Fortunately, rates decreased in the 1990s and were relatively steady at about 7% by 1998. It wasn’t until the 2000s that rates dropped, reaching their lowest historical point at 3.35% in November 2012. Compared to 2012, the current averages could seem demoralizing, but they are more common than you think. Plus, if you make lower offers and negotiate, even a $10,000 price reduction adds $50 per month to your cash flow at 7.5% rates. The other perspective you need to consider is that rent rates have also increased. In the U.S., there is a huge demand for rental housing. COVID and the previous housing collapse caused many builders to go belly up, and few lenders continue to lend for building new houses. There’s never been a better time to be a landlord because higher rents can offset the rising interest rates. NO. 2 Change Asset Type If you are running a fix-and-flip operation, wholesaling, or managing single-family rental houses, it may be time to change strategies. According to Rob Fuller, CEO of Housefolios Inc., a real estate investment analysis software, given higher interest rates, small multifamily rentals (MFR) and Airbnbs can be most profitable, making interest rates immaterial. For example, a 2,800-square-foot SFR might cost the same as a fourplex of the same size; however, consider that the SFR could bring in $1,200 a month in rent, but the fourplex could bring in four different rents of $850 a month, almost tripling your income to $3,400 a month. Airbnbs can bring in just as much and often more than MFRs. These properties are usually located in more desirable locations near convention centers, concert or event venues,
and sports stadiums. Other lucrative areas are vacation spots near a beach, mountain, or ski resort, or off highly traveled interstate highways. A house that might usually rent for $1,500 a month could bring in $4,000–$5,000 a month or more as an Airbnb because people are willing to spend more per night on vacation than they would per month on their home. Vacation Airbnbs are especially good options for investors in retirement who would like to be able to live in the property during off seasons while charging more in peak seasons. Whichever method you choose, let increasing rental income pay for the rising mortgage rates and then some. NO. 3 Change Property Class If you don’t want to abandon a good thing and your asset type is a sweet spot, maybe you need to change your property class. If you’ve been doing Class A brand-new build-to-rent homes at 4% interest rates, there’s a good chance this strategy doesn’t work for you at 7%. You may need to switch to a Class B or even Class C home. Although properties in these lower classes may be older, smaller, or in less desirable neighborhoods, future gentrification may reposition them to higher classes through renovations and improvements, which will raise rents. In the meantime, the lower acquisition cost still allows you to have a steady, positive cash flow, especially if you put 25% down and make sure you have no mortgage insurance. NO. 4 Switch Markets It is easy to get stuck in a local perspective. That’s understandable, considering it is easier to check on and manage your properties when
they are near you. Ask yourself some questions about the market you are working in. Is it a primary urban market where a house will cost twice as much as the same floor plan in a rural market? There is always a cheaper market that cash flows better than yours. Consider looking at secondary and tertiary markets. Maybe you won’t invest across the country, but perhaps looking at properties a state or two away could be more lucrative. For example, instead of spending days slogging through limited options in New York, look in Buffalo or Rochester, where properties are cheaper but can still generate high returns. TAKE CONTROL Remember, there is always risk. Decide what your risk tolerance is. Create a cost/benefit analysis for each property you investigate and look at comparable properties. Be honest with yourself and what you can handle. Sometimes the difference between failure and success is confidence in yourself and increased effort. •
Felt graduated from Brigham Young University with a bachelor’s in English and a double minor in editing and creative writing. She has over four years
of experience being a writing tutor. She joined ROI Property Group early in 2022 where she wears many hats to help operations function smoothly, including document control, writing and sending newsletters, and creating content for the company website and project updates.
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