Unleashing These Strategies for Rising Interest Rates

Though I love being a real estate consultant, I’m still learning.

Economics, for example.  Oh, I get the concept of supply versus demand. The less there is of something, the more the price can go up. I remember the toy, Tickle-Me-Elmo. There were fights in the aisles of Wal-Mart to purchase this toy. And people were selling their Tickle-Me-Elmo toys on e-bay for THREE times the original price. That makes cents to me!

But how about rising or falling interest rates?  How does that affect us as part-time or full-time real estate investors? How do rising interest rates affect YOUR business? And who decides if interest rates go up or down? Who’s “The Fed” and what do they do?

Consider this. As interest rates increase, the Buyer’s payment goes up for the same house. So, when a Buyer’s Loan Status Report qualifies them for a specific monthly payment, then the amount of money they can spend on a house is affected.

I like EASY math, so here’s the skinny. A 4.5% interest rate generates a $710 / monthly payment.[1] That payment INCREASES to $1,125. the interest rate increases from 4.25% to 6.75%.

Put it another way, IF the Buyer CAN afford a monthly payment of $1,125 then the purchase price of their home drastically decreases from ~$315,000 to ~$250,000. Can you believe this is due to an increased interest rate from 4.25% to 6.75%? That’s a sixty-five thousand-dollar ($65,000) difference!

So, obviously Buyers typically do not like interest rate increases.

However, Buy & Hold investors DO enjoy increased interest rate increases.

Let’s look at the same thing a different way.

When the cost of money goes down, (low interest rates) the flow of money goes up and access to money becomes easier. Conversely, when interest rates increase, access to money becomes harder. And when access to money becomes harder, the value of the property increases.

But what if you’re a wholesaler or a fix & flipper and interest rates are going up? Or, you’re a Buy & Hold investor and rates are going down…should you STOP investing in real estate? Of course not!

When interest rates go up many people will rent instead of buy so rents tend to increase. Conversely when interest rates go down, people will want to buy. So, the wholesaling and F&F market is refueled.

When The Federal Reserve System (aka The Fed) was established by Congress, one of their mandates was to moderate long-term interest rates. In the past The Fed believes raising interest rates will slow down an economy while stave off inflation. Likewise, lowering the interest rate should stimulate an economy. Obviously, there is a fine balance between the two.

As Mesiter Eckhart said, “The price of inaction is far greater than the cost of making a mistake.”

ANY time is a GREAT time to be a real estate investor, whether it’s part- or full-time. The ability to create cash or cash flow with reasonable leverage allows everyone to participate in some capacity in the business of real estate.

Don’t let rising interest rates allow opportunities to pass-you-by because you’re not sure where we are in the marketplace.  Or, of uncertainty, on which strategy to best employ in today’s market. Is it time for you to take inspired action?

Stuart Gethner is President of Gethner Education, Coaching & Consulting. He has created tremendous success with his investors and consulting clients on an individual basis.  To contact to Stuart, see his schedule of upcoming events, to discuss his services or have him speak at your next event go to www.ContactStuart.com and click on the button CONTACT STUART.

[1] Purchase Price of home $250,000. Down Payment = 20%. Interest only loan payments.