In over 16 months, the average interest rate on a 30-year fixed mortgage has surged significantly, climbing from 3.17% to 8%. This substantial increase of over 150% has undoubtedly caused concern for real estate investors. However, amidst the changing landscape, it is important to remain optimistic as there are still viable opportunities within the market waiting to be explored.
The sudden spike in interest rates has undoubtedly created a challenging environment for those involved in real estate investment. Nevertheless, it is crucial not to succumb to worry as the market presents avenues for potential gains. Despite the rising borrowing costs, strategic and astute investors can adapt to these changes and uncover untapped prospects that align with their investment goals.
- Keep your eye on the long-term prize. The rising interest rates may make it more difficult to purchase property in the short term, but remember the long game. Real estate is an investment that can appreciate over time, and the key is to make smart purchases that will hold their value. Instead of buying a fixer-upper that may require expensive repairs, consider investing in a property already in good condition and with growth potential.
- Consider alternative financing options. With the rise in interest rates, traditional mortgages seem less appealing to some. However, it is worthwhile to consider alternative financing options. One such option is hard money loans, short-term loans secured by the purchased property. While these loans usually have higher interest rates, they offer greater flexibility and are often easier to obtain. Hard money loans can benefit those looking to make a quick purchase or who need help meeting traditional lending requirements. Another approach is seller-assisted borrowing, which involves a seller assisting a buyer with the down payment or closing costs. Although, Seller assists work by reducing the amount you must pay for the property upfront. However, this is not free money. The sellers could make up for the concession by building it into the sale price, which allows you to finance the cost. If you’re using a seller assist to offset a higher purchase price and lower your upfront costs, you’re rolling your expenses into your loan. Or they may take a second on the property and charge you an interest rate.
- Focus on up-and-coming neighborhoods. The adage “location, location, location” still holds regarding real estate. Although some locations might not be affordable due to increasing interest rates, good locations in thriving neighborhoods still need to be explored. Additionally, as a prospective investor, focusing on areas experiencing renovation projects high traffic conveniently located near public transportation is crucial. When searching for a property, keep in mind that revitalization efforts can have a significant impact on property values. In addition, these areas often attract new businesses, increased foot traffic, and community events.
- Diversify your portfolio. Diversification is a vital aspect of success in real estate investing. Although investing in a single property can be alluring, spreading investments across various properties and neighborhoods can help reduce the risk of loss. It’s crucial to explore different types of real estate investments, such as commercial or multifamily properties, and not limit oneself to only one variety. Investors should be bold in taking risks in exploring alternative types of real estate investments. Rather than relying on a single property, investors should consider diversifying their portfolio to include a range of assets. Commercial or multifamily properties, for instance, are excellent options for those looking to diversify their investments.
- Take advantage of low inventory. Rising interest rates can affect confident prospective investors, leading to a decline in available properties. However, this situation can present a benefit for real estate investors. With decreased market competition, investors may uncover valuable opportunities to acquire previously acquired properties beyond their financial reach. The reduced buyer demand creates a favorable environment for investors to find lucrative deals and expand their portfolios. The increase in interest rates has the potential to deter potential investors, resulting in a limited supply of properties for sale. This circumstance can benefit those involved in real estate investment. The decreased market competition opens avenues for investors to secure properties at favorable prices, which were previously unattainable. As buyers become scarce, investors can take advantage.
In conclusion, while rising interest rates may pose challenges for real estate investors, there are still opportunities in the market. You can adapt and thrive in a changing market by keeping a long-term perspective, exploring alternative financing options, focusing on up-and-coming neighborhoods, diversifying your portfolio, taking advantage of low inventory, and maintaining a sense of humor.
Remember, real estate investing is a journey, and with the right strategies and mindset, you can navigate the challenges and continue to find success. So stay proactive, stay informed, and keep investing with confidence.
Jim Coen is a real estate agent and Communications Director of the Hickman-Coen Home Team at William Raveis Real Estate, Chestnut Hill, MA. In addition, he is the editor of “Real News You Can Use,” a monthly newsletter published by the Hickman-Coen Home Team.
Realtor.com Releases Predictions for 2023 Mass. Real Estate Costs, Rates