5 Strategies for Real Estate Investors to Survive (and Thrive) Amid Rising Interest Rates Rising real estate interest rates are not a reason to stress — they are an opportunity to invest.
By Chris D. Bentley Edited by Micah Zimmerman
Opinions expressed by Entrepreneur contributors are their own.
In only six months, the average interest rate on a 30-year fixed mortgage has surged significantly, climbing from 2.65% to 3.17%. This substantial increase of 0.52% 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.
Related: How to Invest In Real Estate Amid High Interest Rates and Inflation
1. 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.
2. 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. By using the property as collateral, the lender takes on less risk, making the loan easier to obtain. Additionally, hard money loans can allow for more flexibility in purchasing, making them a valuable tool for real estate investors looking to act quickly on a good opportunity. Though they come with a higher price tag, hard money loans can be an attractive financing option in certain situations.
Related: How Does Inflation Affect Real Estate? Here's What You Need to Know.
3. Focus on up-and-coming neighborhoods
The adage "location, location, location" still holds regarding real estate. Although some parts might be unaffordable due to increasing interest rates, several good neighborhoods still need to be explored. As a prospective homebuyer, focusing on areas experiencing renovation projects with excellent educational institutions conveniently located near public transportation is crucial.
When searching for a neighborhood, keep in mind that revitalization efforts can have a significant impact on property values. These areas often attract new businesses, increased foot traffic and community events. Furthermore, families with children should prioritize areas with reputable schools, as education quality can affect property prices. Lastly, being close to public transportation is ideal for those who rely on it for work or leisure activities. This not only saves time and money but can also increase the accessibility of the area to potential buyers.
4. Diversify your portfolio
Diversification is a vital aspect of achieving 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.
Related: The Real-Estate Game Is Changing Fast. Are You Ready to Win?
5. Take advantage of low inventory
Rising interest rates can affect confident prospective homebuyers, leading to a decline in the number of available properties. However, this situation can present an advantage 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 homebuyers, resulting in a limited supply of homes for sale. Nonetheless, 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
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.
