Rate buy downs are a terrible idea right now. DON’T DO IT.
Sep 22, 2023Rate buy downs are a terrible idea right now. DON’T DO IT.
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I figured I’d start with the tag line so in case you read nothing else, you take away the most important piece.
The break even on most buy downs is 39 months. This means you are paying a significant up front fee that is non refundable to buy down a rate where you won’t begin to see a benefit above the cost for 39 months.
This means you are banking on the fact that rates won’t drop for more than 39 months, more if you factor the interest gain on that money sitting in your bank account, which for me is paying 5% right now.
What are the odds you won’t refinance even that bought down rate when rates drop? 0%. In fact, odds are you’ll be refinancing far before that 39 month break even - so unless you can’t qualify without a buy down, just DON’T.
A bought down rate today will STILL be higher than when rates reset. You WILL refinance. Every loan written right now WILL refinance. Even bought down rates are not good rates.
For those of you investing, don’t get caught up on cash flow right now. It’s all about securing properties at these prices while you can. Appreciation is expected to be 9% average right now by end of year. Most areas I invest in, and that we recommend, have median prices up more than 9% this year. That’s the income you need to be worried about. Imagine capitalizing on that growth and refinancing in a year to see massive cash flow then - especially paired with the property tax reductions happening in Texas this November.
Right now offers opportunities to buy into a housing market with a massive supply issue and millions of buyers waiting on the sidelines. You’re not going to be worried about that cash flow in a year or two when your value has skyrocketed far more than what your cash flow would have been.
So many people doing unnecessary and money wasting buy downs and forgetting the “why” of investing - why is it so important to buy NOW.
Until next time,
Leah
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