Battle Ground, WA · Member since 2015 · 67 posts · 14 votes
Like the title says, those of you that are financing properties, what is your plan with the rising interest rates? The rates seem to keep on rising, and for those of us that finance our properties, is that going to price us out of the market, or just cut into our profits? Obviously you'll just have to take into account the higher rate in your numbers, but is there any fancy way of working around them? Should a guy still buy a property at a higher rate, maybe sacrifice a little profit and hope to refi at a lower rate when the rates fall again? Save up more (not just the down payment) and pay cash for properties? What are your thoughts?
We are still in historical low interest rate. Just look up the interest rate chart and you will see. Higher interest rate means less buyers with commited funding, so less competition and more bargaining chip with seller if your one of the only few that can close on properties. Numbers and statistics don’t lie. If you buy low enough, it will offset the risk tremendously.
Rising interest rates should slow the appreciation value for properties. You just have to factor in a higher rate when running your numbers. Hope is not a strategy!!! If you like the rate and can lock it in for a longer period of time, then I would proceed. I still like to leverage all of my properties...paying 100% cash comes with the opportunity cost of missing out on good deals while you are trying to building cash.
Interest rates are a little bit like the weather; you just make the best of what you've got.
I did some research and the last 4 times interest rates went up, the real estate market went up at the same time. So while it seems to make sense to assume that rising rates will slow the market, that is not what history shows us.
As far as my plan, I manage interest risk in a portfolio, that's why you want to have as many 30 year fixed rate notes as possible. They act as an anchor and dampen the effect rising rates have on your shorter term notes. The good thing about commercial ARMs is that they amortize a bit faster, usually 25 years. If you refi the remaining balance of 85% after 5 years you can handle about 2% higher interest with the same monthly payment. If you gactor in that rents should have increased over 5 years you can use that to offset even more without cutting into cash flow.
That being said, I have started to make extra monthly payments towards principal on the notes that will come up in the next 3 years for refi, which will bring the baloon amount down significantly.
We are still in historical low interest rate. Just look up the interest rate chart and you will see. Higher interest rate means less buyers with commited funding, so less competition and more bargaining chip with seller if your one of the only few that can close on properties. Numbers and statistics don’t lie. If you buy low enough, it will offset the risk tremendously.