Santa Clara, CA · Member since 2017 · 6 posts · 0 votes
Hi folks,
As there's a proposal from Fed to increase the interest rate 4 times in 2022, what is your take on real estate investing? If you have the capital for downpayment and you have +ve cash flow, would you continue to invest while the interest rates are relatively low or would you wait for the real estate prices to drop when after all the interest rate hikes are completed (expected later this year)?
If anyone had a similar experience before, please share an example.
I assume this is one of the burning questions for many investors. I hope many such people benefit from this discussion.
Developer · Boulder, CO · Member since 2018 · 530 posts · 365 votes
4y
@Joe Norman I’m a serious developer that saw interest rates go from 7 to 18% in the early 1980’s. At that same time I was building a 36 story mixed use project in downtown Seattle.
The impact all but destroyed the real estate market and caused drastic reduction in all asset classes.
Realtor · Cleveland, OH · Member since 2021 · 1k+ posts · 1k+ votes
4y
I think the BRRRR strategy is still a great way to go in any market. As long as you understand how to calculate rehab costs, the ARV and have a good contracting team, this is a method that should not disappoint in a rising interest rate market.
...would you continue to invest while the interest rates are relatively low or would you wait for the real estate prices to drop when after all the interest rate hikes are completed (expected later this year)?
No serious investor that I've spoken with thinks that real estate prices will drop. The interest rate hike may slow the rate of appreciation, but I promise you that the Fed isn't going to raise rates to the point that appreciation will be reversed. Its better to invest and wait then it is to wait to invest.
Developer · Boulder, CO · Member since 2018 · 530 posts · 365 votes
4y
@Joe Norman I’m a serious developer that saw interest rates go from 7 to 18% in the early 1980’s. At that same time I was building a 36 story mixed use project in downtown Seattle.
The impact all but destroyed the real estate market and caused drastic reduction in all asset classes.
@Joe Norman I’m a serious developer that saw interest rates go from 7 to 18% in the early 1980’s. At that same time I was building a 36 story mixed use project in downtown Seattle.
The impact all but destroyed the real estate market and caused drastic reduction in all asset classes.
NEVER SAY NEVER
Hope for the best plan for the worst
The inflation, and interest rates, of the 1980s are a far cry from what we are seeing today. Goldman Sachs is predicting the Federal Reserve to raise the rate by *maybe* a full point, hardly comparable to your situation 40 years ago. If one is always "planning for the worst" (i.e., a dramatic market crash) then they will never ever buy real estate.
Can outside forces cause a market correction? Of course they can. That said the OP was asking about the Fed's announced interest rate hike, and IMO 1% bump in interest rates isn't going to devalue real estate.
Real Estate Agent · Atlanta, GA · Member since 2020 · 1k+ posts · 1k+ votes
4y
@Pavan Kovvuri with limited inventory on the market, I don't foresee any major downturn in home pricing, even with the federal reserve planing to raise rates. Typically, there is an inverse relationship between interest rates and pricing, but even more so, factors like inventory and construction costs play a way bigger role. To drive this point further, there are examples in the past where both interest rates and home prices have risen simultaneously. It is not always true that if rates rise housing prices will decrease. Point being with this discussion is due to the fact that there are multiple other factors/variables to account for if you're trying to calculate home prices in the future. Furthermore, none of us have a crystal ball and if you do hear someone claiming they know what home prices will be in the upcomming years be cognizant.