Interest Rates - Buy Now?

Question

Very very new potential investor here, just started listening to the podcasts.  (Which are amazing by the way.)

I'm thinking about buying my first multi-family investment property, but I have also considered waiting for the market to cool down. Most real estate agents I know tell me this "up" cycle will end in 12 months to 24 months and we may see anywhere from a 10% to 20% correction. This is a little off putting to anyone thinking about buying, but I also need to consider interest rates.

30 yr FRM's are currently in the mid 4's and will only go higher. But how much higher? In the 80's and 90's 30 year fixed rate mortgages were in excess of 10%. Between 2000 and 2008, 5% - 7% was pretty common.

On a $100,000.00 loan amount. The difference in monthly payment between 4.5% and 7% is $158.00 per month.

Most of the properties I'm looking at purchasing are in the 200k to 400k ball park, which would mean a monthly payment increase from $316.00 to $632.00 per month. This increase will make it MUCH harder to find and buy positive cash flow producing assets.

My questions for the community:

1. How high will mortgage rates go?

2. Should I buy now or wait to buy? Some people on the Bigger Pockets Podcast are talking about selling properties and holding on to the cash in preparation to buy later. Is this smart?

Thanks for your feedback.

Russell Brazil · Answer

A 20% correction would be nearly twice as bad as the housing collapse from a decade ago. I can not predict the future, but....that has no chance of happening.

Ben Lod · Answer

https://fred.stlouisfed.org/series/ASPUS

https://alfred.stlouisfed.org/series?seid=ASPUS&ut...

Tyler Mullen · Answer

@Ben Lod

All of this could happen and then what, will you then want to wait for rates to go to 10 from 8 to try to get lower prices?  You won't know then that 8% or 10% is or isn't the top any more than you can tell now if 6 will be the top in December, see what I mean?

I understand you're coming from the standpoint of this being one deal, the first deal, so this might require a large % of your available capital... but what you should think about is when you have the capital you should use it on the first good deal you can find.  It will most likely not be your best deal ever, but that doesn't mean it isn't good or worth doing.  Don't wait because then you can be talked into waiting and waiting some more.

Think about the same scenario in stocks, almost all stocks are bought and sold nowhere near the very top or bottom of their price ranges during even a week much less a year.   So the chance that you will ever buy any investment at the perfect time/price/rate... it's a fools errand to make that a criteria over ROI, location, condition, etc.

Now maybe if you were saying you were thinking about only doing 19 deals this year instead of 20 and you wanted to hold that cash for a potential better buy after a crash, I get that too.  That could make some sense but I would still give yourself a time limit before that capital has to get invested.

Interest Rates - Buy Now?

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