Rising Interest Rates And The Affects On Multifamily

Rising interest rates could affect real estate by squeezing the amount of cash flow operators bring in on buildings, leading to deferred maintenance and potentially lower prices. Experienced operators who have overcome past obstacles may be better equipped to navigate these challenges and find opportunities. Consider connecting with a good real estate team to start investing.

Interest rates will likely rise again on May 3rd, affecting the Stock Market and Real Estate. People often talk about how the rise of interest rates affects the stock market, but you rarely hear people talk about how it affects real estate. When the Fed raises interest rates, the stock market loses gains, affecting everyone's retirement accounts.

How Does Rising Interest Rates Affect Real Estate

As rates rise as they did last year and now this year, it squeezes the amount of cash flow operators bring in on buildings which could lead to deferred maintenance. This happens because when an operator gets debt to acquire a building, but it is a variable interest rate, then when the Fed hikes interest rates, they will get the interest rates on their loan increased as well.

It's even harder on single-family real estate, depending on the investor's strategies. If their flipping houses or "wholesaling," their margins tend to get slimmer if they continue to buy at the same prices they were previously.

This causes them to have to buy lower to try to hedge against the rising interest rates, but if they don't do this correctly, they could end up having to hold that property with that hard money loan they took out, which puts them in a position where they have to hand the property over to the lender.

This is why you'll hear about lenders not getting their money back in times like this because rising interest rates also affect the consumer buyer pool.

How To Overcome This

My strategy overcomes this because I work with experienced operators where this isn't the first obstacle they've faced. They have overcome 2008 and know how to maneuver in times like this.

When the cash flow is being squeezed by rising inflation, it puts operators in a position where they have to sell at potentially lower prices than what they may have acquired it for, creating opportunities for more experienced operators.

Summary

Rising interest rates puts pressure on both the stock market and real estate. I can't speak much on the stock market when it comes to this but if you're connected with a good team in real estate you'll do really well in times like this.

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