Posted about 3 years ago

How Interest Rates Affect Our Business

Know matter what side of real estate you are in, interest rates will affect you. Here is an easy example... Let’s say you’re looking to buy a house for $100,000 and the interest rates are currently at 4%. Your principal and interest payment would be about $477 per month. Now lets say the interest rates rise to 6%... In order to keep that exact same payment to buy that house you would now have to buy it for $80,000. That exact same house is selling or worth 20% LESS just because interest rates went from 4% to 6%.

There are a lot of key takeaways related to the real estate market and what properties are worth:

-If you’re buying rental properties and the interest rate goes up (and payments go up), your cash flow is obviously going down.

- If you're flipping a house and all of a sudden the rates go up it could affect your resale. The new buyer/homeowner might have previously qualified for a $225,000 purchase price and maybe now they can only qualify for $210,000.

-Commercial mortgage adjustments affect property values

Small increments of loan costs or financing interest rates may not impact things too much, but if they’re drastic, they do. It’s important to understand how that can affect you. I know a lot of wholesalers and flippers who say, “Eh, the rates don’t really affect me that much.” Let’s be honest, the interest rates and banks affect everything on a very broad level because you need to make sure there are homeowners who can qualify for mortgages on the properties you are flipping to them, or if you have a rental property, you want to make sure there’s sufficient and assessable banks to lend you long term money.