If you are one of the lucky ones who happen to be in the process of locking in an interest rate over the last week or two, you probably saw that rates are way down. In fact, rates on 15 year fixed mortgages as well as 5 year ARMs hit record lows last week. As a real estate investor, these types of interest rate dips remind me how important it is to use this unbelievable opportunity to invest in long term rentals.
If you’re like me and on every real estate guru mailing list under the sun, you’ve seen a lot of hype in recent years about different types of real estate investing. Most of these “hot new strategies” have something to do with wholesaling, referrals, assignments, note-buying, etc. While I’m sure that many of these techniques are perfectly legitimate, it’s interesting how little I hear about good old fashioned long-term real estate investing.
If there was ever an ideal market for buy and hold real estate investing, I would venture to say that now is the time. Aside from the fact that home prices are at rock bottom, I’m not sure we’ll ever see interest rates this low again. One of the great things about a 15 year or 30 year fixed mortgage is the fact that it’s FIXED! This means that while housing prices begin to recover and rents rise, you’re mortgage payment stays the same.
So many new investors get into real estate investing and expect to see immediate cash flow and huge returns. For those investors, it can be quite unnerving when unforeseen expenses cancel out all of the cash flow for a given year. I try to coach investors all the time to keep the long term perspective when investing in residential properties. For most investors who are able to buy and hold during this downturn, the real returns are going to be 10-15 years down the road.
I don’t think anybody would disagree with the notion that housing prices, interest rates and rents will all increase at some point in the future. However, that 15 year fixed rate mortgage you were able to lock in at 3.75% will not! Ten years from now when that property is renting for $300 more than it’s renting for today and your knocking down principle at an incredible clip, do you think you’ll be glad you invested back in 2011? I think so.