For homeowners there is really nothing to like about rising interest rates. Rising rates drive up monthly mortgage payments and make our houses less affordable.
Real estate investors however have a surprisingly different view on rising real estates. Real estate investors actually have some good reasons to enjoy rising interest rates.
Hear me out.
I’ve got three good points as to why this is true.
Reason Number One – Rising Rates Help Occupancy Rates
Everyone has to live somewhere.
If rising interest rates make it harder for homebuyers to afford a home. If fewer people are able to purchase a home, more people are going to have to rent.
The result of rising interest rates is therefore rising demand for rental units. That reduces vacancy costs for real estate investors and increases cash flows.
Rising interest rates = higher occupancy rates
Reason Number Two – Rising Rates Help Rental Rates
You don’t need to be an economist to understand what pushes the price of goods and services higher. It is all about simple supply and demand.
The more demand increases relative to supply the higher the price will be.
The price renters pay for apartment space is no different.
If rising interest rates create more renters, that results in more people chasing the same amount of apartment space. This increase in demand (with no increase in supply) will push rental rates higher.
With occupancy rates low real estate investors are going to be able to charge more for their apartments.
Rising interest rates = higher rental revenue
Reason Number Three – Less Competition For Properties
When interest rates increase it results in larger monthly mortgage payments.
That is true for homeowners and it is also true for real estate investors almost all of whom use debt to finance a portion of their investments.
The impact for real estate investors of these higher payments is generally that they will be required to make a larger down payment at the time of purchase. In other words use less debt so that their monthly payments are lower.
Therefore, with rates higher and larger down payments required many potential real estate investors are kept out of the market because they don’t have enough cash to make the larger down payment at time of purchase.
Rising interest rates = less competition for properties
Call Me If Real Estate Investing Is Right For You!
In Brandon we continue to have exceptionally low vacancy rates in our rental market. With interest rates projected to rise in the years ahead there will only be more demand from renters.
Text or call me (204-725-2573) if you are interested in seeing current rental properties for sale in Brandon.