Not only did the Federal Reserve slash interest rates on Sept. 18 for the first time in four years, but it also hinted more cuts would be coming. That appears to be great news for the real estate and housing markets in the fairly near future, but only if major purchases are handled smartly.
For example, bestselling personal finance author and radio host Dave Ramsey has a word of warning for people who might be considering one risky home-buying strategy.
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The mortgage rate on 30-year, fixed rate loans are down near 6% and many expect them to continue a downward trend in the long term. If the rates reach lower than 6%, many experts predict a surge in the buying and selling of homes.
Refinancing activity is also expected to gather steam if mortgage rates continue to drop. History tells us that a good time to refinance is when those mortgage rates fall by a couple of percentage points.
Ramsey recommends refinancing a home if you plan to stay in it for a long period of time. And this can be particularly lucrative for homeowners if they are able to switch from a 30-year to a 15-year loan. This allows you to pay your mortgage off at a quicker pace and skip 15 years of interest rate payments.
But there is one mortgage move Ramsey advises strongly against.
Ramsey says flipping a house involves hands-on involvement
Recently, a man asked Ramsey how he feels about the idea of buying a real estate property and flipping it for the money he needs to make a down payment on his own new home.
"Dear Dave," wrote the man, identifying himself as Alan, in an email forwarded from Ramsey Solutions to TheStreet. "I follow your advice and live on a budget, but it’s really hard to save up for a down payment on a house because property is so expensive on the West Coast. My family thinks I should buy a cheaper property back home, fix it up and flip it to get the extra money I need. How do you feel about this?"
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Ramsey responded to the question with a blunt assessment about undertaking such a task from a remote location.
"When you take on this kind of work, you need to oversee what’s happening every step of the way," Ramsey wrote. "You’re working out details, keeping an eye on the crew and it’s all on you to make sure everything’s being done right."
The personal finance coach then explained how house-flipping pros often approach the complex real estate endeavor.
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Ramsey explains why a long-distance real estate flip is a bad idea
The personal finance coach clarified a bit more on the complicated nature of successfully flipping houses to raise personal revenue.
"It’s not unusual for pros who flip houses to look at 100 or more properties to buy just one," Ramsey wrote. "It’s not an easy way to make money, and it’s definitely not something to consider doing from a distance."
"All that being said, can you guess what my answer’s going to be?" he asked. "Fixing and flipping properties in the area where you live is hard enough work. Trying to do it from hundreds of miles away would be a nightmare. There’s no way I’d sign on for something like this."
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Ramsey finished his advice on the subject with what he believes is a smarter way to go about raising enough money for a down payment.
"Keep working on your budget, and start saving as much money as you can," Ramsey wrote. "You might even consider getting a part-time job for a little while to bring in some extra cash for your house fund."
"But waiting and saving up is a lot smarter than trying to fix and flip a house in another state."
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