Month: November 2018

by Tim Herriage Tim Herriage No Comments

Timing your investment property refinance

Leverage is one of those things that can make or break your real estate investment portfolio.  The proper use of leverage can minimize your tax burden, fuel portfolio growth and accelerate returns.  The improper use of leverage can wipe away gains and bankrupt a company.  We believe the US economy has cooled, home prices are peaking, and interest rates will continue to rise.  These factors coupled together have formed our conclusion that now could be the best time in the market cycle to leverage your assets utilizing fixed debt.

Many real estate investors have enjoyed growth in the last five years fueled by loose purse strings at local banks and regional lenders.  Even the GSEs have dipped their toes in the water.  Large national firms like Blackstone’s B2R Finance (Now Finance of America Commercial) and Colony American Finance (Now CoreVest) offered five and ten year balloon notes on portfolios beginning in late 2013.  Now, we find ourselves five years later, and what does the next five years look like?

Below are our forecasts and recommendations with regards to leverage and your real estate investment portfolio:

  • Identify dates:  Many of the “community bank” loans have renewal and adjustment provisions.  Most real estate investors we talk to have no idea that most of these loans can be called due in full at the same time as they are supposed to “reset”.  If you have any loans that are due to reset, adjust, mature, or renew in the next five years, now is the time to address those loans.
  • Lock in rates:  Many real estate investor simply cannot remember when a 9% interest rate on rental property from a bank was a good deal.  Rates are still very low throughout the industry.  We believe the best choice for most real estate investors right now is to lock in as much 10 year or longer sub 7% money they can get.  The next five to seven years should see interest rates rise and fall several times.  We are still in a very low comparative rate environment, so it is best to make sure any debt that might need to be addressed within the next decade be done so now.
  • Cash Out:  Many investors aspire to pay off their rental portfolio.  While this is a noble idea, most real estate billionaires believe in the opposite.  The ability to responsibly borrow tax free money (that your tenants will pay back) which you can use as reserve funds or even growth capital is something that powers real estate investing at all levels.  We have clients that live virtually tax free by refinancing their rental portfolios routinely.  With the introduction of cash flow based cash, out refinances; investors now have an avenue to systematically re leverage their portfolios.

In short, we think:

  • Property Values are high (which helps LTV limits on loans)
  • Rates are still low (historically)
  • There are market shifts coming (which is why you don’t want exposure to adjustments, renewals, and loan maturity)

These factors make use believe now may be the perfect time to stabilize the debt on your rental portfolio.  Reach out to our team of real estate investment loan specialists today to have a conversation about your needs.

Want to call us?  Call 972-737-1850

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Have questions or comments?  Let have a conversation below.  Find this article helpful or thought provoking?  Share it please.

by Tim Herriage Tim Herriage No Comments

Suspension of Binding‐ California Wildfires

Due to the wildfires in California all binding is suspend for all perils effective today, November 12, 2018. This applies to binding any new coverage as well as accepting any new applications and any exposure or limit increases to existing policies while the fires are active within the following counties:

Latest Update: November 12, 2018
Butte County, Los Angeles County & Ventura County

Latest Update: November 9, 2018
Solano County & Mendocino County

Any suspension of binding will remain in effect for a minimum of 24 hours after the fires have been contained or no longer poses a threat.

Please Note: Do not issue new coverage in the REI Choice Online System during this period.  If issued in error or intentionally, Coverage will not apply to any policies issued in the
REI Choice Online System during the suspension period.  This does NOT affect coverage already issued and in force prior to the suspension being applied. Such policies will remain in full effect unless previously cancelled by you.

A 2018 California Statewide Fire map is attached illustrating areas affected by the wildfires. You should access http://www.fire.ca.gov/current_incidents to obtain updated information. Your local news sources will also provide this information. If you have any questions, please contact: andy@2020rei.com

 

by Tim Herriage Tim Herriage No Comments

Liability – The unpredictable killer of assets

By Andrew G. Costlow

Many people wonder about insurance. We think we know what it is for, but why does it cost so much? How can we reduce expenditures on the “insurance tab” on our spreadsheets?

Of course we can shop property rates etc… but the one thing you want to really make sure you are “squared away” on is Liability. Why is this and why is liability the unpredictable killer of assets? How can I protect myself from liability? General Liability Insurance as stated by a Google search page:

General liability insurance (GL), often referred to as business liability insurance, is coverage that can protect you from a variety of claims including bodily injury, property damage, personal injury and others that can arise from your business operations.

Google knows everything right? Well, in this case they do a decent job. But look at the definition and you come to the conclusion that General Liability (GL) is a very broad term. What does it cover? “and others”? What is that? Indeed, it is “General” Liability.

The majority of claims that come out of GL are of the Bodily Injury and Property Damage type. If you hurt someone or damage their stuff, that is what we are talking about here. But why is it the unpredictable killer of assets? To understand that as investors, we have to think about the other side of the insurance coin and that is property insurance. Property insurance is predictable in most cases. Let’s say there is a $100,000 house and it is insured to value. It burns to the ground in a total loss. The insurance carrier knows it has to pay $100K. The investor knows they are going to be paid $100K. Everybody knows within a predictable certainty what that claim is about and how much is going to be paid. Now, let’s think about GL. Here is the scenario… an investor is flipping a house and it is vacant. A couple of teenage kids are playing around in the vacant dwelling (we hope there isn’t a vacancy clause exclusion…) and one kid falls and breaks their arm. This claim can go so many ways. Will the parents just take him to the ER and put it in a cast and be done with it using their own medical insurance or will they take him to the ER, not having medical insurance and then start getting bills from the hospital? If it is the latter, how are they going to pay? Do they have the money? Will they sue the Landlord? For what expenses will they sue? Was there negligence involved? If so, how much negligence was there and how does that translate into dollars? This is why Liability can be the unpredictable killer of assets and why General Liability Insurance is so important. There are just so many variables.

In most cases, liability claims are pretty straightforward. But, some can be very complex and very expensive. That is the crux of the matter. They are unpredictable. Thankfully though, they are pretty rare for the residential investor. Thus, General Liability is a pretty good bargain in the SFR investor industry and is something the SFR investor should be “squared away” on to protect their portfolio.

Andrew G. Costlow
REI Choice Insurance
Executive Vice President
2020 REI Group | REI Choice Insurance
Direct/Cell: 214.280.9575 | Office: 214-247-7727
8330 LBJ Freeway
Suite B855
Dallas, TX 75243
andy@2020rei.com

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