Will Cash Flowing Rentals Disappear When Interest Rates Increase?

[Bill Mitchell]

As the topic states, will cash flowing properties disappear when interest rates increases?

Once rates go higher than 5%+ the debt service on the loan is going to increase. Not to mention the market will likely be less rental intensive when this begins to happen, which means less demand for rental product.

Seems like if you dont get properties locked down now, you wont get them any time in the near future once interest rates rise.

[David Beard]

There will be lots of moving parts when rates invevitably rise. I do think the Bernanke asset bubble will persist for at least 2-3 more years, but eventually the piper will be paid.

However, when rates rise, assuming it's measured and somewhat gradual, an increasing number of people will be unable to qualify for home loans, and will remain renters, or become renters. So this should increase tenant demand and cause rental income to outstrip property expenses and perhaps keep pace with higher interest costs.

Of course, it's a possibility that a Japan-style period of low rates and very slow economic growth could prevail. But in the U.S. it seems more likely that high inflation will be the end game. Rental property is generally considered to be an inflation hedge, but if we get hyper-inflation and a major devaluing of the dollar, with extremely high unemployment and a govt that can't stimulate anything or support massive public housing/Sec8 spending due to a huge portion of quickly-shrinking tax revenue being spent on servicing the massive federal debt... then frankly I don't know how property will perform.