Why Interest Rates May Rise Further But May Not Be a Cause for Concern

Interest rates on home loans have gone up rather quickly in the recent past. In the past, high rates have also been seen on a downward trajectory. It is the nature of the beast – market forces, inflation, government policy, events such as the pandemic – all of these things impact rates. I had predicted that inflation is coming and higher rates were only to be expected. Given that interest rates tend to rise and fall, should you wait to invest? Is it wise to wait for interest rates to fall before investing in real estate?

Interest rates are up but so is a lot else.

With inflation currently being in the region of 8.5% loan rates have gone up to around 5% for homeowners and about 6% for investors. When the cost of living goes up, so do rents. So, landlords aren't really missing out – their investments are fetching rents that are commensurate with the cost of living; give or take. And even though rents are going up, they are still low in my view.
To get back to the issue at hand: are interest rates going to fall? If so, should you wait to invest? Taking all the factors into consideration, if I were to make an educated guess, I would say that rates may go up further in the short term. They may go up to 7% or 8% in times to come. Of course, they could fall, but chances of this happening are lower.

Why you shouldn’t wait to invest.

To be clear, I cannot predict the future. If I could, I would be the richest person on Earth, and the likes of Elon Musk, Jeff Bezos, and Bill Gates would have been asking me for advice and maybe even a loan! Though I cannot predict the future, I can offer you insight based on my past experiences. In the 80s or thereabouts there were times when interest rates were really, really high – 10%, 12%, and even 14% at one point. So, the slightly higher interest rates that we are seeing now ought not to be a deterrent for your plans to invest.
I'm going to be talking about rising interest rates, the best regions to invest, long-term investment outlooks and more in our upcoming quarterly expo. You are free to join in and experience our online investment event – all the details are available at our website. You can also reach us at info@icgre.com about any questions you may have or if you wish to schedule a consultation.

Why and When Living in Rented Accommodation Can Make a Lot of Sense

Owning your house does give one a sense of achievement, it is true. There is also something to be said about the emotions of pride and joy of living in a home that one owns. However, when one thinks logically, this doesn’t have to be the only outcome of owning a home. In a lot of cases, it can actually make much more sense to live in rented accommodation while renting out one's own property to someone else. The correct choice ideally should depend upon where you live vis-à-vis where you own property.

When it makes sense to live in a rented home.

For people who live in San Francisco, Los Angeles, San Diego, New York and so on, where property prices are really high, renting can make a lot of sense. While property prices in these areas are very high, rents are low relative to these valuations. So it may not be affordable or even advisable to buy property here, but it could make a lot of sense to rent property in these areas.
You could say that rent of around $5000 a month is high, and you would be right. However, it is high only in absolute terms. That amount is actually really low when you factor in the fact that it’s what you're paying to live in a $2.7 million home! So if you're living in these areas with high property prices and low rents, it simply makes sense to live in rented accommodation.

You can still be a property owner.

In places like Atlanta you could still buy and live in your own home, but this could make a lot less financial sense in other places. It can make sense to own property in one place while living in rented accommodation in another place. You can still have the joy and the sense of achievement and ownership that comes from buying a house. You can own it, but not necessarily live in it.
There was a time when I was living abroad and the parents of my new wife came to visit us. We were living in a rented home – it was a beautiful home but it was rented. My mother-in-law’s first reaction was to say – oh if only you owned it! She knew that I owned dozens of homes in the US, but she still said this. It merely echoes the mindset that living in the property you own is somehow better than living in rental accommodation. If you can get past the mindset that wants you to live in the home that you own, you could find that you're actually making a wise financial decision. If you can overcome emotion and think logically, you would find that my point of view makes a lot of sense. Check out this video for more details.
I'm going to be speaking more about this in my next quarterly event – about the possibility of living in a rented property while still being a property owner yourself. I will be touching on the best places to rent and the best places to buy property right now. 

…And Where You Should Buy Instead

I live and work in the San Francisco Bay Area. So it follows that I would recommend investing in real estate in the area, right? Wrong! When people ask me about investing in real estate here, I advise them against it – for a couple of reasons. Would you believe, I lived in rental accommodation myself for 20 years precisely for those reasons? Read on to know more about my experiences with real estate in the SF bay area and why I advise clients the way I do.

Why San Francisco Bay Area is not the best bet for investors.

Here’s a fact that really amazes a lot of people: I lived in a rented property in Marin County for close to 20 years. So the guy who buys and sells all this property, who owns hundreds of homes and helps others buy thousands more, lives in rented accommodation? It does sound strange. But it was the logical, financially sensible choice to make. For one, the numbers didn’t make sense if I were to buy. Secondly, the laws are not really in favor of the investors.
Now I usually advise people to buy homes in large metropolitan areas where we have a lot of economic activity and job diversity, because this is where people are looking to rent homes. This is where they are willing to shell out top dollar to rent quality homes. I typically recommend buying in the Sunbelt states. While the San Francisco Bay Area ticks all of these boxes, the ratio between property prices and rents does not make sense. At one point I was living in a million-dollar home, but I was paying just about $3000 in rent. And now that same home would fetch maybe four million dollars but the rent in relation to that valuation is still peanuts!
Further, the laws governing rental accommodation tend to favor the tenant in California. So I would much rather be a tenant than a landlord here. This is the other reason why I would still advise investors not to invest in property in the San Francisco Bay Area.

Rent, don’t buy in the San Francisco Bay Area.

Back in the day, we were buying a lot of homes in Phoenix. This was a hot market for people looking to invest in real estate. At the time, we could buy good quality single-family homes for just about $150,000. This same home would then fetch rent in the area of $1100. This is the sort of rent that would help to generate positive cash flows for the investor. The ratio of value of the home to rent is favorable for the landlord. Now, even Phoenix is not a great idea, the reasons for which I’ve shared in previous videos and podcasts.
So to summarize, San Francisco Bay Area doesn’t make sense for investors because real estate is really expensive in the area. It is out of reach for a great many people looking to invest. Also important is the fact that homes there do not fetch rents that are commensurate with the value of the homes. If a four-million-dollar home only fetches about $7000 in rent, that is not great. While 7K is a lot in absolute terms, it is peanuts relative to the property value.
So, where should you invest if the San Francisco Bay Area is not advisable? We are here to tell you precisely that. Check out my videos or reach out to us and know more about our Remote Control Retirement Riches formula.

How Refinancing Your Current Home Gives You a Real Shot At Wealth Creation

Investors often ask me this – is it advisable to refinance my current homes and use that as down payment to buy more homes? The reason they ask is that ‘refinancing’ is something of a bad word in some circles. For some, the very word smacks of risk and fiscal imprudence. For me, however, this has been a great option and one that I have used frequently. Let me explain how I made it work for me and how you can make it work for you:

Why refinancing is a good idea.

So you are still paying for your house – the one you live in or the one you have bought as an investment. Should you refinance this? A lot of people would caution you against this. And to be sure this option is not for everyone. If you are an aggressive investor and someone who is willing to step out of your financial comfort zone, this is a great option for you. 
If you're someone who imagines wealth in your future and not a scenario where you're just getting by, this is for you.
So depending upon the interest rates at the time, you can take a call about refinancing your current assets. This generates a significant cash flow, and one that is tax free, by the way. This cash flow is then used for the purchase of a new home. You use it to make the down payment for this new home. This is something that I have done myself, because my aim was always to buy as many homes as possible. To my mind any asset you currently own represents the potential for creating more assets for you; more wealth for you in times to come. It would be a shame not to capitalize on that!

Don’t regret your decision later.

Now there are a great many of our investors who have been fiscally conservative, unwilling to take any chance that they saw as risky. However, over the years they would realize how it is possible to ‘make money from money’. There would then be some amount of regret that they didn’t go ahead and buy more homes. I have often heard investors saying this: “I wish I had bought more homes.”  They could have used the refinancing option to buy more homes but they did not. They could have been even wealthier in their retirement years than they ended up being.
Refinancing your current home may seem risky but it really is not – it is a well calculated risk at best and one that pays over the long term. When you refinance your home you generate cash flow to make the downpayment for a new home, which will soon start to generate a rental income. This will soon create a positive cash flow or help you break even at any rate. Find out more about this option in my latest video.
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