the appraised value of the property that he or she wants to buy. The LTV determines the amount of a down payment a borrower has to supply from his own pocket to invest in the property.

Loan-to-Value ratio = Mortgage amount ∕Appraised value of the property.

For example, if the lender offers a loan at a 90% loan-to-value ratio, the borrower must supply 10% of the total cost of the purchase. In a fix-n-flip loan the same is true, the lender that supplies up to 90% (for example) of the home purchase price, requires the borrower to provide the other 10% of the price.

The Coronavirus pandemic has changed things rapidly including the market value of homes, thus affecting the LTV ratios lenders depend on. Please call for the most up-to-date loan-to-value ratios on our loans for your upcoming projects. 512-213-2271

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Default

If a borrower defaults on a home loan, which is more likely to happen if they do not have much of their own money in the home, the lender takes back the home and sells it to get back the money they lent. Market fluctuations can cause lenders to lose money if the value of a house goes down and the borrower defaults on the loan. The value of the home may be less the amount of the loan. The coronavirus pandemic may make home prices goes down, but that is not certain and may not be true in all locations.

Equity

If the borrower had equity in the home and defaults, then the borrower loses the equity they have in the home because the lender takes the property and sells it to recoup their investment and expenses as quickly as possible.

Equity is the amount of money that would be returned to homeowner if the asset is liquidated (sold) and all debts are paid off. It is in a home owner’s best interest to sell a home before they default on a loan and pay the loan off if possible both so they can get their equity out of the home and so that they can keep their credit history in good shape.

FICO Score Requirements

The FICO score required on loans relates to the buyer’s credit history. It reflects how often they have been late or defaulted on loans in the past. Before the coronavirus pandemic set our lives, marketplace, and economy into a spin, REI Capital Resources required a FICO score of 650 on a hard money loan with a term of up to 24 months. Many people have lost their jobs and their credit scores have suffered. Watching the unemployment rate go up, lenders across the country have tightened up their FICO requirements and these requirements are changing daily. Please call me for our latest FICO requirements. 512-213-2271.

Selling to Avoid Foreclosure

Owners in default or facing default will sometimes take less than the market value for a house to avoid foreclosure. They may settle for only getting part of their equity back, reasoning that some is better than none. None is what they will get if they go into foreclosure and the lender takes back the property and sells it for the balance owed on the loan. The borrower may even give up all their equity to sell the house before defaulting to keep their credit history intact and their FICO scores high.

Buying Opportunity

The distressed homeowner’s situation becomes the buyer’s opportunity. The homeowner needs help to retain their high FICO score and some equity, and the fix-n-flip buyer needs to purchase a property for the lowest price. It can be a win-win deal.

As a direct lender, it is my job to help you get a purchase and rehab loan as quickly and as easily as possible. The perfect fit is still out there. Call me though for the most up-to-date information.

I am working online with the rest of you. If you need funding, fill out the BLN application at   http://reicapital.blnsoftware.com/ or send me an e-mail or give me a call.

Patrick St.Cin

W – 512-213-2271

M – 505-239-3026

Patrick@REICapital.cash

www.REICapital.cash

Waking Up

Real Estate is waking up. U.S. mortgage applications to purchase a home 🏠 rose 9% last week from the previous week and from a year earlier, according to the Mortgage Bankers Association’s seasonally adjusted index. It was the sixth straight week of gains and a 54% recovery since early April. Investopedia.com.

Photo by Pixabay on Pexels.com

This is despite the sobering news from the Labor Dept. Weekly pay fell 11% in April from the prior month. That was the biggest drop on record, but it will likely be broken in May. Investopedia.com This, plus historically high unemployment, will be immense hurdles for people buying homes but might be incentive to start a business fixing and flipping homes to add to your own income and to provide homes, maybe small homes, to young and old consumers alike. Both want to get out of community living and out of big mortgages. I have the funds to help you fill this void in housing.

Real estate agents are using more virtual tours to showcase their homes. You might be able to use a video 🎥 to showcase your remodeling experience on a loan application for a private money loan for your next project.

I am working online with the rest of you. If you need funding, fill out the BLN application at   http://reicapital.blnsoftware.com/ or send my an e-mail or give me a call.

Patrick St.Cin

W – 512-213-2271

M – 505-239-3026

Patrick@REICapital.cash

www.REICapital.cash

Restraint

Home Loans in Forbearance Grow to 3.8 Million

According to an article in the Scotsman Guide, the Mortgage Bankers Association (MBA) forbearance numbers increased again last week but at a slower rate.

MBA estimates about 7.54% in servicers’ portfolios were in forbearance as of April 26, up from 6.99% a week earlier. A total of 3.8 million homeowners are now in forbearance plans.

Photo by Andrea Piacquadio on Pexels.com

Forbearance in the context of the mortgage process, is a special agreement between the lender and the borrower to delay a foreclosure. According to the agreement, the lender delays its right to exercise foreclosure if the borrower can catch up to its payment schedule by a certain time. (Wikipedia)

As we get back to work and restart our economy, lenders are exercising restraint. Never before have so many Americans lost their jobs in so short a time. Let’s be creative and work for a quick recovery.

Please let me know if I can help you with a private loan.

Fill out the BLN application at   http://reicapital.blnsoftware.com/ or send my an e-mail or give me a call.

patrick@reicapital.cash

W – 512-213-2271

M – 505-239-3026

Patrick@REICapital.cash

www.REICapital.cash

Investing in Apartments – Commitment and Study

Even in the coronavirus pandemic crisis investing in rental apartment property can still be a good way to add thousands of dollars to your income in the long term. If you buy apartment real estate that is in a good location with growth potential, but that is not too expensive, this real estate investment will likely recover after the crisis passes according to (Brad Hunter, Forbes.com). However, the investment takes funds and commitment over the long haul.

Appreciation

There are two way to make money from rental real estate. The first, appreciation, is a rise in value over time. This profit can only be realized by reselling the property after some time has passed or after you have made upgrades that add to the value. Generally, real estate appreciates in value over time if you are in the right location. Be sure to study employment and home buying trends in your local area before purchasing rental property.

Cash Flow & Coronavirus

You can also make money in the form of cash flow by collecting rents as income. The coronavirus pandemic is affecting the apartment rental real estate industry because many people, more people than we have ever seen before, have lost their income in only a few weeks, unemployment claims are up all over America, and tenants may not be able to pay their rents for the next couple of months. This will impact the ability of landlords to make money. Either the landlord forgives the rent and eats the loss for a while to keep the tenant, or the renter is evicted, and the property becomes vacant. In either case, the landlord is not receiving income on the property and may have to seek forbearance from their own lenders.

If a landlord has paid off his or her own mortgage on the property or if he or she has established an emergency fund as Dave Ramsey suggest (daveramsey.com), they will be able to weather the storm caused by the jobs lost in the pandemic shutdown.

Jobs and Renting

Either the jobs come back after the danger from the virus is past and businesses reopen, and the renters stay, or a new set of renters materialize because those people who are no longer able to afford their own homes move to apartments and construction of new homes slows because of coronavirus-driven delays caused by labor shortages, and supply shortages. More people may need to rent. In this case. It is likely the landlord’s income will return after some shaky months.

Photo by Michael (Black) Ritter on Pexels.com

Asset Rebound

Because the income potential should rebound, rental apartment property should not lose its value overtime as an asset. If the building itself remains sound, there is no reason why the property value will not increase as other investments tank and real estate once again looks solid and reliable compared to stocks. Also, if interest rates remain low, investors will be willing to take on more debt and are not restrained from purchasing property at higher prices. This will help investors who plan to sell their rental properties make a profit.

Single-Family Rentals

Investments in single-family rental homes may also benefit in the long run as more people work from home and need more room than apartments afford. Brad Hunter also suggests in his article on Forbes.com that the single-family-built-to rent-industry may benefit as people need that specially designed home office space with its own door and bathroom.

Due Diligence

Investment in rental real estate should remain attractive but be sure to do your due diligence.

Study everything from location, jobs, virus hotspots, distancing trends, supply chains, virus rebounds as they occur, and what the kids are doing now.

References:

Dave Ramsey online at https://www.daveramsey.com/blog/how-to-invest-in-real-estate

Forbes online: https://www.forbes.com/sites/bradhunter/2020/03/24/coronavirus-impacts-on-real-estate–why-you-need-to-think-short-term-and-longer-term/#6f2133345f6f

Investopedia, The Impact of Interest Rates Changes by the Federal Reserve. https://www.investopedia.com/articles/investing/010616/impact-fed-interest-rate-hike.asp

We have funds available so let us invest in something together.

I would be pleased to have you call or e-mail too.

Patrick St.Cin

W – 512-213-2271

M – 505-239-3026

Patrick@REICapital.cash

www.REICapital.cash

REI Capital Resources is in accordance with the Federal Equal Credit Opportunity Act, REI Capital Resources employs business practices that promote fair lending and will not tolerate discrimination relative to borrower race, color, religion, sex, handicap, familial status, age, national origin or ancestry. REI Capital Resources fully supports the letter and spirit of these laws and does not condone discrimination in any mortgage credit transaction.

To help the government fight the funding of terrorism and money laundering activities, Federal law requires us to obtain, verify, and record information that identifies each person who cashes checks, wire funds or engages in other financial services with this establishment. We will ask for your name, address and other information that will allow us to identify you. We may also ask to see your driver’s license or other identifying documents.

Tools of the Trade: Blanket Loan

A blanket loan is a loan or mortgage used to fund the purchase of 2 or more pieces of real estate (Wikipedia, Investopedia). The real estate is held as collateral for the mortgage, but the individual pieces of property may be sold without retiring the entire mortgage. Builders and developers, investors in multiple apartment communities, or investors in more than on single family rental property use blanket loans to buy a large tract of land to subdivide or multiple properties to manage as a business. The rental investor may sell one property without redoing the mortgage on the other properties. The developer can create many individual parcels to be sold one at a time without securing a new mortgage each time the sale of a parcel is made.

The blanket loan has a release clause that allows the owner to sell a portion of the secured property and make a corresponding payment on the loan. The outstanding balance on the loan is adjusted accordingly without being completely redone or retired. Most single-house traditional mortgages contain a “due-on-sale clause,” which means the entire outstanding debt is due when the securing property is sold. If this is the type of mortgage a developer or an investor with multiple rental properties has, then each time they sell a property they have to redo all the paperwork to remake the mortgage.

Benefits

The financial benefits for an investor include

  • Only have to pay the fees and costs of one loan rather than applying for and closing multiple mortgages.
  • Negotiated terms, such as the monthly payment may be better under the blanket mortgage, freeing up capital for further investment.
  • Acquiring more than one house to fix-n-flip under one loan when several come on the market at the same time would allow a flipper to take advantage of the opportunity to buy multiple properties all at once (saving time and fees) while still being able to sell them one at a time after they are refurbished.

Danger

The danger to the owner is that if he or she defaults on the mortgage, the lender may seek control of all the properties secured by the loan.

Give me a call or send an e-mail and I will help you to move quickly, get the best deal, and start making money sooner. Patrick@InvestorsLendingSource.com

512-214-2271 Austin, Texas

References:

Kagan, Julia, Investopedia, Defining a Blanket Mortgage, March 8, 2018. https://www.investopedia.com/terms/b/blanket_mortgage.asp

Wikipedia, Blanket Loan. https://en.wikipedia.org/wiki/Blanket_loan

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