With the U.S. stuck in a historically low interest rate environment for well over a dozen years now, it is expected that at some point in the near future, rates will rise. But, while that can be a positive move for bond and CD investors, what could rising interest rates mean for your rental property business?
If rates go up, it could actually be a very good thing for residential rental property owners – and there are several good reasons why. First, the market for rental homes and apartments can increase, due to the fact that fewer people would be able to qualify for a home mortgage.
With higher interest rates, lending standards can become tighter, reducing the number of qualified buyers in the marketplace. But people need to live somewhere! So, the potential tenant pool will generally rise, too.
Even as mortgage rates inch upwards, though, into the 3% or 4% range, borrowed funds could still present a bargain if you are considering adding to your rental property portfolio. For instance, the last time rates were 5% or more was in 2009 – and in 1996, the average mortgage rate was 7.81%.
With that in mind, as interest rates begin to rise, it may signal a good opportunity for real estate investors to purchase additional rental units, which in turn, can lead to more income stream(s) from tenants.
While owning rental property can be a lucrative endeavor, it can also involve a great deal of time and effort, which includes finding and screening tenants, collecting rent, responding to emergencies, and taking care of the ongoing property maintenance.
Because of that, many residential real estate investors turn over these tasks to a professional property manager. If you own rental homes and/or units in Orlando or the surrounding Central Florida area, give us a call to learn more about how we can give you more of your time back while still generating an ongoing income stream from your investments.
Explaining Rising Interest Rates and Real Estate to Clients. Investopedia. https://www.investopedia.com/financial-advisor/explaining-rising-interest-rates-and-real-estate-clients/#:~:text=The%20market%20for%20rental%20properties,a%20rising%20interest%20rate%20environment.