Below is the formula……

Cap Rate = Property’s net income divded by the current value

Okay, so that’s my explanation of cap rate, and as I said, it’s increasing. Let’s use this example, Building A has a cap rate of 7.5%

See below…

Purchase Price – 5,000,000  Net income – $375,000

 If we add the 80 basis points and make the cap rate 8.3% let’s see what happens…

Purchase Price – $5,000,000

Net Income – $415,000 That’s another $40,000 to service debt with or put in your pocket!

Now let’s look at what is going on with apartment building mortgages in Minneapolis…. Vacancy rates are below 3% almost everywhere in the Twin Cities and lenders are motivated to write loans again. Agency financing which is FHA, Fannie Mae and Freddie Mac) accounted for 52% of the loans originated the Minneapolis and St Paul Area. The average interest rate this year for these loans was 4.5%. This is down about 50 basis points from a year ago when the rates average in the low 5% range. Banks and Insurance companies are also in the hunt again and ready to step up to the plate and make deals happen. So let’s say a buyer bought this $5,000,000 building with 25% down. His loan would be for 3,750,000. At 5% the annual debt service would be $241,560. If we lower that rate to 4.5%, the annual debt service becomes $228,000. That’s a savings of $13,560 per year! Combined, the increase in cap rate and decrease in rates give an investor a possible increase in investment of $53,560 per year! I don’t know what that sounds like to you, but to me, it sounds pretty good! Current apartment building owners in Minneapolis can benefit from this by refinancing and improving their net income through lower vacancies and being more efficient with expenses. If you’ve been a apartment building owner for a while, this business sure has been it’s ups and downs, for now, let’s enjoy the upside!

Robert J Bonahoom

NMLS#209013

651-485-3710

Below is a Chart that tracks Mortgage Rates and the Federal Funds Rate

Federal Funds Rates Vs Mortgage Rates

You will notice that mortgage rates do generally trend in the same direction as the Federal Funds rate. Right now there is actually concerns about deflation. Deflation means the dollar is worth more than it used to be. Deflation will usually equate to lower mortgages rates. I predict that for the next week we will see rates remain fairly unchanged. If you need to lock in, now would be a good time. No one knows what’s going to happen to rates after March 31st, however most predict higher rates are inevitable.

For a Free Quote today. Fill out the information on the left side of my Blog and you will be sent a no hassle quote.

Read Full Article Below:
Star Tribune Article on Housing

This is just one more example of how Government intervention is changing the appetite for lending.

Here are some of the stipulations and highlights:

* No Mortgage lates in the last 12 months.

* No limit on the number of financed properties you currently have – This is really nice!

* Your current mortgage cannot have mortgage insurance on it or you have to contact your current servicer for the refinance.  

To get a quick estimate of your property’s current value, I like to go to www.zillow.com

This program will benefit only a small handful of the investors out there looking for low long-term rates, however, maybe your one of the lucky ones who will fit.

For an analysis of your property, please give me a call at 651-485-3710.

Many of my clients have a particular lender they would prefer to have their mortgage with long-term either because they have other accounts there or have always had their mortgage there in the past and they are comfortable with it. The problem is that if they were to go direct to there favorite mortgage lender, they are running 60 to 90 days to complete a refinance right now.  Some banks are so busy right now they won’t return your call even if your willing to wait. Lenders are way under staffed for their work load but are afraid to hire more people in this economy. The problem with that is they won’t lock you in until 30 days before closing. With rates as volatile as they are right now, you could lose out on a great rate waiting for your lender of choice to get your loan closed.

At Cornerstone Mortgage, we underwrite and fund all of our loans but sell most of them to other banks. We have relationships with Wells Fargo, US Bank, Citi, Bank of America, Chase, GMAC and several others. Our business model allows us to close your refinance in 30 days or less and we can sell directly to the lender of your choice.  You truly can have your cake and eat it too!

For more information on how this works, give me a call at 952-808-2820.

Rob Bonahoom

Morgage Coach

* 1 to 4 Units

* Rate and Term refinanced only.  (No Cash out)

* Your loan must currently be backed by Fannie Mae (Contact your servicer or go to Fannie Mae’s website)

* Fixed 15 years or 30 years are available

* If your loan currently has mortgage insurance, it has to be originated though your current servicer.

* Income requirements: One Pay stub (if W-2 employee) or One Years Tax Returns (If Self Employed)

* No limit on the number of mortgages you currently have

* No mortgage lates for the last 12 months

Some tips -

You can’t be upside down on your property. (You owe more than the property is worth)

If you need help determining if you qualify for this program, please fill out an application on line at

Check Here to See if You Fit the Obama Plan

I continue to be impressed by the government and their desire to try new things to help our economy.

Happy Investing!

Rob Bonahoom

Mortgage Coach

Fannie Mae has created a new investment property financing program called Fannie Mae Home Path. This program allows the real estate investor to purchase properties owned and backed by Fannie Mae (properties that are bank owned by Fannie Mae due to a previous foreclosure)  at a 10% down payment with no appraisals or mortgage insurance required. 

Not all Fannie Mae bank owned properties will qualify. To find out if the property you are interested in purchasing is approved for the program, please go to 10% Down Fannie Mae List.

A similar program is likely to come out for Freddie Mac. I am excited to see the government continue open up more doors for the real estate investor. If you would like more information about this program, feel free to contact me at 952-808-2820.

Rob Bonahoom

Mortgage Coach

Tip#1 – Consider the Term- Be aware that every time you refinance, you will start all over in your amortization schedule with the bank. These amortization schedules work in the bank’s favor. Almost your entire payment goes to interest at the beginning of the loan. For example, If you have a $200,000 mortgage at 4.5%, your principle and interest payment is $1013.37 per month. Out of that amount, $750 goes to interest and $263.37 goes to principle.  Instead of going back to the 30 year fixed loan, consider doing a 25 or 20 year term. A payment on a 25 year term is only $1111.66, however $361.16 each month is going to principle and you will save an addtional $60,802.20 over the life of the loan in additional interest costs. Not bad for only $100 difference in payment.

Tip# 2 – Watch Your Credit Score. – In the past, whether you had a 620 credit score or a 700 credit score, your rate for a conventional loan was the same.  In today’s restrictive credit market, Fannie Mae has added several risk levels that will increase your interest rate. The difference in rate between a 620 score and 740 score can be as much as three quarters of a point.

Tip #3 – Make Sure You Know Your Appraised Value- Many people will not be able to take advantage of the current low mortgage rates because they owe more than their home is worth. I recommend you spend a little time researching this before you get too excited about refinancing.  Go to www.zillow.comand you can get a quick estimate on what your home may appraise for in today’s market. Fannie Mae is looking for comparable homes in your neighborhood that are a similar style to yours that have sold in the last 90 days. Foreclosed homes sold at rock bottom prices in your neighborhood may dramatically effect what your home will appraise for.

Tip #4 – Don’t Get Greedy – Have you ever lost out on something because you waited too long? Last year, rates dipped to 5.25% for about 4 hours. After that, they immediately jumped to 5.5% and a week later, they were back up to 5.75%.  When I notified several customers about the dip to 5.25%, a common response I got was, “I want to hold out until rates get to 5%”.  It would take another 6 months for rates to get that low again and it is mostly due to the Fed stepping in and giving us a hand. Many of those clients, couldn’t wait that long and had to take a rate well north of the 5.25% they could have had. My point is this, do your homework, find out what rate will work for you and your family and tell your mortgage banker to lock you if rates hit your target. Don’t get emotional about trying to find the absolute bottom. Most likely, you won’t be lucky enough.

Tip #5 -Ask For Discount Points –  Ask for a quote at 1 and 2 discount points as well as the traditional no discount point quote.  In the past, you might pay 1 discount point to get  .25% better in rate. On a $200,000 the difference between a rate at 5% or 5.25% is $31 per month. If it costs you $2000 more upfront, it will take you 64 months or over 5 years to break even. In our current mortgage market, I have seen as much as a .75% difference rate for 1 discount point.  On a $200,000 mortgage, the difference between 5% and 5.75% is $94 per month. In this case the break even is only 21 months. After that, you are money ahead. Make sure you request these options from your mortgage banker. Most Bankers are not accustomed to providing you with this information since in the past discount points weren’t very attractive.

For a full analysis and more tips for your personal situation, feel free to give me a call at 952-808-2820.

Rob Bonahoom

Mortgage Coach

Our average client can obtain at least $50,000 and up to $100,000 of credit for their business or rental portfolio. Our strategy involves grouping together several business credit cards with limits ranging from $5,000 to $20,000 and transferring the balances to a line of credit the business owner already has available. Most credit cards have a special provision in them as an incentive to take your debt from another source and transfer it to them at a low introductory rate.  It’s a simple trick, but these few steps save a ton of interest over taking cash directly out of these cards and paying the high cash advance rates. Even better, our sources don’t report to the credit bureau on your personal credit report!

We can obtain this credit for our clients in less than 30 days. There are three main requirements that you will need to meet to qualify for this program:

1) 680 credit score.

2) An LLC or other business entity formed.

3) A true business phone number set up. (We can help you with this for about $15 per month.)

Believe it or not, our sources do not require income information to qualify.  The cost for this service is 6.99% of the amount of credit we get for you and the average rate on the cards is 10%.

This is a great way to create a cushion for yourself if your a new small business owner without a solid income history yet or a new landlord that is trying to come up with a quick down payment or cash flow to make repairs.

For more information, Give me a call at 952-808-2820.

Rob Bonahoom

Mortgage Coach