Marie Deary
Sep 8, 2023
Real estate agent and investor Deidre Rouzan Williams recently presented a webinar hosted by Wealth Management Financial Advisors on the topic of "Owning Real Estate is a Proven Way to Build Wealth." She highlighted the following key points:
In the early 1980s, interest rates were very high. The federal funds rate, which is the interest rate that banks charge each other for overnight loans, reached a high of 20% in 1981. Â Mortgage rates in the 1980s were very high. The 30-year fixed mortgage rate reached a peak of 18.45% in October 1981.
The high mortgage rates in the 1980s did not prevent investors from generating passive income from real estate. In fact, some investors were able to make a lot of money by investing in real estate during this time.
Real estate prices were relatively low: The high mortgage rates made it difficult for people to buy homes, which led to a decline in home prices. This created an opportunity for investors to buy properties at a discount.
Rents were high:Â Even though mortgage rates were high, rents were also high. This was due to several factors, including the strong economy and the growing population.
Investors could use leverage:Â Investors could use leverage to magnify their returns. Leverage is the use of borrowed money to invest. This allowed investors to invest in more properties with less money down.
These high interest rates were caused by several factors, including the Federal Reserve's efforts to combat inflation and the oil embargo imposed by the Organization of Petroleum Exporting Countries (OPEC).
High interest rates made it difficult for people to borrow money, which led to a slowdown in the economy.
In the late 1980s, interest rates began to decline. The federal funds rate fell to 5% in 1989.
This decline in interest rates was due to several factors, including the Federal Reserve's easing of monetary policy and the end of the OPEC oil embargo.
Low interest rates made it easier for people to borrow money, which led to a recovery in the economy.
Deidre Rouzan Williams also discussed the impact of interest rates on real estate prices. She noted that interest rates and real estate prices tend to move in opposite directions. When interest rates are high, real estate prices tend to be low. When interest rates are low, real estate prices tend to be high.
This is because interest rates affect the cost of financing a home purchase. When interest rates are high, the monthly mortgage payments are higher, which makes it more difficult for people to afford to buy a home. This can lead to a decrease in demand for homes and a decrease in prices.
When interest rates are low, the monthly mortgage payments are lower, which makes it easier for people to afford to buy a home. This can lead to an increase in demand for homes and an increase in prices. She also discussed:
Passive cash flow:Â Real estate can generate passive income through rent payments. This means that you can earn money from your property without having to actively work on it.
Appreciation:Â Real estate can appreciate in value over time. This means that your investment can grow in value, even if you don't sell the property.
Diversification:Â Real estate can be a good way to diversify your investment portfolio. This means that you are not putting all of your eggs in one basket.
Tax benefits:Â There are many tax benefits associated with real estate investing. For example, you can deduct depreciation and interest expenses from your taxes.
Refinance:Â You can refinance your property to access the equity you have built up. This can be used to fund other investments or to pay off debt.
Inflation hedge:Â Real estate can be a good hedge against inflation. This means that the value of your property is likely to increase at a rate that is similar to or higher than the rate of inflation.
Tangible asset:Â Real estate is a tangible asset, which means that it is something that you can physically touch and see. This can be appealing to some investors who want to invest in something that they can hold onto.
Hands-on involvement:Â Real estate investing can be a hands-on investment. This means that you may need to be involved in the management of your properties. However, this can also be a rewarding experience, as you can see your investment grow and prosper.
Networking:Â Real estate investing can be a great way to network with other investors. This can be helpful for finding deals, getting advice, and learning from others.
Legacy building:Â Real estate can be a great way to build a legacy for your family. This is because real estate can be passed down from generation to generation.
During the question-and-answer segment of the webinar, Deidre Rouzan Williams and Marie answered a variety of questions from the audience. Here are some of the questions that were asked:
What is Debt service coverage ratio (DSCR)?
Debt service coverage ratio (DSCR) is a financial ratio that measures a property's ability to generate enough income to cover its debt payments. DSCR is calculated by dividing the net operating income (NOI) by the total debt service (TDS).
A higher DSCR indicates that a property is more likely to be able to cover its debt payments, which makes it a more attractive investment for lenders. Lenders typically require a DSCR of at least 1.25, but some may require a higher DSCR depending on the property and the borrower's credit score.
When looking for financing, DSCR is an important factor to consider. A higher DSCR will make it easier to get a loan and may result in a lower interest rate.
Here is the formula for calculating DSCR:
DSCR = NOI / TDS
NOI: Net operating income is the income that a property generates after all expenses have been paid.
TDS: Total debt service is the total amount of money that a property owner must pay each month to cover their mortgage, property taxes, and insurance.
For example, if a property has a NOI of $10,000 and a TDS of $5,000, then the DSCR would be 2.0. This means that the property has enough income to cover its debt payments twice over.
DSCR is a dynamic ratio, meaning it can change over time. The DSCR of a property can be affected by a number of factors, including changes in NOI, TDS, or both. For example, if the NOI of a property decreases, then the DSCR will also decrease. This could make it more difficult for the property owner to get a loan or could result in a higher interest rate.
It is important to monitor the DSCR of a property on a regular basis to ensure that it remains at a level that is acceptable to the lender. If the DSCR falls below the lender's requirements, the property owner may need to take steps to increase the NOI or to reduce the TDS.
What are the best types of properties to invest in?
Deidre Rouzan Williams said that there is no one-size-fits-all answer to this question, as the best type of property to invest in will vary depending on your individual goals and circumstances. However, she said that some popular types of properties for investment include single-family homes, multifamily properties, and commercial properties.
How much money do I need to start investing in real estate?
Deidre Rouzan Williams said that the amount of money you need to start investing in real estate will vary depending on the type of property you want to invest in and the location of the property. However, she said that you can start investing in real estate with as little as $10,000.
What are the risks involved in real estate investing?
Deidre Rouzan Williams said that there are always risks involved in investing, but the risks associated with real estate investing can be mitigated by doing your research and understanding the market.
What are some resources for learning more about real estate investing?
Deidre Rouzan Williams recommended the following resources for learning more about real estate investing:
* **Network with other investors:** Networking with other investors can give you access to good deals that they may not be able to use themselves.
* **Pay attention to market trends:** By paying attention to market trends, you can identify areas where prices are likely to appreciate in the future.
* **Be patient:** It takes time to find good deals on real estate. Don't get discouraged if you don't find anything right away.
There are many networking groups for real estate investors. These groups can be a great way to meet other investors, learn about investment opportunities, and get advice.
Are there any networking groups for real estate investors?
Some popular real estate networking groups include:
Real Estate Investors Association of America (REIAA):Â The REIAA is a national organization with over 100,000 members. The REIAA offers a variety of resources and events for its members, including networking opportunities, educational seminars, and investment forums. www.alamoreia.org
National Association of Real Estate Investors (NAREI):Â The NAREI is a national organization with over 20,000 members. The NAREI offers a variety of resources and events for its members, including networking opportunities, educational seminars, and investment forums. nationalreia.org
BiggerPockets:Â BiggerPockets is an online community for real estate investors. Bigger Pockets offers a variety of resources for its members, including forums, blogs, and podcasts. wwww.biggerpockets.com
Meetup:Â Meetup is a website that allows people to connect with others who share their interests. There are many Meetup groups for real estate investors, including groups for specific types of investing, such as investing in rental properties or investing in foreclosures.
Deidre Rouzan Williams concluded her discussion of interest rates by noting that they are an important factor to consider when investing in real estate. Investors should pay attention to interest rate trends and how they are likely to affect the real estate market.
Building wealth is a marathon, not a sprint. It takes time, effort, and discipline to save money, invest wisely, and make smart financial decisions.
Marie Deary