INTEREST RATES KEEP INCREASING: SHOULD YOU BUY? SELL? SIT TIGHT? REAL ESTATE INVESTMENT ADVICE IN THIS NEW MARKET
The Federal Reserve continues to raise interest rates in an effort to slow inflation…so what does that mean for real estate investors and other property owners? Here’s the reality: the higher the interest rate, the more it costs to borrow money and ultimately, the less your property is worth. Right? If a potential investor has $400,000 to play with, but now they’re paying 7% rather than a 3% interest rate, the bank is collecting more and you’re getting less…which in turn reflects the value of your property. Does that mean it’s a bad time to sell? And in turn would that mean it’s a good time to buy? Or is it better to just wait for the market to settle down?
THINKING ABOUT SELLING?
As noted above, you’re going to get less for your property than you would have just months ago. Interest rates are up and the demand has naturally slowed. On top of that, there’s a good chance you're paying more in taxes because so many cities and towns took advantage of the inflated market as an opportunity to reassess property values. Maybe selling now will allow you to benefit before the value decreases further?
Don’t do it. Unless there is something pressing in your life and you need the money now, Nexus Property Management® and our team of experts recommend you keep your focus on the long game. Yes, it’s true that the market is trending in the wrong direction, but with those elevated prices came…elevated rents.
Rents are at an all-time high so holding on to a rental property makes all the sense in the world. If your rents are at or near market value, you can safely insulate yourself from the increased tax burden without having to deal with current interest rates. Market value rents will also provide enough cushion to hire a reputable professional property manager, which will add value for your tenants (leading to longer retention) and allow you to add value to your property through maintenance services.
Yes, articles abound and big banks are flooding whatever space they can with reasons to sell, sell, sell…so they can collect, collect, collect. We want to make sure you consider how you can leverage your own asset, by maximizing rents in an appropriate way, to decrease the weight property owners are feeling from the Fed, local municipalities, and lenders.
Now that is all well and good if you own a rental property…what if you own a single family home and you're looking to sell. The answer is the same. In this market, you can easily rent out and have someone pay your mortgage for you while you take out a loan and look for a new place to call home.
Finally, the opportunity to refinance and take cash out exists as well. This might sound odd because interest rates are high and typically people refinance for a lower rate, but remember that towns and cities recently jacked up the assessed value of your home, so your equity grew considerably as well.
LEARN MORE: UNDERSTANDING RENTAL PROPERTY INTEREST RATES
THINKING ABOUT BUYING?
It’s important to remember that realtors, banks, and anyone who is looking to gain by your financial decision, is going to advise you in a way that is best for them. So plenty of people are being told they should buy when it’s not necessarily in their best interest. Just as we discussed how property values go down when interest rates increase, the same holds true for your buying power.
It may not be glamorous, but it is worth thinking about renting instead. It’s typically cheaper, you wouldn’t have to worry about a down payment and wouldn’t have to worry about maintenance or other responsibilities that come with ownership…especially at a time when finding maintenance vendors is challenging. You wouldn’t have to pay for insurance on the property, which has also increased significantly over recent years, and you don’t have to worry about those increased taxes referenced above. True, you wouldn’t be building equity like you would with ownership, but you could save some money while renting and put yourself in a great position for when the market normalizes and an opportunity presents itself.
CONCLUSION: CONSIDER ALL YOUR OPTIONS
Do not think you need to sell because your friends are talking about selling and algorithms are flooding you with noise about other people cashing in. Similarly, if you don’t buy now you’re not missing anything. The market is in transition and your buying power and the market value of your property are taking significant hits. But the rental market is still strong. Although rents are high, you could still rent for less than you can buy for right now. And if you own rental property, market value rents will allow for a continuously reliable investment. You don’t have to buy, you don’t have to sell, but you should explore and consider all of your options.
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Mick Lefort is the Vice President of Operations for Nexus Property Management®. A National Property Management Franchise that manages all types of rental property from single family homes or condos to large apartment buildings and complexes.
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