How Interest Rates Will Impact Rentals in 2025
Categories: Blog Posts
Today we will be discussing how interest rates will impact rentals in 2025. Real estate investors always have one eye on the market and the other on their financing. With 2025 just around the corner, it’s time to discuss how changing interest rates can affect your rental properties. Being prepared isn’t just about understanding the rates, it’s about having the right strategies and resources in place.
Let’s dive into what to expect, how to plan, and how to keep your investments profitable.
What Higher Interest Rates Mean for Rentals
When interest rates go up, borrowing costs rise too. For investors, this means higher monthly payments for mortgages or loans, which can shrink your rental income.
Here’s a simple example:
- If your loan balance is $200,000 at 5%, your monthly interest payment is $833.
- At 7%, that payment jumps to $1,166—a $333 increase per month!
Multiply that by a year, and suddenly, your rental profit margins are much tighter.
The Tale of Two Investors
Higher interest rates don’t affect everyone the same way. Here’s a story to show the difference between being prepared and being caught off guard.
Investor 1: Money Ready and Prepared
Investor 1 had a rental property worth $400,000 with a 15% profit goal of $60,000. They planned carefully, budgeting for all costs and unexpected expenses like taxes, insurance, and maintenance. Even when costs rose, they had reserves ready.
The result? They completed the project on time, stayed within budget, and walked away with $55,000 in profit, just $5,000 short of their goal.
Investor 2: Unprepared for the Costs
Investor 2 aimed for the same $60,000 profit but didn’t budget for surprises. When unplanned expenses hit, like a $7,500 repair, they scrambled to find funds. This delay caused contractors to move on to other jobs, adding weeks to their timeline.
By the end of the project, Investor 2 faced extra interest, taxes, and insurance costs. They even had to drop the price by 5%, losing an additional $20,000. Their final profit? Just $15,000, and months of unnecessary stress.
What Can You Do to Stay Profitable?
Planning is key to thriving in a market with rising interest rates. Here are three steps to help you stay ahead:
- Know Your Costs
Create a detailed budget for every rental property. Include purchase price, rehab costs, carrying costs, and a cushion for unexpected expenses. - Be Money Ready
Have at least 20–40% of your project’s total budget available in reserves. This can include savings, lines of credit, or trusted partners who can step in if needed. - Move Quickly
Delays are costly. Stick to your schedule and keep contractors on track. The faster you finish a project, the less you’ll spend on carrying costs.
How 2025 Could Work in Your Favor
While rising rates sound scary, they can create opportunities for prepared investors. Less competition from underfunded investors means more deals for those who are ready. Plus, rents often increase when interest rates rise, helping offset higher borrowing costs.
For example:
- If a rental property’s monthly mortgage payment goes up by $300 due to higher rates, raising the rent by $150–200 per unit can bridge the gap while still remaining competitive.
Set Up Your Money Buckets
One of the best ways to prepare is by having your “money buckets” ready. This means having funds available for:
- Down payments
- Unexpected repairs
- Holding costs (taxes, insurance, and HOA fees)
If you’re unsure how to get your buckets in order, we’re here to help. We can guide you through setting up reserves and finding the right lenders for your goals.
Speed Is the Name of the Game
In 2025, speed will matter more than ever. The faster you close deals and finish projects, the better your chances of staying profitable. Remember, delays can eat away at profits, so being prepared will keep you ahead of the curve.
Get Help So You Don’t Make Costly Mistakes
At the end of the day, preparation is the difference between enjoying rental income and stressing over every expense. If you want to stay on track and maximize your profits, reach out to us. We can help you build the right plan, so you can:
- Profit more
- Stress less
- Enjoy investing in real estate!
By following these steps, you’ll be ready to tackle 2025 with confidence, no matter how interest rates shift.
Contact us today and watch our most recent video to find out more about: How Interest Rates Will Impact Rentals in 2025
