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General Real Estate Investing

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Tracy Sharpe
  • Investor
  • Fort Worth, TX
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The Interest Rate on your Investment can Make you or Break you

Tracy Sharpe
  • Investor
  • Fort Worth, TX
Posted Sep 27 2016, 05:38

When my wife and I purchased 5 homes between 2005/2006, we knew that interest rates were important, but at that time, we were just happy that we could purchase 5 investment properties, especially when many people thought that there was no end to rising home values.

Furthermore, in our haste to buy these investment properties, even though several of the houses that we purchased were fixed rate mortgages and the others variable rate conventional mortgages, which varied between 3 and 7 percent, the lenders said, "Don’t worry about it, you can just refinance later on and get better terms and rates."

Unfortunately, in 2008, the real estate market began to change drastically and we were in trouble, along with many other investors. In our case, we were able to hold on to the 5 investment properties but our primary residence was over-leveraged. To add to the turmoil that was going on, job issues put us in a situation where we had to file bankruptcy and our primary residence went into foreclosure. Thankfully, we were able to keep all 5 investment properties. We moved into one of the properties and held on for a seemingly 7 to 8-year down cycle.

Although we made it through the down cycle and were able to keep our investment properties, in 2016, even though interest rates are low, we have found that because of our credit issues, we cannot take advantage of the low interest rates which is impacting our cash flow.

For example, we have one variable rate loan at 3.625 and the other a fixed rate loan at 7.375 percent interest. Even though we owe about the same on each house, the property that has a 3.625 percent interest rate is cash flowing, after expenses for $455.77, while the house with a 7.375 percent interest rate is cash flowing for only $278.42. They are both rented for the same amount $1300 and are valued about the same. That’s how the interest rate on your investments can make you or break you! We are so close to financial prosperity but yet so far away, as we continue to look for a lender that is really willing to help us.  

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