Why You Need To Refinance Now | The STRR Podcast #106 | Tim Hubbard

Welcome to Short Term Rental Riches where we'll discuss investing in real estate, but with a specific focus on short term rentals to help you build wealth faster with as little headache as possible.

So I was in the US a few weeks ago at a investment conference, actually not a real estate investment conference. I like to kind of, I like to diversify into some other things. So this was a mining, primarily a mining and precious metals conference. But something happened when I was staying in the hotel there and I went to the Cafe Starbucks and I bought a coffee and I bought a banana. And I didn't check my receipt until I'd already paid. I didn't really question the prices. It did seem very, very high though. And then I looked down at the receipt and realized that I paid $2 for one banana. Two dollars. That is the most I've ever paid for banana in my life. In fact, for $2 down here in Colombia, you could buy more bananas than you could imagine. So this week, that's all to say inflation has hit us, right? Inflation is higher than it's been in a 30 year period. In fact, according to the US Department of Labor's latest published data, the US inflation rate for the last 12 month period was 6.2%. That is huge. And as a real estate investor that uses a lot of leverage. This is really important. So this week I want to talk about inflation, whether or not you should refinance and pull out some of this equity and a reason, a couple reasons why you might not want to. And stay tuned because I want to give you a few of my lender referrals as well. I just closed three loans I last week and I'm still working on some new ones. So let's go ahead and jump right into it. So as I said, the US inflation rate is higher than it's been in almost 30 years. And from what most economists can tell, from most of the people I follow can tell that's not going to be slowing down anytime soon. So this inflation, with all of our prices going up, our real estate has been going up as well. Now real estate has been going up because we have a housing shortage. We've talked about that in a prior episode. So we've got a couple things going on here. We've gotten, we've got raised asset prices from inflation and from appreciation. So it's very likely that you have a lot of equity in your properties if you've owned properties for a few years. So should you pull that equity out? My short answer is yes. Now I know that Makes some people weary and cautious. But I want to talk about three reasons why you should pull that out and then we'll talk about when you shouldn't pull that out. So number one, if you think you can pull out your equity, let's say you've got $50,000 in equity and you can borrow at 4%, well, all you really need to do is find an investment to do better than 4%. Right? And then that money is paying for the money that you borrowed. Now I'm referring, when I, when I talk about refinancing, I'm assuming you're getting fixed long term debt like a 30 year loan. So if you can pull that money out and you can do better than the interest rate you're paying on that money in some other form of investment or more real estate, which I highly recommend, then I think you should do it. We're going to get to the reasons why you shouldn't do it. But that's number one. Now you might be thinking, I don't know what to put this extra money into. There are lots of things to put your money into. You just need to explore. You can put it into more real estate, of course, of course that takes a little more time. But you can put it in passive real estate investments from friends or family or colleagues or someone you met at a conference. You can put it in one of their deals. You can put it into precious metals like gold, which is history's longest form of money. And it is a good store of wealth, although I wouldn't technically call it an investment, doesn't pay you any money back. Right? But technically speaking, historically speaking, gold has been a very good hedge against the dollar so it doesn't lose its like the US Dollar does. So pull the money out. If you think you can do better than whatever rate you're paying to pull it out, pull the money out. If you think inflation will continue and from the trillions and trillions of dollars that were printed, I think it's going to continue whether we like it or not. And now this is worldwide as well. I mean we're seeing prices rise all over the place. So if you can lock in a low interest rate today.

At historically low interest rates, and you think inflation's going to continue, then that's another good reason to pull it out. Number three, pull your equity out if you think the market is going down or if you think the market's going to crash. Now that probably sounds crazy. Why would you want to, to pull out a larger and have a larger payment when your value of your property is going down? Well, I would say because if you have fixed financing, especially if it's for 30, 30 years, then it doesn't matter what the value of your property is, especially if you're renting it out. Hopefully you are. That's what this show is about. We talk about rental investments, mainly short term rentals, but these both come into play here. And if you've listened to a prior episode, we rents are going up. So even if your property value goes down, as long as you have a fixed rate for a long period of time and your rent is covering that mortgage payment, then you're going to be okay. So those are my three reasons. And that leads me to the reason why you shouldn't pull out your money. And one of I've got two reasons for you, but the first one I just glimpsed at is if your mortgage payment can't be covered by your rent, I should say your mortgage payment and all of your expenses on that property can't be covered by your rent. You don't want to have more expenses than income coming in. That's a bad recipe. So you don't want that. The number two reason that you shouldn't refinance, in my opinion, is if you're getting ready to sell, of course you don't want to pay a bunch of loan fees, refinance fees and points and underwriting fees and all these things and go through the paperwork and the hassle because these things can take a little bit of time if you're planning on selling your property. But I would say if you're hesitant about selling your property or maybe you're 50, 50 and you don't think it'll be sooner than a year, I think you should really consider still refinancing. So if you're not planning on selling anytime in the near future, then I would very, very much consider refinancing. And this leads me to my next point, which is a really big misconception about real estate prices and our wealth. Let's say you have $10 million in property, but most all of that is in equity. Well, you might think you're rich, but you're not because equity is not permanent. It's not fixed. It can go away. If the market crashes and all that equity you had built up in this $10 million portfolio gets washed away, well then you don't have access to it. So unrealized gains are not real until you realize them. So if you fit any of these scenarios where you have equity and you Think you can take it out and make more than the money you're paying? I know that you can. You just got to explore a bit. I would really, really consider refinancing your properties. Like I said, I just did three last week. I'm working on more. And again, if you have challenges with the lender, there's lots of lenders out there. You might get denied, but keep trying. I've gotten denied recently. It happens all the time. I want to give you three referrals for lenders that you can check out. So these are all nationwide by the way, and this is in the US but the first one is a company I haven't used personally, but I believe that they are specifically geared towards short term rentals and that's Host Financial. We'll put links in the show notes and we will also get these on our recommended resources on our website@restmethods.com if you haven't checked it out yet, head there because there's a lot of good info. We've got all kinds of different recommendations in terms of furniture and software to use and we'll have our lenders on there and everything. So. And it's free, so go ahead and check that out. It's@restmethods.com under recommended resources. So Host Financial, this is one option. Visio Lending. Visio Lending is who I just used. Now I wouldn't say that they were easy to work with. In fact, it was a total pain in the butt. It took a really long time, but we got it done. And this is the thing to remember about getting a loan. You deal with the lender when you get your loan. After that, everything's on autopilot, right? You're probably going to put up your mortgage payments on automatic payments and if you never changed anything, you'd probably never talk to that lender again. So even though it might be difficult in the beginning, make sure you're shopping around and stick with it until you get something done because you won't have to deal with that headache after it's complete. So those are two referrals and the third one is a personal broker of mine that I've worked with a lot of and her name's Shannon, she's from Mutual of Omaha. I'll put her information online too. She really knows how to get some loans done. I've done a lot with her too and she works more with the smaller residential properties, so one to four units, although she can do some stuff over four units as well. So we'll have those in our recommended resources, make sure you check them out. And I just want to leave you with one comment and that's it. Most of the time we're managing our real estate portfolios, but we also have to manage the equity in our real estate portfolios as well. We want that equity to be working for us. And in an environment where rents are going up and we're investors investing in rental property, we're in a good position. So talk to these lenders, talk to any lender. You can really consider your situation. If you have equity, I highly suggest pulling it out. That's what I'm doing. It's going to help you beat inflation. So when you have to pay $2 for banana one day, you're not going to be as upset. So until next week, I hope that gave you a little more insight. Check out our resources and we'll catch you back here next week.

Sam.