In todays email:

• 💬 State of the market: Interest rates and affect on house sales.

• 👀 Featured Video: Don't sell your home, seller finance your home.

• 🤑 Show me the money: 3rd mortgage pays off big!

• 🥶 Cool Tools: eFile your 1098s and 1099s with ease.

State of Real Estate

Interest rates and affect on house sales

Interest rates can have a significant impact on house sales because they affect the cost of borrowing money to purchase a home. Here are a few ways in which interest rates can affect the housing market:

1. Affordability: Interest rates can affect the affordability of homes. When interest rates are low, homebuyers can obtain mortgages at a lower cost, which can make homeownership more affordable. Conversely, when interest rates are high, the cost of borrowing money increases, and homebuyers may not be able to afford as much house, which can limit the number of potential buyers in the market.

2. Mortgage payments: Interest rates also impact the monthly mortgage payments that homebuyers have to make. When interest rates are low, monthly payments are lower, making homeownership more accessible to a broader range of buyers. When interest rates are high, monthly payments are higher, which can make homeownership less accessible, and may cause some potential buyers to delay purchasing a home.

3. Demand: Interest rates can affect the demand for homes. When interest rates are low, more people may be able to afford to buy homes, which can lead to increased demand. Conversely, when interest rates are high, demand may decrease because fewer people can afford to buy homes.

4. Refinancing: Interest rates can also affect the number of people who choose to refinance their homes. When interest rates are low, more homeowners may choose to refinance their mortgages to take advantage of lower rates.

We have seen in the last 12 months or so that the demand for houses changes dramatically with even the smallest change in interest rates. For example, rising rates from January through June 2022 lead to steadily slowed sales. Then house sales improved last summer as rates fell in July and August. Then the rates spiked in September and October which lead to poor sales in the fourth quarter. Finally, rates then trended down into beginning of 2023, boosting sales early this year. Then rose in February, slowing sales, and then reversed course again in March, helping sales. CRAZY UP AND DOWN!

Mortgage rates below 5.5% seem to work best. In late February and early March, the John Burns New Home Trends Institute team surveyed more than 1,300 homeowners and renters with household incomes of $50,000+ and learned that 55% believe now is a bad time to buy a home, while 22% think it is a good time to buy.

They also learned that 5.5% mortgage rates seem to be the tipping point. 71% of prospective home buyers who plan to purchase their next home with a mortgage say they are not willing to accept a mortgage rate above 5.5% and 62% of consumers believe a historically normal mortgage rate is below 5.5%.

This can be seen across the country as home builders who choose to subsidize buyers' mortgage rates (buy-down rates) and bring the overall rate down below 5.5% have been achieving the most success. Many of the largest builders in the country have been buying mortgage rates down below 5.0%.

Home builders are doing quite well due to the lack of competition from the resale market is helping them. Also, the buy-downs* cost for the builders have been relatively painless since builders had previously raised prices so much. Finally, falling construction costs, especially lumber, have also helped.

*Many sellers offering some type of buy-down to offset the higher rates and to help make house buying more affordable. More about buy-downs in the next newsletter.

I just want to note that most surveys show the home buying isn’t all about finances or timing the market but the need for more space and the desire for a better quality and a newer home are what still drive most moves.

Featured Video 

Seller Finance Your Home

9 MAIN REASONS:

1. You can sell home faster since many people in the US have poor credit score and therefore a larger pool of potential buyers. Many of these people can afford the house but a conventional lender will not give them a loan since the FICO below a certain level.

2. Reduce tax burden. Pay taxes on the downpayment (only 1st year) and interest income for that tax year and subsequent years. If sell entire house with conventional financing and get cashed out then you will pay tax on the entire amount for investment property.

3. Steady income stream which last for years.

4. Yields are higher than putting money to work in a bank, money market, CD (certificate of disappointment), or bonds. The cash you receive upon sale is dead money and produces no income.

5. Command a higher price since people with less than perfect credit cannot get traditional financing.

6. Less liability versus renting home. If some trips and falls then it is not your problem…you do not own the house since you are the lender.

7. No maintenance - buyer maintains and improves the property.

8. Buyer’s have homeowner mentality and not rental mentality. Therefore, the house is kept up and the yard mowed.

9. Better liquidity.

   • You can sell the entire note faster than selling property.

   • You can sell a partial note for super fast cash.

I sell many homes with seller financing and the cash flow is great, the buyers are paying the taxes, insurance, doing the maintenance and no late night calls. Plus, you can demand high interest rates, get higher prices and make someone very happy to have homeownership, tax write offs, equity build up, etc.

Show Me The Money 

I Messed Up and Still Came Out on Top

Early in my note career, I bought a few re-performing second liens in my Roth IRA and was just going to keep for cash flow. I did not really look into whether it was truly a second lien since my mortgage loan sale agreement had reps and warrants that stated that this was a second lien and if I discovered otherwise the sell would buy back the note less any payments received. So I was content. P.S. Never be content or complacent.

A few months later I was asked by the borrowers refinance company to subordinate my position for them to get a new loan with lower interest rate, lower payment, etc. Of course I said yes since this would allow the borrower more money to pay my loan since the underlying first payment was going to be smaller. However, it was during this process is when I discovered that what I thought was a second mortgage was really a third mortgage. I was somewhat upset initially but remembered I had the right to sell it back to the company that sold me the note....so I was not too worried... just a hassle.

However, I started to think about it and whether I should really sell it back. It was paying on time in full each month and had several months track record and when looking at my equity position above the 3rd it was pretty substantial. Yes being in second position would be better but the actual second was not a large amount and I still had equity of about 15% above my third position note. So I decided to keep that note for the following reasons:

1. The person was paying on the first, second and third all on time in full each month.

2. There was equity above my position to protect me if things went south.

3. The homeowner had emotional equity in the house and had been there awhile.

4. The homeowner was spending time and energy on refinancing in order to reduce her payments which would in turn leave more money for her to pay me each month.

Well that turned out to be a great decision since a few years later she paid off the note in full which I had bought at a significant discount.

RETURN: 142% in 4.75 years or about 30% per year!

I can't claim to be a genius on this one since you never know when someone will payoff but I did review the facts which pointed me in the right direction instead of a knee jerk reaction to sell the note back.

Please let me know what you want to learn more about or what you are struggling to understand in the world of notes, private lending, seller finance or rentals.

Cool Tools

eFile for 1098 and 1099’s is the cool tool of the week. What is eFile?

eFile service refers to an electronic filing service, which allows individuals and businesses to submit their 1099 and 1098 and other documents to the government electronically, instead of using traditional paper-based methods. E-filing has become increasingly popular due to its convenience, speed, and accuracy.

Now in the mortgage note business, I primarily use this service to send my homeowners a 1098 for interest paid and 1099 for the income my contractors received from my company. Most of my 1098 go out from my servicing companies but some houses that I self service or have sold with seller financing I use this service.

There are several online companies that will eFile your 1098 or 1099 for you. I have listed several website below that have this service. I primarily use the last one on the list (#5) which is efile4biz.com 

1. IRS.gov: The official website of the Internal Revenue Service (IRS) offers an online service called FIRE (Filing Information Returns Electronically) that allows businesses and individuals to submit their 1098 forms electronically.

2. Tax1099.com is an online platform that provides e-filing services for various tax forms, including Form 1098. They offer a simple and intuitive interface for entering and submitting your 1098 form electronically.

3. Efilemyforms.com is an online platform that allows businesses and individuals to e-file their 1098 forms quickly and easily. They offer a variety of services, including printing and mailing paper copies of your form to the recipient, as well as electronic delivery options.

4. Taxslayerpro.com: TaxSlayer Pro is a professional tax preparation software that also offers an e-filing service for Form 1098. They provide a simple and efficient way to e-file your 1098 forms and other tax forms online.

5. I personally use efile4biz.com. It is easy, fast, and super cheap. See steps 1-5 below. They file everything to the IRS and send out the forms to the recipients and then I download the pdf for my records.

🖐️ IF YOU HAVE A QUESTION, PLEASE RAISE YOUR HAND AND ASK BY SIMPLY REPLYING TO THIS EMAIL.

Last weeks POP QUIZ was…What is forced placed insurance?

ANSWER: Forced place insurance is a type of insurance that a lender may purchase and charge to a borrower if the borrower fails to maintain their own insurance on a property that is being used as collateral for a loan.

In simple terms, if you take out a loan to buy a house, you are typically required to have homeowner's insurance to protect your property and your lender's investment. If you fail to maintain your insurance, the lender may purchase forced place insurance on your behalf to protect their investment in case something happens to the property.

The cost of the forced place insurance is then added to your loan balance, which means you'll have to pay for the insurance in addition to your mortgage payments. Forced place insurance is often more expensive than regular homeowner's insurance.

This weeks POP QUIZ: What is PMI (Private Mortgage Insurance) and when is it required?

Check out next weeks newsletter for the complete answer.

PLEASE RECOMMEND THIS NEWSLETTER TO OTHERS. THE BIGGER THE COMMUNITY THE BETTER FOR ALL. NO SCARCITY MINDSET HERE!

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