Strategies with high interest rates

[Drew C Grossman]

I’m curious to hear what everyone is doing to navigate this market with high interest rates

Investors, agents, buyers/sellers and lenders what are you doing to close deals? Are you having to get creative? 

The Fed is planning to raise rates another 50basis points going into the new year and doesn’t look like things will reverse course anytime soon. What are you doing to adapt?

[Andrew Postell]

@Drew C Grossman thanks for posting!  I started my investing career in Florida and still have property in Jacksonville. 

So what you are asking is what some of us have been talking about for many years - cash flow not being that important.  Now, in addition to that, higher rates means less competition.  Less competition means not as many buyers.  Few buyers means sellers are more desperate than they were before.  And that's what we are seeing right now - sellers are willing to negotiate.  Remember what it was like when rates were really low?  It was very difficult to find a deal because everything was going for MAXIMUM price and even over!  So now, you have a lot more leverage than you did before.  A lot!  So you should be getting better deals than you were.  

On the other side of this higher rates means less cash flow.  And sometimes even NO CASHFLOW.  So should you even buy right now?  Two things I will say on this subject:

1. Cashflow - If you were expecting $200 per month in cash flow and you have $0 now...well, $200 per month = $2400 per year.  So make your offer $5,000 less to accommodate for it.  Oh, you want to make it even lower?  Fine by me!  I feel a lot better about properties when I buy them for less money.  That's the mentality to have right now.  You have more leverage now than you did before.  And as the post above mentions...rates are decreasing.  So that leverage might be going away in a hurry!  Act now!  Just make aggressive offers.  Keep in mind that you will be increasing your rents next year...and the year after...and so forth.  You will be cash flow positive down the line.

2. Appreciation - Appreciate has outpaced cashflow for at least a decade at this point. So that $200 per month? That's $12,000 over a 5 year period. Your property will earn you $100,000 in equity if you work the BRRRR method halfway correct. So who cares if my cashflow is $0 when I'm making $100,000 per year on my properties? (You can read more on this strategy HERE)  Now this runs COUNTER to some "gurus" out there that talk about buying into their program and sitting back and collecting "mailbox" money and living off the cash flow.  Investing in real estate has NEVER been about that....well, unless you are a multi-millionaire already.  Maybe it works that way for that type of a person.  But for the rest of us, we have to work REALLY hard.  We have to LEVERAGE our properties.  It takes TIME and ENERGY.  So to me, the higher rates really show flaws in some of these "guru" teaching methods.  I have always preached keeping your day job and investing in real estate part time.  It's not as sexy as some "other" techniques out there - but it works.

Anyways, I hope all of that makes sense.  Thanks!