Search This Blog

Monday, May 2, 2016

Mortgage Bond Market Analysis - Jobs Week, Economic Data and BONUS: My Top Tips for Buying Investment Property

It's Monday of Jobs Week and we've got a bit of data this morning.  I hope you had a great weekend and that your week is off to a great start.  April ISM Manufacturing came in at 50.8 vs. expectations of 51.4 and March Construction Spending came in at .3% vs. expectations of .5%.  While both of these are below expectations, they are still both expansionary.  Additionally, the internal ISM Prices Paid jumped to 59 vs. expectations of 52 which could indicate some inflationary pressure.  The FNMA benchmark bond is currently down 3 basis points from the open and it is 14 basis points off the morning low.  It is 2 basis points below the 1st level of support which is 102.44.  I think that trading will be light / cautious leading up to Wednesday's first employment data:  ADP Private Payrolls.  We have basically no data tomorrow and a veritable plethora of data on Wednesday with the ADP number in addition to Non-farm Productivity, Unit Labor Costs, Trade (im)Balance, Factory Orders and the ISM Non-manufacturing Index.

Oil's down a bit today so either there's a disconnect between oil and mortgage rates or bonds would be selling off even more if oil weren't down.  Every month this year we have seen solid jobs numbers and expectations are for more solid numbers this time around.  The benchmark bond has just broken out a bit and is now up 5 basis points on the day.  We may not see a lot of movement in bond prices until Wednesday which would mean that floating isn't a big risk but it would also mean that there's likely not much benefit to floating.  I certainly wouldn't float in the release of the jobs data - I would absolutely lock by tomorrow afternoon just to be safe.

Top things to consider when buying investment properties:  I get asked on a regular basis what are the strategies I share when I teach my real estate investing classes.  This week I'm going to share some very important strategies with you and would love to have you share your thoughts in the comments below or you can always contact me with more questions or to give me your opinion (702-812-1214 or 801-853-8720).  The strategy for today is this, "would you live in the home?"  This is a very important consideration and requires much more than a yes or no answer.  I have had many clients over the years who bought investment properties and at first they just wanted to buy the cheapest investment property they could "just to get in the game."  I asked them if they would love in it and the answer was a resounding "NO!!"  My follow-up conversation with them had to do with the type of tenants they would get to rent their property.  Typically, tenants of cheap properties are going to have jobs that are less stable which means late rent or missed payments.  Additionally, they are less likely to take good care of the property.  Properties like this also tend to be in areas with lower appreciation rates.

I advise my clients to "begin with the end in mind."  It's important to have an exit strategy when you (or a client) buys an investment property.  Buying a nice house that would be a nice starter home for a young family is something to think about.  Buying this kind of home in a decent part of town close to employment centers, shopping and goods schools will help to attract a higher quality tenant that can afford to pay more in rent and will likely take better care of the property.  When it comes time to sell the property and do a 1031 exchange into multiple properties or a bigger property, a home like I've just described will likely have experienced relatively decent appreciation and will also likely have a good pool of potential buyers.  What are your thoughts?  Make it a great day.

No comments: