When interest rates rise, you might feel a bit wary about investing in real estate, but this may be the best time to invest. Our Titan Funding team understands your concerns and looks to guide you in making the right investment. Check out our overview of interest rates and their effects on the real estate market. We even include helpful tips to help you to capitalize on your investment during high-interest rates.
How Do Interest Rates Affect the Real Estate Market?
Rising interest rates affect the real estate market by making home prices more expensive. The increased prices may decrease the number of homebuyers interested in purchasing a property. There’s also a chance that the available supply of houses could fall, as sellers might want to wait to sell their homes when the market is more favorable. These effects can be challenging if you’re a real estate investor because there may be fewer homes to choose from or you might have to utilize your savings to supplement paying high mortgage rates.
Despite the rate increases, the demand for housing rarely changes; everyone needs a place to live. There’s a chance that your future tenant cannot afford to stay in a multi-story home and would rather live in an apartment. You can still benefit from your real estate investment.
How To Take Advantage of High-Interest Rates: Real Estate Investment Tips
Don’t let high-interest rates deter you from investing in the real estate market. Instead, use this time to develop a strategy that works for you and your financial goals. Here are some helpful tips for leveraging your real estate investments when interest rates are high.
Bolster Your Negotiations and Purchase if You Can
If you have the funds to purchase a real estate property during this time, you should buy it if possible. Investors who cannot afford the higher home prices will likely opt out of purchasing, decreasing the demand for homebuyers. The seller knows fewer buyers are interested in their property, and you can use this information to bolster your negotiations. Since there’s a lower demand from other buyers, your seller might prefer to work with you to quickly take their house off the market.
With less competition, this opportunity may increase your chances of striking a deal with the seller. Depending on your financial situation, you may be able to supplement your negotiations by offering cash or requesting to lower the asking price.
Opt For a Long-Term Real Estate Investment Strategy
Attempting to profit quickly from flipping a house may be difficult when interest rates are high and potential buyers are scarce. Additionally, increased home-buying prices may deter others from purchasing or deem them unqualified to pay a mortgage. They may opt to rent instead. Consider adopting a long-term strategy, such as investing in a rental property, to better leverage your money during these times.
Long-term rental properties include apartments and condominiums but could also include commercial real estate such as duplexes and multifamily lots. Investing in multiple units can provide you with excellent passive income from collecting rent, which you can save or use to repay your loans. Any rental property type that suits your budget is a good investment, as its value can increase over time, potentially earning you a higher profit if you sell in the future.
Get an Adjustable-Rate Mortgage (ARM) or Short-Term Loan
It’s normal to feel stressed about fluctuating interest rates. It’s also hard to predict how much you should expect to pay for a property or what financing options you qualify for, especially when interest rates are high. Fortunately, an ARM loan exists to help you secure a variable and fixed rate over time. Real estate investors appreciate the predictability that ARM loans bring. The interest rate is set to an index rate and stays the same for a fixed period. If you get an ARM loan, you could determine your monthly payments based on its consistency.
Alternatively, you could select a short-term loan, such as a residential bridge loan, that offers flexibility and quick financing. This financing option is ideal for real estate investors who own a few properties since their hard assets determine the loan amount. Still, if you can’t afford the down payment for a house or financing isn’t available in your area, you may benefit from securing a residential bridge loan.
Consider Alternative Cash-Flow Strategies
Use these times of high-interest rates to inspire creative solutions in making the market work for you and not against you. Instead of investing in traditional residential property, consider alternative real estate investments. These investments can introduce a more positive cash flow to generate a steady passive income despite the market’s volatility.
Let’s say a potential homebuyer decides to rent for a few years to save money. In the process of their move, they need to downsize to an apartment but need a place to put their belongings. In this scenario, a storage unit is a prime solution to their problems. Investing in a storage unit facility could provide excellent passive income because they’re low-maintenance and maintain a high occupancy rate depending on the location.
Have you looked into vacation rentals? You could profit significantly from purchasing a real estate property in a popular area, such as a major city or a town with a theme park or landmark destination. Every year, people are prioritizing travel more than the previous year. Capitalize on this movement by researching short-term rental properties by location and amenities and seeing what the property owners charge renters. Determine the profitability of a vacation rental by analyzing the potential occupancy rate and the possibility of charging more during the holidays or peak tourist seasons.
Optimize Your Real Estate Investment Venture With the Right Lender
Ready to invest in real estate? Contact our team of financial experts at Titan Funding in Boca Raton, Florida. We can guide you in finding the right loan to match your real estate investment needs. Our brokers can also provide insight into obtaining residential and commercial real estate and assist you in making your decision. Call us anytime between 9 a.m. to 6 p.m. Monday through Friday, or fill out our secure online form anytime.