Should you invest in real estate when interest rates are high?

With interest rates rising over the last year, it has made it tougher and tougher for real estate investors and owner-occupied home buyers. People need places to live whether they are rentals or personal houses and higher rates make those properties much more expensive unless someone is paying cash. While higher rates make it tougher to buy real estate that doesn’t mean you shouldn’t be buying. It is extremely hard to time markets and usually, the best time to buy is when the time is right for you. A lot of people predicted a real estate crash which has not happened and I don’t expect one to either. There simply are not enough houses and high rates are making that problem worse not better.

Have high rates caused property values to decline?

There are some potential benefits to investing in real estate during a time of high-interest rates. For example, lower demand could lead to lower prices for certain properties, which could make them more affordable for investors. Additionally, rising interest rates usually indicate higher inflation which could mean rents rise faster than in a normal market. There is, however, no guarantee that either of these things happen.

We have seen prices drop in some markets like Austin but overall prices are higher now than ever before. High rates do not cause prices to drop significantly because while they lower the demand for real estate, they also lower the supply. People do not want to lose their low rate and builders slow down construction. I have personally seen lower prices on multifamily properties which is most likely caused by higher rates. There could be a few more deals available in that sector.

High rates will most likely make real estate more expensive in the long term because it decreases building. The fewer building there is, the less inventory there is, and eventually, that will catch up to us with higher prices. I would not bet on prices to decrease in the future, especially long term.

Should you invest when interest rates are high or wait?

I think there are many more important things to consider when investing in real estate than how high rates are. Yes, they are important but not the most important thing. After all, investors have been investing in high-rate environments for decades and making money prior to 2000.

Here are some things to consider when deciding whether to invest in real estate when interest rates are high:

  • Does the property make money? Just because rates are higher, doesn’t mean that properties can’t make money. There could be markets or deals where a property cash flows even with higher rates.
  • What kind of investment are you looking for? If you are doing a live-in flip or house hack it still might make sense to buy now since you have to pay for a place to live in whether you rent or buy.
  • Can you get a great deal? I get great deals on every property I buy and I would miss out on many deals if I stopped investing because rates are high. Often a great deal will make you much more money than the increased lending costs high rates cause.
  • Do you have the cash to wait out high rates? You might be able to get great deals that don’t cash flow now, but will in the future when rents increase or rates drop. If you are financially able to handle an asset that doesn’t make much money or even loses money for a year or two it still might be worth it to buy now.
  • Are you flipping or holding? If you are flipping houses the high rates may not impact you as much as landlords holding property. There is still enough demand to sell houses and flippers can continue to buy and sell.

Will rates go down allowing a refinance?

I believe that eventually, rates will decrease which could allow investors to refinance their loans and reduce their rates significantly. This could turn a money loser into a money maker or turn a single into a home run. I would not bet everything you have on rates going down but it is likely at some point. The big question is when will they go down and how much will they decrease?

No one knows the answer to either of those questions but inflation has been decreasing and the Federal Reserve should stop raising rates soon. If rates stay high it will most likely push real estate prices even higher but if they lower rates quickly it could lead to a buyer frenzy and big increases in prices. There are not too many scenarios where I see prices dropping in the long term.

Conclusion

If you can get good deals that cash flow there is no reason not to be investing in real estate right now. If you can find good deals or cannot find properties that make money then it may not make sense to invest in this market. But remember, the market may not be getting investor-friendly any time soon. If you are buying as an owner occupant, it usually makes sens to buy whenever the time is right for you and not the when the market is perfect.

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2 thoughts on “Should you invest in real estate when interest rates are high?”

  1. Very useful advice! A must read for all the real estate investors out there! Just because the rates are high doesn’t mean the ROI wouldn’t be good in the future, careful considerations are all that matters. Kudos to you for sharing this piece of information, looking forward to read more such articles!

    Reply
  2. I found this article really helpful in understanding the dynamics of real estate investing when interest rates are high. It’s true, we can’t always predict the perfect market conditions, and the key is to find deals that work for you. It’s all about adapting to the current market and your financial situation. Thanks for sharing these valuable insights!

    Reply

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