Consider This Regarding Interest Rates

[Brady Mullen]

It's tempting to look at today's interest rates as "high". And it makes sense, since if you were born after about 1985, your only experience with interest rates as an adult tells you that they should be below 5%.

They touched below 5% for the first time ever in 2009, then they plunged below that in 2010 for a little over a decade. This had NEVER happened before. There was a glut of inventory on the market, and lowering rates was a good way to sop that up.

Don't expect this again. It may never happen in our lifetimes.

It's now back to investing and working.  They are no longer passing out homes like Oprah passes out cars.

But here's something to consider. Interest rates are like gasoline. Do I know how much gasoline costs? Yes! I can't help but notice because it's in my face everywhere!

And what would happen if I pulled up next to the pump and gasoline cost me $7/gallon (it's currently about $4 where I am)? Would I sulk and drive away without gasoline? No way! Gasoline is worth about $20/gallon to me, give or take.  Probably more, really.

So I may not like that they're asking me to pay $7, but in reality, it's so valuable to me to get where I need to go so easily, I'm going to pay it happily and be grateful I can get where I need to go in a comfortable vehicle with air conditioning and a podcast and my phone connected to bluetooth so I can talk to anyone I want.

Getting the bank to lend me money to purchase a small business (a rental home) is so valuable. If I insist on cash flowing, I may have to put more than 20% down in Denver, but so be it. Or maybe I endure a few years of negative cash flow, which makes sense.  I'm purchasing a small business and a piece of real estate. Why would I expect that not to cost me something?  Would I like lower rates? Of course I would. Even if I have 3% financing on a property, I'd like a lower rate.  But it's silly to act like I deserve some low rate that existed in the past under very unusual circumstances.

Let's not kid ourselves. The bank financing our purchase of one of the most reliable small businesses that sells a service everyone needs (shelter) is AMAZING!

This could also be said for purchasing your own residence (instead of renting). Don't wait for rates to come down. If they do, refinance, if they up further, you'll be glad you got the rate you got.

The value of this opportunity is unreal at 5%, 7%, 9%, 12%.  Clearly, it's better at 5%, but since that's not available, why are we talking about it?  We are not owed immediate cash flow at 20% down on a great asset...