Interest rates are rising. In the past year mortgage rates went up by over 0.5%. Homeowner mortgage rates are now about 4.4%; investor rates are always higher, and are currently at about 5.25%. Historically, these are still very low rates. Even in the past 20 years, which saw some of the lowest interest rates in nearly a century, the average rate is about 6%; based on the past 7% and even 7.5% are considered low.
In the 1980’s there were periods where interest rates were over 14%. For many years, rates were in the “double digits.” There was a lot of joy when rates finally got down to a “single digit.” I recall everyone running to refinance to get the amazing new rate of 9.95%!
The single-family home investor
For the single-family home investor, given their ability to get a 30-year fixed rate loan, which miraculously never keeps up with inflation, these recent changes in interest rates should mean very little. I have seen thousands of people’s lives change dramatically over the years buying good solid single- family home rentals. The trick is to hold them for a long time (leaving it be–no refinancing for debt consolidation) and let inflation erode the fixed loan to the point of ridiculousness, while natural average price appreciation happens steadily (that includes booms and busts – on average single-family home prices have appreciated at least 1.5 times the rate of inflation historically).
So why do I talk about interest rate rises potentially ruining your future?
That has to do with human behavior. I have seen many cases recently, of investors who understood the powerful future benefit of buying single-family rentals, and as it happens, were looking during the period when rates were super low (investor rates were 4.7%). A few months later, when investor rates are now 5.3%, I have been hearing investors saying “Well, I don’t want to invest anymore, since rates went up from 4.7% to 5.3%”.
THIS is how you can ruin your financial future. Over the years, I have seen it time and time again – investors not taking action, not cementing their future by actually investing in a single-family home rental. Rather, they would find a reason not to do it – “interest rates are too high now”, “I read the economy will tank”, “it’s too late”, “I am too old” etc.
Using a minute change in interest rates as an excuse not to move forward, especially at a time when rates, even for investors, are supremely low – like today, is simply not going to let the powerful effect of rental homes change your future for the better.
Take action now to change your financial future
I have seen many such cases in the past, for example: two friends were considering investing in houses, one thought “the interest rates were too high” and didn’t do anything. The other went ahead and invested. Once he saw it was easy and profitable, he invested again, and again. Today, the financial difference between the two friends is staggering. The one who owns the rental homes, bought over 15 years ago, is retired with great ease, has sent his kids to great colleges, and is wealthy. His friend – not so much. It’s almost heartbreaking.
Don’t let these minor perturbations in interest rates ruin YOUR financial future.
We will discuss this and a lot more at our ICG Quarterly 1-Day Expo on Saturday 5/19/2018 near the San Francisco Airport. I will be teaching and holding extensive Q & A sessions. We will have expert speakers on Asset Protection, 1031 Exchanges, Financial Planning overall, as well as lenders, 5-star networking, and market teams from the most relevant markets in the U.S. You can attend free (or with a guest), by emailing us at firstname.lastname@example.org, and mentioning this blog. Be sure to give us your name and the name of your guest. Looking forward to seeing you.