How to Invest In Real Estate Amid High Interest Rates and Inflation Investing in real estate when interest rates are going up can be tricky. But if you know what you are doing, there is a world of opportunity.
By Samuel Leeds Edited by Micah Zimmerman
Opinions expressed by Entrepreneur contributors are their own.
When interest rates rise, finding profitable real estate deals can be hard. What might be a great deal when mortgage rates are low could lose you money when mortgage rates are going up. In times of high-interest rates, some people think the best idea is to wait it out and start investing when central banks pivot again.
But this approach means they miss out on some amazing deals and delay their investment goals. For those beginning their investment journey, it could mean never actually getting started.
The key is to know how to invest in real estate in a high-interest-rate environment. This allows you to make the most of the situation and become stronger on the other side. For those that know what they are doing, these times are great for finding awesome deals. If you know, these times can greatly increase your net worth. As a multimillionaire property investor and trainer, I have helped many of my students succeed in all market conditions. In this article, I will give you three tips for investing when interest rates are rising.
Related: 10 Reasons Why Every Entrepreneur Should Invest in Real Estate
1. Use interest rates in your negotiations
When buying an investment property, you will be worried about whether the deal will be profitable when interest rates are on the rise. You will also be worried about where interest rates could be in the future.
This may seem like a bad position to be in. But do you know who else will be worrying about this? The seller. The seller will be aware that fewer people can buy their property. They will also be aware that interest rates could rise again if they fail to sell their property quickly.
Ensure interest rates are part of the conversation and your negotiating position. If you do this correctly, you could get an excellent deal with the right seller. This is particularly true if the property has been on the market for a while and the seller is motivated. If a seller waits too long when buyers are skittish, they may be waiting a very long time to sell the property. Use this market pressure to your advantage!
Getting a great deal is particularly important in these circumstances, as buying a property below market value will give you some leeway in volatile market conditions.
Related: Europe Raises Interest Rates, Should the Fed Follow?
2. Find alternative cash-flow strategies
The traditional buy-to-let approach, while profitable when interest rates are low, may be a losing strategy when interest rates are higher. What might have been a deal bringing in a positive cash flow with a low-rate interest-only mortgage could be a deal that costs you money with a high-rate mortgage. This means that traditional landlords and property investors overlook many properties. This is where more creative investors thrive. If you think outside of the box, this puts you at a distinct advantage in this type of market.
One example of this is serviced accommodation. What could have been a low cashflow single-family buy-to-let can become a profitable short-stay let business. If you rent a property out on sites like Airbnb, you can make substantially more than renting them out on a long-term basis.
There is a broad range of clients for serviced accommodation, and it isn't just holidaymakers. You don't necessarily need to be in a vacation location as short-stay lets are used by everyone from contractors to re-locators. Simply find a location reasonably close to a chain hotel and check that the hotel is regularly fully booked.
Related: The Retail Real Estate Market Is Growing. Here's Why That's a Big Win for the Franchise Industry.
3. Think long term
Property prices are volatile when interest rates are high. You should not be thinking about the cost of the property in short to medium term. If you have bought a high cash-flowing property, you should consider it a long-term hold. Don't become overly concerned with month-to-month or even year-to-year price movements.
Although past performance does not perfectly predict future events, the property has always been a safe investment in the long run. The population of the globe is rising, and there is only a limited amount of space for housing, particularly in the areas people most want to live. If you are willing and able to wait for the market out, there is every likelihood you will be greatly rewarded.
In conclusion, a high-interest rate environment can be a great time to buy an investment property if you know what you are doing. The market may spook other investors and landlords, and you can come in and find hidden gems. This means being creative and having the necessary experience or being willing to attain the required training to thrive in this environment.
There is a world of opportunity for those willing to put in the time to learn and understand how to invest in real estate in times of rising rates. Many new millionaires and billionaires will be made in these times; it is up to you whether you will be one of them!
