Real Estate Investor · Santa Rosa, CA · Member since 2014 · 60 posts · 33 votes
I am looking at my goals for 2015. What I am looking to do is to take a look into my crystal ball and see what the future hold and how this will effect my strategies.
I am understand that the interstate rates are the best we have ever seen. But nothing lasts forever. My crystal ball shows me the interest rate going up over the next year. IF this is true HOW does this effect your market and your investing strategies?
This is not a question of will the rates go up. This a question asking how interest rates can change things.
Real Estate Investor · Fort Pierce, FL · Member since 2014 · 132 posts · 57 votes
11y
When the rates go up, then home prices will fall. Many People buy based on the monthly payment they can afford. So when the interest rate goes up, this means prices will have to fall. This is another reason to buy homes debt free. People who have cash should want the interest rates to skyrocket, then they can scoop up homes on the cheap.
When the rates go up, then home prices will fall. Many People buy based on the monthly payment they can afford. So when the interest rate goes up, this means prices will have to fall. This is another reason to buy homes debt free. People who have cash should want the interest rates to skyrocket, then they can scoop up homes on the cheap.
Why would higher interest rates causing prices to come down be a reason to not leverage?
Real Estate Investor · Fort Pierce, FL · Member since 2014 · 132 posts · 57 votes
11y
@Joe Villeneuve I would venture to say it partially depends in a investors risk level, skill and personal aggression and ambition. I guess I didn't understand your question in if you are referring to buying with leverage now or after interest rates are hiked up. Any investor should use extreme caution with interest only payments, as basically they are betting on appreciation and a falling market would hurt that plan. Also a investor should avoid ARM (adjustable rate mortgages) as they could very easily lose their investment when the interest rate spikes up. Current house prices are supported by debt and people being able to get a loan. When their ability to take out a loan is take away from millions of homeowner, this shrinks the buying pool, leaving sellers to have to lower prices just to sell( think the 1980s when interest rates were sky high, and real estate investing is not even as profitable, as you could just park money in the bank and make money off interest). So basically there are some suppressed areas where prices can fall so low that that a bank will not even want to do a loan for it because the loan amount will not be enough to make it worth their while. This is a golden opportunity to cash buyers who can then snap them up, rent or sell owner finance. For instance I purchased a cbs house that needed work for 12500. It needed work so there was no way a bank is going to make a loan on this small amount of money for a fixerupper. This house was a blessing, now i have approx 19k in it, and i got on average around 600 per month rent. This is where Cash is king. It allows for extreme deals quickly.
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
11y
First, who mentioned Interest only payments?
Second, the original question was "how lower interest rates would affect (me)". My answer was "it had to go up at least 1.5% to have any.
Third, your answer is based on flips, not holds. For holds, the interest rate going up, causing the prices to come down, actually works in the holder's favor.
1 - Lower purchase price means higher profits when house goes back up again...and it will. Unless the jump in int % is substantial, the drop in price is only temporary...until the market (buyers) adjust, then they will creep up again.
2 - The monthly payment on the loan to buy goes down because the price of the house, and the subsequent amount of leverage needed also goes down....and the monthly payment follows.
Real Estate Investor · Santa Rosa, CA · Member since 2014 · 60 posts · 33 votes
11y
Joe Villeneuve and Kendall T.
I think you both have got the idea. I was looking to see how interest effects you and your strategies.
Since we have different strategies we have different effects- excellent!!!
Now for your market - how will it effect your market?
I live in the North Bay of CA and we have people moving from higher prices market to our market. Their buying power is not going to effect them as much when the rates go up.
Those of us that live here will not have the same buying power. With the increase in rent that has been happening an increase in interest will not only put a downward pressure on prices but put a upward pressure on rents.
For what ever reason people like to live here. I guess it helps that we don't have to shovel snow or endure blistering summers.
What will happen to your market?