One of the beloved tools us real estate investors hold so dearly, is a 30-year fixed-rate mortgage. This borrowing strategy has allowed generations of investors to take advantage of cheap leverage to score the deals of a lifetime. These fixed-rate loans have called investors and homebuyers to lock in historically low mortgage rates over the years, and even within the last few.
So what now? We’re watching the Fed raise interest rates right before our eyes. Do we let this hit on our cash flow potential deter us from further investing in rentals? How do we adjust our strategies to remain profitable with this new and extra cash outflow? Let’s discuss.
Investing for long term wealth
It’s important to keep in mind while we watch interest rates fluctuate in the short term, our real estate investments hold the most potential for gains when we consider their distant future. Of course money can be made short term in real estate with certain value add and renovation plays, but what makes investors love this field so much is the proven security and potential that real estate assets maintain as time goes by.
I make this point because when we underwrite our deals, we often only take into account the numbers in front of us during our current day with current borrowing rates. When you analyze your deal, don’t let the chipping away of your short term cash flows due to current interest rates scare you away, just remember the majority of investors see their best gains in the long haul.
Appreciation, demand increase, raising rents, and inflation are opportunities for more cash flow which only come to us investors as time goes by. It’s important to understand these different ways that real estate can grow our long term wealth to understand why these short term borrowing fluctuations won’t hold a candle to our future gains.
Growing our equity, hedging against inflation and watching our assets appreciate are a few of the ways that our real estate helps us build our wealth overtime. Once you better understand the significance and potential these aspects of real estate investing hold, you’ll be much less hesitant to take on the small expense of a higher interest payment. When you take the proper steps of deal analysis, these benefits of investing in real estate will far outweigh the outflows that come from interest rates. Focus on optimizing your alternative profit centers through wisely choosing the location you invest in, and by getting a generally good deal on your property.
Plus…
Investing in the right location brings me the most confidence in my deal's potential gains. When I watch investors make $300,000 off a plot of land which they purchased in the past, solely betting on the location's potential, I realize how important it is to emphasize location in your investments. I LOVE investing in Florida. Central Florida is such a hot spot, and families worldwide continue to flock to zip code and state. I have nothing but confidence in the homes I've purchased to rent out in Orlando and throughout central Florida. This state is in my opinion, the absolute best to purchase your home or investments in.
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