Does buying a Rental Property makes sense in this high Interest rate market?

Question

I currently own one out-of-state rental property and am planning to acquire another. However, the high-interest rates are significantly affecting my operational costs. A neighboring property, similar to my current rental property, is now on the market at the same price I paid two years ago, with comparable rent. Unfortunately, the cash-on-cash return isn't the same due to the interest rates.

Should I proceed with the purchase now, or wait for interest rates to decrease before re-entering the market?

What strategies are others using when looking at MLS listings at this time?

Should I proceed with the purchase now, or wait for interest rates to decrease before re-entering the market?

What strategies are others using when looking at MLS listings at this time?

Travis Biziorek · Answer

People have been waiting for interest rates to come down for 18+ months now.

The reality is it will likely take longer than you expect to happen. And, as it does, there's a lot of demand on the sidelines ready to buy.

This will likely push prices higher, cancelling out any benefit you'd see with lower rates.

If the numbers don't work today you either need to change your strategy or look at a different market. Doing nothing and expecting the market to figure things out for you generally doesn't work out.

Matthew Paul · Answer

@Saurabh Kukreja What makes you think rates will go down ?  They may go up just as easy .

What would concern me is the unit you bought 2 years ago has basicly no appreciation , based on this unit as a comp .

Kevin Sobilo · Answer

@Saurabh Kukreja, rarely are the stars aligned to make investing easy and simple. It only appears that way in hindsight.

The old adage is that you "marry the property, but date the rate" meaning that you can refinance down the road to lower the rate if the opportunity arises.

A deal is what YOU make out of it, NOT what is advertised to you. What you do with it makes all the difference. You might do some value-add type rehab, raise rents, reduce expenses by upgrading systems, appealing assessments, shopping insurances, etc.

If you can find a deal now and you work that deal, it should on average get better over time ESPECIALLY when you get that opportunity to refinance at a lower rate.

So, a deal is a deal whenever you can find one. If its a decent deal now, it should (on average) be a better deal if you do good things with it over time.

Alecia Loveless · Answer

@Saurabh Kukreja I was looking at a property adjacent to one of my existing ones recently. I had it under contract. The seller and I could not come to terms over an issue that arose in my inspection regarding upgrading one electrical panel.

I was thinking about economies of scale with adjacent properties. In my case plowing and mowing and basic expenses.

The numbers weren’t that strong and CoC wasn’t that good. I was willing to overlook this for having two next door properties.

In the end now that the deal is off I’ve realized my new deal is much better and it’s likely better that I did not compromise.

Peter W. · Answer

It’s a personal question in many ways. What total and cash on cash returns make it worthwhile vs buying t-bills or S&P 500 or …

I bought one property last year and one property this year. Cash on cash is pitiful, but it’s 8.5% loan which will look good when I refinance at 6% or so. The other I got probably 10% under market price so I am up big in equity to begin with. I am not making life changing money with either of these deals, but I expect total returns to have a floor in the 10-12% with upside in the 20-25% which is really good returns. I am also probably not buying anymore in the near term because I can get similar returns from the tech monopolies without the work.

Devin Peterson · Answer

Lets put it this way. If you can make it work now, you can make it work when rates are better. Its never a bad time to buy real estate. Any professional investor can vouch to that. The waiting period hurts more than having a rate in the 7 or 8s. My advice is get your feet to the fire.

Does buying a Rental Property makes sense in this high Interest rate market?

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