Investing with these interest rates?

Question

Hi guys,

I'm just wondering how your investing and buying strategies have changed with the increase of interest rates. What constitutes a good deal to you now that interest rates are higher?

Benjamin Aaker · Answer

Hi Cara,

A good deal is still one with good metrics. Investors should not change their criteria due to interest rate fluctuations. At the risk of oversimplifying, you still need to have a certain cash on cash return, so your purchase price will need to decrease as the rates increase. Sellers haven't quite realized this yet and are living in the rosy rate climate of 18 months ago. A percentage of them will have to sell for a variety of reasons and will be willing to sell for a price that meets the investor's criteria. These will be the good deals now. The investor needs to conserve liquid cash for that time.

Eliott Elias · Answer

Equity. There is a low likelihood of cash flowing right now, what you can do is buy cheap.

Anthony Phillips · Answer

Just completed a rehab with the intention of making it a rental. Called my lender to look at what rate they were going to give me. I would have cash flowed about $200 per month. I eneded up putting it on the market and make about 65k on the flip. I could have stuck it out for the refinance later but thought having the cash on hand would be better in the current market.

Chris Seveney · Answer

Great question. Before any investment people should have an overall business plan on what there goals are and what they are trying to achieve. Are you buying for cashflow, buying for appreciation. What does that look like and how much money do you have. With interest rates rising I think people need to be more cautious as lower interest rates were basically free money that you could borrow.

Today you are borrowing at a much higher rate, so do you put more money down? Do you buy lower cost asset that may be in a tougher area? To me what constitutes a good deal is based on the individual and what fits their criteria, as what works for one investor may not work for another.

James De Stefano · Answer

THIS,  Simple but mostly true,   Off market deals can still happen but you have to put in the hours and hours, and frankly get lucky.

I'm finding "possible' opportunities on the MLS and they are still disappearing quickly, so the deals are out there but you have to hunt carefully or look outside the box.

Carlos Ptriawan · Answer

Hi Cara,WHat's interesting is in our area, price between Dec to July already has $200-$300k siginificant raise. And that's for typical average home.I guess interest rate doesn't matter as buyer is still lot with very limited supply available.

So if you just focus buy on Dec 2022 and perhaps sell in July 2023, you already made significant profit LOLNow we know the interest rate would be lower, perhaps around 4% in 2025/2026, that's another significant expectation as well.

Ray Hage · Answer

The interest rates and prices being high at the moment just means one thing, you just need to look harder for good deals. Anything on the MLS is going to move fast so off-market is your best shot. It's not easy and will take a lot of time (door knocking, post cards, driving for dollars, etc). I am also an investor with some cash sitting around so I am still looking for good deals in my market and now exploring others.

Alecia Loveless · Answer

@Cara Ledman I just bought one deal with cash 2 months ago with the intention of refinancing later. By then will have created lots of equity to support the amount I want to take out. And still have a nice amount of equity left in the deal.

I am in the process of buying a second deal with financing currently. Even with current rate at 8.25% it will still cash flow at about 1.75% after expenses. (Much higher than the 1% rule!)

My business partner and I are very happy with this deal and once it’s up and running hope to find several more just like it. You have to be willing to look consistently, network constantly, and just let as many people as is possible in a polite way know you’re interested in buying real estate. Deals will eventually come your way.

Evan B. · Answer

Yep! Buy cheap homes that need work, then put in the time and effort to improve them and either rent them out or sell. Inventory is low, if you are able to do this, it helps everyone!

Matthew Paul · Answer

Rates will do 1 of three things ,   1 go higher , you will pat yourself on the back for having a lower rate .  2. they will go down , you then refinance   3 . they will stay the same .

I have bought at 11 1/2 %  , 9% , 6%  and 3%  .

Dont like higher rates  ..................Pay cash

Investing with these interest rates?

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