Why You Should Buy Rental Properties Now
Investors are asking why they should buy rental properties with interest rates being so high. While no one has a crystal ball to see the future of interest rates, there is a market trend that many seasoned investors follow. They buy when rates are high, and then refinance when the rates drop again. In doing so, the seasoned investors put themselves ahead of the game. Consequently, by already having a property in hand, it takes the pressure off not having to rush into deals when rates drop. You too will be able to take advantage of the lower rates without scrambling to find properties. Below is an example of how cash flow is being affected by the current interest rates. Our focus is on the future. The ultimate goal is to buy now in order to create optimum cash flow later.
Today we are going to dive into an example illustrating why purchasing rental properties now will increase your cash flow in just a few years when using a DSCR loan. What is a DSCR loan? A DSCR loan are loans focused on the rents from a rental property and the credit worthiness of the borrower. While the increasing interest rates are making it harder for investors to qualify for a DSCR loan, those who are able to find good properties will in turn set themselves up for success when rates go back down.
|$250K DSCR Loan
|Change Over Time
|Couple years ago
|9% to 11%
(depending on LTV)
|In the Future
(you refinance $2,011 principle)
Cash flow increase
(Looking if it dropped from 9% to 5%)
Cash flow increase
What is a “good property” to buy now?
My suggestion for investors is that they need to find something that has good equity and at 25% to 30%. As long as it is breaking even, then in a year or two when rates go back down, you will be able to refinance to increase your cash flow without buying another property. The more affordable the homes are, the bigger the market becomes. The good news is that buyers are going to start buying again, and the values around you are going to increase. While no one can predict that the interest rates will go back down to 2.5% for owner occupied and 3.75% for investors, there are indications that interest rates will drop in 2024.
What else can you do to succeed in this market?
You’re not alone! There are a lot of people who are questioning if they should buy now. Navigating this market can be overwhelming for many investors. By doing your research and investing wisely, you will not only increase cash flow, but create generational wealth as well. I will be doing a follow up video that will further show you the effect that interest rates have on cash flow. This will include a look from the buyers side, and how the market is going to push up your values.
Watch our most recent video about why rental properties fail to cash flow and how you can set yourself up for success by investing now.
Do you have questions about DSCR loans or how you can create generational wealth? Contact us today!