Is there any cash flow with these interest rtes?

Question

I can't get the numbers to work out with the current interest rates to use other peoples money for a real estate investment.  Do we just sit back til rates go back down?

Lindsay Davis · Answer

Hi @Richard Antcliff,I second @Dominic Pizzi's take here: rates are only one piece of the puzzle, and there are definitely workarounds you can consider.

To parrot @John Morgan, one way to compensate for high interest rates is by buying in markets that spot low rent-to-price ratios.

More generally, there are deals to be found regardless of prevailing interest rates—you just have to know where to look. And based on what I’m seeing, deals in Alabama and beyond are still penciling out because rentals are affordably priced, the state’s property tax burden is extremely low, and gross rents are fairly high.

Eliott Elias · Answer

Utilize creative finance to get lower interest rates.

Dominic Pizzi · Answer

Rates are only part of the picture. I would suggest also taking a look into the properties you are actually viewing and the areas you want to invest into. You need to look at the taxes, the insurance, the rent you can get. You can find a great cash flowing property at any interest rate. We all need to shift our thinking away from what the interest rates are like and take a bigger look at how well the property will cash flow as a whole!

You can wait, but what you will see is as soon as you wait too long for the interest rates to go down, house prices will go up, or the supply will go down and the demand will go up, and then you will be worrying about the price of the property and not the interest rate.

Ian Walsh · Answer

Yes.  You have to buy lower though.  The market hasn't fully recognized the new pricing so you are still looking at low interest pricing.  That is changing though.  There are less deals, but they are there for sure.

Dylan Speer · Answer

I have not been seeing many deals that give notable cash flow. I have been recommending syndications and DSTs, as the sponsors of these deals are usually raising equity for months or even over a year. Those investing in syndications in which the sponsor purchased the property at lower interest rates are effectively time-traveling back to lower rates and are able to take advantage of those.

Richard Antcliff · Answer

Perhaps this is the secret sauce, but could you share the numbers for the one you did last week that worked?  Just trying to learn.

John Morgan · Answer

@Richard Antcliff

It’s not easy to find cash flowing properties with these high interest rates. However, I’ve found 6 buy n hold houses in last year that I’ve bought including one last week. If the numbers work, I jump on them. I also target cheaper affordable houses that seem to appreciate higher in my area due to low inventory. This also causes market rent to go up quite a bit within a few years, so I’m ok cash flowing only $300/month at first because I know market rent will be up a decent amount in a few years while my fixed mortgage remains the same.

James W Tollick · Answer

Asking for seller’s credit rather than lowering the listing price and use the credit for the seller to buy down the interest rate is an option to utilize. Eventually the interest rate will drop (I’m not sure when) but once it does, you can refinance the property. In the meantime, the appreciation of the house will increase, adding equity to the home, especially when you move out of the home and rent it out. Having someone paying the mortgage down is only increasing your equity, as long as you have the mortgage covered in the rent.

Is there any cash flow with these interest rtes?

Most Popular Reply