Meet your new friends, Fannie and Freddie!
Let’s face it. There are very few things in life that are free, but today’s mortgage interest rates make borrowing more affordable than it has been since the turn of the prior century. Below is a chart that illustrates the mortgage interest rates beginning in 1971. This is huge for buy and hold investors!
Freddy Mac and Fannie May lending guidelines allow individuals to have as many as 10 conventional housing loans. That means 20 loans for couples provided each person takes title separately rather than combined. These products apply to single family homes, duplexes, tri-plex’s, and four-plex’s. Anything with five or more units fall under commercial lending guidelines.
Yes, this is a lot of debt. However, remember that there is good debt and bad debt. This model focuses on good debt principles. If one buys positive cash flowing properties, the tenants pay all of the mortgage and expenses. This allows the investor to enjoy a passive income stream, equity appreciation, and also provides a hedge against inflation. If a gallon of gas increases at the same rate it did in the past 30 years, the price will be between $11-$17 / gallon. You can ride along with your 30-year low interest loan making the same payment and when your loan is paid off, how much do you think rents will be? We have personally realized a 200% increase in rents in that time span. Speaking from personal experience, this really does work.
Once an investor is Freddy and Fannied out, there is no choice but to continue to follow the same principles using credit partners or to move on to commercial properties.