Interest rates are TOO high! This is the biggest objection I get from buyers these days. I can see this being a factor for a typical homebuyer. However, even my investor clients are saying this. As investors, it is our job to find deals in any type of market environment. There are deals out there in bad markets and good markets. So why is it that so many investors let the fear of high-interest rates stop them from buying deals?
To answer that we need to understand the basics of how investing works. Currently, if you simply put money into savings account the bank will give you back 1-2% in interest maybe. As you might already know, typically the Fed likes to keep inflation at 2%, so if inflation was at the ideal level, money in a savings account is pacing with inflation. However, right now inflation is about 6.5%. So cash sitting in a bank is effectively losing money at this point.
Mortgage interest rates are sitting around 6% at the moment for conventional loans. So even at a difference of half a percent, the cost to borrow money is still less expensive than inflation. The purpose of investing is to achieve a higher yield than what it costs you to borrow the money. So let’s say find a deal that yields a 10% return. That 10% is still significantly higher than the cost to borrow it at 6%. So there is still a positive spread there. Next, should interest rates come down in the next few years, then you can look at doing a refinance. Even better if your property has significant equity, now you can pull that equity out tax-free in the form of debt to re-deploy to purchase more properties. All the while you still own the property and continue to collect the rental income, and your tenants are paying down your mortgage! The number one metric that you need to qualify a property for is that it meets your minimum deal criteria. Each investor has their own, so you must have that clearly defined.
Now consider the option, that you talk yourself out of purchasing and you wait for the “right” time. Well, you missed the deal today, at today’s price. What happens when the right time comes along, interest rates are lower, but now the property is significantly more expensive! Then your excuse might be at that point, the deals are too expensive. So as you can see, there is never a right time to invest. The right time to buy is if you are able to invest at the time you see the opportunity come across. If you continue to wait, you will continue to miss out on opportunities. Granted not all opportunities are great opportunities, but that is where your skill of determining what’s a good deal comes in. If it checks your criteria and you’re able to buy, stop hesitating, stop being scared, pull the trigger! The number one regret most people have when you ask them, is “I wish I would’ve started sooner…” It’s your call to tell yourself, one day… or this is day one!