Financing costs for real estate investors still drifted lower today, this after Freddie Mac reported the 30 year fixed rate for a primary residence averaged 3.73%, a 15 basis point drop from 3.87%  from the previous week. The 15 year rate fell as well to 3.05% from 3.15%. For investor rates, the mortgagerates continue to fall rates dropped to 3.98% and 3.30% respectively.

These rates are very near historic lows set back in 2013. One year ago, interest rates were almost a full percentage point higher than where they are today. Holding ground, the benchmark FNMA 3.50 coupon held steady today down -1/32.

Let’s take a closer look at the impact these lower rates have for real estate investors today and tomorrow. Consider a $250,000 single family home used as a rental property with a loan amount of $200,000. Investors can easily find a 30 or 25 year fixed interest rate at 3.75% and a point. The principal and interest payment on that note is $926. If estimating for taxes and insurance, the total monthly house payment would be approximately $1,250. The rental income would need to be at least that in order to cash flow. Say for instance in Austin, Texas,  a 2,000 square foot homes rents for $2,695. Using today’s financing costs, the monthly cash flow is $1,445, more than twice the entire mortgage payment.

Of course, such comparisons will vary based upon geography but overall, properties will cash flow and especially so given today’s interest rate environment. One year ago? The principal and interest payment on a $200,000 loan at 4.75% is $1,043, or $1,404 more each year. What are the prospects for lower rates? Given the current nervousness in equities and foreign economies, interest rates could dip a bit further but not by very much. The danger is to the upside. Once rates go up, the monthly cash flow evaporates along with the lower monthly payments.