AstonMartinOne77
Contributor
Hello fellow entrepreneurs,
Considering that we are in a rising interest rates environment in the US and Canada,
does it still make sense to start investing in real estate?
is it worth to invest in real estate right now?
Of course, you might say that lots of entrepreneurs have become millionaire through real estate. However, it is much easier to be wealthy in real estate when interest rates are working WITH you and not AGAINST you.
The last few years, interest rates have gone down, raising the price of houses up and lowering monthly payments, and thus increasing monthly cashflow for the investor, but what if the rates go up...
Current interest rates
US Interest rate – 1.5 %
Canadian Interest rate – 1.00 %
Forecast for 2018 is three rate hikes.
Lets consider how monthly payments increase as the interest rate increases
On a $ 200 000 mortgage, at 1% interest rate, mortgages payments are => $753
On a $ 200 000 mortgage, at 1.25 % interest rate, mortgages payments are => $776
On a $ 200 000 mortgage, at 1.5 % interest rate, mortgages payments are => $799
On a $ 200 000 mortgage, at 1.75 % interest rate, mortgages payments are => $822
So the investor looses $69 of monthly cashflow when the rate goes up ¾ %
Theoretically, keep in mind that when the interest rate increases, house prices go down and mortgage payments go up. So, its a double edged decrease in profitability.
Now, lets consider how much the price of the house will go down if interest goes up.
When choosing how expensive a house we can afford, we take a look at the monthly payments, not the actual price unless the buyer is willing to pay cash.
Lets see how much we have to decrease the property price so the monthly payment stays the same when rate goes up
Lets stay with the first example of the $ 200 000 property and we can afford a maximum of $753 of monthly payments.
As the seller, how much do I have to reduce the asking price of my property so that the buyer still pays the same amount of monthly payments:
$200 000 at 1 %, mortgage payments are => $753
$194 000 at 1.25 %, mortgage payments are => $753
$188 500 at 1.5 %, mortgage payments are => $753
$183 000 at 1.75 %, mortgage payments are => $753
So the investor looses $17 000 when selling the property when the rate goes up ¾ %
What if the rate goes even higher in 2019, 2020...
Of course, the goal of the real estate investor is to find good deals and buy properties below market value.
I'm not saying you won't make any money, but still the interest rates are working against you.
Is it still worth to start investing in real estate now?
So then, you might ask, what are the alternatives:
- You could instead invest in the stock market
- Invest into your business
I would like to hear opinion of other fastlane entrepreneurs or future entrepreneurs.
Considering that we are in a rising interest rates environment in the US and Canada,
does it still make sense to start investing in real estate?
is it worth to invest in real estate right now?
Of course, you might say that lots of entrepreneurs have become millionaire through real estate. However, it is much easier to be wealthy in real estate when interest rates are working WITH you and not AGAINST you.
The last few years, interest rates have gone down, raising the price of houses up and lowering monthly payments, and thus increasing monthly cashflow for the investor, but what if the rates go up...
Current interest rates
US Interest rate – 1.5 %
Canadian Interest rate – 1.00 %
Forecast for 2018 is three rate hikes.
Lets consider how monthly payments increase as the interest rate increases
On a $ 200 000 mortgage, at 1% interest rate, mortgages payments are => $753
On a $ 200 000 mortgage, at 1.25 % interest rate, mortgages payments are => $776
On a $ 200 000 mortgage, at 1.5 % interest rate, mortgages payments are => $799
On a $ 200 000 mortgage, at 1.75 % interest rate, mortgages payments are => $822
So the investor looses $69 of monthly cashflow when the rate goes up ¾ %
Theoretically, keep in mind that when the interest rate increases, house prices go down and mortgage payments go up. So, its a double edged decrease in profitability.
Now, lets consider how much the price of the house will go down if interest goes up.
When choosing how expensive a house we can afford, we take a look at the monthly payments, not the actual price unless the buyer is willing to pay cash.
Lets see how much we have to decrease the property price so the monthly payment stays the same when rate goes up
Lets stay with the first example of the $ 200 000 property and we can afford a maximum of $753 of monthly payments.
As the seller, how much do I have to reduce the asking price of my property so that the buyer still pays the same amount of monthly payments:
$200 000 at 1 %, mortgage payments are => $753
$194 000 at 1.25 %, mortgage payments are => $753
$188 500 at 1.5 %, mortgage payments are => $753
$183 000 at 1.75 %, mortgage payments are => $753
So the investor looses $17 000 when selling the property when the rate goes up ¾ %
What if the rate goes even higher in 2019, 2020...
Of course, the goal of the real estate investor is to find good deals and buy properties below market value.
I'm not saying you won't make any money, but still the interest rates are working against you.
Is it still worth to start investing in real estate now?
So then, you might ask, what are the alternatives:
- You could instead invest in the stock market
- Invest into your business
I would like to hear opinion of other fastlane entrepreneurs or future entrepreneurs.
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