Should I Invest in Real Estate as Interest Rates Rise?

Investing in real estate can be a lucrative business as long as you take the right steps in your investment strategy. Beginner buyers may be wondering whether now is the right time to make purchases in today’s real estate market. Interest rates are rising, particularly for house mortgages, car loans, and credit cards. As housing prices soar, what kind of changes should an investor embrace in today’s market?

The Cause of Rising Interest Rates

The pandemic has been a big catalyst in setting off many economic woes, including supply chain interruptions that have skyrocketed the prices of goods and housing. In addition to the pandemic, the U.S. deficit has been growing. Our government will print new money to make up for the deficit, and the more this excess money is added to the economy, the more inflation is likely.

With inflation prices running high, it’s become necessary for the Federal Reserve to step in. The Fed has decided to raise the interest rates for property owners. While the average fixed mortgage rate has been around 3% for most, a 5% payment increase has become a probability for many.

Why Are Interest Rates Going Up for Real Estate Investors?

The possibility of rising interest rates has to do with a number of complex factors, making it tenuous for the average investor to take risks in the real estate industry. Theoretically, the Fed’s move to curb inflation will provide relief to the poorest Americans who struggle to pay for the rising prices of housing, and the wealthier investor class will be the ones who end up footing the bill. However, this may put a strain on the wallets of small-time investors who only own a single home. It’s become much more difficult to enter the real estate market — housing materials are expensive, purchasing a property is costly, and now mortgage payments will be rising.

“Inflation is liken to economic darwinism…it exposes which investors know how to manage a piggy bank.”  – John Reid

When Is the Right Time to Invest in Real Estate?

When evaluating a property, investors should look into the 1% rule, which measures a property’s investment price against the income the property will create. If the renting value is less than 1% of the purchasing value, then it may not be an ideal investment to make. There’s also the 2% rule, where the investor decides not to risk any more than 2% of their capital on a single trade.

If you’re an investor wondering whether to wait on real estate buys, it largely depends on your situation. Do you have the money for it? As an investor, you should expect to pay an increase of up to 5% on the mortgage payments of a property. If you can afford that, plus any costs for repairs and tax rates, then yes, you can invest in real estate.

At REID Lending Partners, our agents are providing customizable loans at a 30-year fixed rate. Another key feature is interest-only payments for up to 10 years, which is great for self-employed real estate investors and small business owners. If you’re a real estate investor looking for mortgage payments that don’t balloon, contact REID Lending Partners today.