Thoughts on current interest rates

Dane Moreton · 2023-07-24T12:27:27-07:00

I'm looking to get into my first property as an investor; specifically, a SFH rental. I have $40K for a downpayment, but, as this is an investment property, I am looking at 7.125% APR with 25% down, or 7.5% with 15% down, and 2 points. I am in TX, and the market I am looking to buy in, the median home value has decreased by 3%. The strategy right now is to build equity and cash flow income (on this, then other properties) until I can get a 25% downpayment for a triplex or fourplex. My question is, with these current interest rates, does it make more sense to wait until they come down (when prices may likely rise becuase of it) or jump in on a good deal on a home, with the possibility of refinincing in 2 years when rates will most likely be back down? Of course, these are assumptions here, but wondering what the experienced investor would propose in this situation, with the current funds in the current market, with the current strategy. TIA!

Jason WrayPro Member

Banker · Nationwide · Member since 2020 · 2k+ posts · 1k+ votes

3y

Dane,

Good thing you asked a few questions because those two quotes are high if you have good credit. Its alwasy best to get a second opinion before you pull the trigger on a new home and financing. If you wait the property values go up as well as the sale price so even if rates come down your paying more in the long run by waiting. If you buy now you can refinance in as little as 6 months if and when rates come back down.

There area few other options you can take to get a lower rate and payment. There are also options for less money down you do not need to put 20-25% down.

[email protected]727-637-4289

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Ned CareyPro Member

Moderator

Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes

3y

@Dane Moreton
with these current interest rates, does it make more sense to wait until they come down

What makes you think they will come down? Historically todays's interest rates are not high. They are simply high relative to the extremely low rates of recent years. Also as you pointed out if rates lower prices may rise corespondingly.

So what is an investor to do? What you should alsways do. Buy when you fine propertis that meet your investment criteria. Don't buy if you cant find properties that meet your criteria. Don't force or try to guess the market. Buy what makes good sense today.

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Tristan Romero

Roseville · Member since 2022 · 35 posts · 14 votes

3y

Hi Dane,

As it seems you already know we don't know where rates are going to be or prices for that matter.Just as @Ned Carey said interest rates aren't actually high relatively speaking for the past 30 years. In any market there are deals to buy you just have to find one that fits in your buy box. Time in the market is better than trying to time the market. That doesn't mean buy any deal but don't be afraid if you find one that fits your buy box. I recently bought my house with a 6.44% rate but I don't care because I own a house now. If you decide to wait you interest rates may go up or stay the same. Stick with your plan of action and move on it!

Best of luck to you!!! Feel free to reach out anytime.

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Dane Moreton

OP

Member since 2023 · 10 posts · 0 votes

3y

Quote from @Jason Wray:

Dane,

Good thing you asked a few questions because those two quotes are high if you have good credit. Its alwasy best to get a second opinion before you pull the trigger on a new home and financing. If you wait the property values go up as well as the sale price so even if rates come down your paying more in the long run by waiting. If you buy now you can refinance in as little as 6 months if and when rates come back down.

There area few other options you can take to get a lower rate and payment. There are also options for less money down you do not need to put 20-25% down.

Thanks, Jason. I have great credit, and went to 3 different lenders (will go to more) and this is where they were on their APR's. What options do you suggest for lower rates, besides a higher down payment? What would you say is a good rate for an investment property purchase in today's market?

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Dane Moreton

OP

Member since 2023 · 10 posts · 0 votes

3y

Quote from @Ned Carey:

@Dane Moreton
with these current interest rates, does it make more sense to wait until they come down

What makes you thin they will come down? Historically todays's interest rates are not high. They are simply high relative to the extremely low rates of recent years. Also as you pointed out if rates lower prices may rise corespondingly.

So what is an investor to do. What you shuld alswys do. Buy when you fine proertis that meet your investment criteria. Don't buy if you cant find properties that meet your criteria. Don't force or try to guess the market. buy what makes good sense today.

Thanks, Ned. What makes me think the rates will come down is that the Fed has been raising rates to combat inflation, and there is a possibility of a recession still looming (though it has admittedly been looming for a while). Then, rates would almost certainly be lower, but, again, even experts are wrong about this stuff all the time.

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Dane Moreton

OP

Member since 2023 · 10 posts · 0 votes

3y

Quote from @Tristan Romero:

Hi Dane,

As it seems you already know we don't know where rates are going to be or prices for that matter.Just as @Ned Carey said interest rates aren't actually high relatively speaking for the past 30 years. In any market there are deals to buy you just have to find one that fits in your buy box. Time in the market is better than trying to time the market. That doesn't mean buy any deal but don't be afraid if you find one that fits your buy box. I recently bought my house with a 6.44% rate but I don't care because I own a house now. If you decide to wait you interest rates may go up or stay the same. Stick with your plan of action and move on it!

Best of luck to you!!! Feel free to reach out anytime.

Thanks, Tristan. I certainly intend to do my due diligence when purchasing a property. Those deals may just be harder to find at my price point with my criteria. I can only control what I can control, and hopefully I can make a sound decision that will have few, if any, surprises.

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Ned CareyPro Member

Moderator

Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes

3y

@Dane Moreton

What makes me think the rates will come down is

My guess is I am a lot older than you. I remember my dad, who was a banker, telling me in the 1980s "Ned, you will never see an interest rate of as low as 6% again in yor lifetime." We have had essentially 40 years of declining interst rates. It is possible, though not likely, we could have 40 years of increasing interest rates.

There is a saying "All things revert to the mean" In other words eventually over the long run, things return to the long run average. Many factors in our economy have been totally out of whack for as long as since the 2008 crash.

What the fed does afftects daily rates. Mortgage rates are based on 10 year treasuries. These are not directly connected and can go opposite directions.

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Dane Moreton

OP

Member since 2023 · 10 posts · 0 votes

3y

Who knows what will happen:

"On the bright side, Morningstar’s housing report predicts mortgage rates declining over the second half of this year. They anticipate an average rate of 6.25% for 2023. This will be followed by further decreases to 5.00% in 2024 and 4.00% in 2025."

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