Sara Koelzer, Producing Area Manager and SVP of Mortgage Lending at Rate, along her experienced team, were recognized as #1 in production for the state of Montana. We sat down with her for a Q&A to ask for her insightful tips for achieving financial wellness.
Do you have any tips for those trying to build wealth through real estate?
One of the best ways to jump start your real estate investing portfolio is to start out small and early. Many first time homebuyers are able to get primary residence mortgages with a minimal down payment (on average 3% minimum), buy that home as a primary residence, live in it for 2 years+ and then turn that property into a rental and then repeat. I literally have seen first time homebuyers start out this way with minimal down and then just keep moving into new properties and creating rentals every few years and now they have a real estate portfolio in the Bozeman market performing exceptionally well. There are many people that I know who started out buying right out of college doing this and by the time they retire they will have multiple streams of income from this strategy alone.
I think one of the big hang up’s in today’s climate is everyone is fixated on their super low rates from years past and we call this the “lock in effect”. They cannot get past “losing” this low rate and the wealth that they have in that particular property, so they are scared to consider selling and lose that rate and payment.
Homeowners today are sitting on more equity and wealth than ever before so one thing to consider is converting your current property into a rental property. When you do that, you do not need to refinance your loan so you can keep that low primary mortgage rate. Now you will need a down payment (typically 3%-5% minimum) on a new purchase and if you do not have that you can consider pulling equity out of your current home with a home equity line of credit. The rental market is so strong in Bozeman that it's worth investigating this option just to see what you could rent your current home for and let that property continue to appreciate for you.
What are some ways to tap into your home equity to achieve financial freedom or access cash in case of life events?
There are a few different products that will allow you to access equity in your current home. These are a home equity line of credit, home equity loan or a cash-out refinance. A home equity line of credit or a home equity loan are both second mortgages that are just tied behind your current mortgage. This allows you to keep your low rate that you may have currently on your main mortgage and access equity (typically up to 80%) for essentially anything you would like. It could be for home improvements, large purchases, debt consolidation, pay out in a divorce situation etc. A loan is essentially a “fixed rate and term” where the line of credit is a revolving line that will allow you to access more equity and draw against it in the future. A line of credit is more like a credit card that allows you to pay it down and draw back against it.
Another product used to access equity is a cash out refinance. What we do in this case is “re-do” your main mortgage and give you cash out and we consolidate it all into one main mortgage again. You are subject to today’s interest rates so for the past few years we have done very little of these due to the higher rate climate.
However, when we are looking into these scenarios it isn’t always about making sure the rate is as low as it was before. It’s more important to look at overall monthly cash flow and for some if they could eliminate all of their monthly debt and just have one low monthly mortgage payment that would provide them huge savings per month.
As you can see using a mortgage to achieve financial freedom can look very different for each particular person and their scenario. It’s always best to reach out to an experienced loan officer so they can run calculations for you and provide options. With the thriving Bozeman real estate market you may be shocked at just how much potential you have and I know that I am personally thankful for the opportunities this market has given so many homeowners.