Interest rates! You can’t go anywhere without hearing about the importance of interest rates in investing, saving, and spending. And real estate is a huge investment, so of course interest rates are a big subject among investors. I recently went to a conference of real estate investors, and I tried something unique: I asked everyone to guess what the highest interest rate of the next year would be. No one thought it was a great idea, but the point I was trying to make was that you can’t predict, let along control interest rates, so you have to continue to invest irrespective of those rates.
As an investor in multifamily property, interest rates will have no effect on your success, and here’s why:
1: Interest rates do not affect demand
Everyone needs a home. There’s always going to be a demand from residents looking to rent apartments and houses. There will always be that demand, and nothing will ever change that. For hundreds of millions of people in this country, it makes much more sense to rent than to buy a home. Interest rates don’t affect that demand one way or the other.
2: Your purchase calculations include interest rates
When you want to buy a property, you have done the calculations on how much you are able to pay for it every month. Interest rates can be high or low, but the total amount you can pay cannot change. So that money either goes to the bank or it goes to the seller. It doesn’t matter if the interest rate is 2% or 20%, that can affect how much goes to the seller, but it doesn’t affect how much the buyer can pay.
3: Resale
When you decide to buy a property, one of the questions you have to consider is whether the property will retain its value over the next 5 years? You really shouldn’t even be considering buying a property at all if you think it will drop in value significantly. If you do your due diligence, you should be able to find properties that will retain or increase their value over the next 5, 10, even 15 years. What will the interest rate be in 15 years? Who knows? No one knows! No one can know. So don’t worry about the interest rates, worry about the property.
What are you waiting for? You are wasting your time if you are waiting for interest rates to be lower before you invest in multifamily. Spend your time researching, not worrying, and focus your attention on finding solid properties that will give you a good return on your investment.
