How are people affording to buy assets/ rental properties in such a high interest rate period?

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  • #86279 Reply

      I want to buy a SFH to put it on rent. But the EMI >>>>> rent estimate.

      Areas I was looking in – Denver suburbs with atleast a good primary school rating (minimum 7 on 10).

      I regret not buying it when the interest rate was around 5%. Back then I thought that was peak.

      #86280 Reply

        Nobody is affording to. That’s the fun thing about prices, and debt. So long as financial institutions are willing to lend at amounts far beyond people’s ability to repay, there will always be demand to purchase beyond one’s means, and that will drive up prices.

        In the modern economy, based on debt and credit, prices don’t reflect how much money people can spend on something, but rather how much money suckers are willing to over-lend to suckers who are willing to over-borrow and over-pay. It all comes crashing down when they inevitably can’t pay, and that’s why you get boom and bust cycles. Waiting for this insanity to correct itself can take a while, but it’s still well worth side stepping the madness.

        Prices need to come down significantly to match interest rates, and they haven’t — maybe because the market believes that rates are going back down to 0% and we’ll get a soft landing (uh? how does that work?) or maybe just because the market is sticky. Who knows.

        When it comes to assets such as stocks or real-estate, there are times when investors in a given market all collectively put on their rose-tinted glasses, and markets are priced to perfection and beyond, being happy with modest returns even given very optimistic or heroic assumptions.

        When that’s the case, either stay out, or turn over thousands of rocks until you find that one wildly cheap and mispriced opportunity (cheap for a bad/superficial reason, not a valid one).

        Not employing a margin of safety, let alone overpaying such that your cashflows are negative even if things go perfectly well, is the cardinal sin of investing. All intelligent investing is value investing. So, when stuff doesn’t make sense, just wait.

        Trust yourself. More likely than not, you’re being rational, and the market isn’t.

        #86281 Reply

          It’s pretty difficult to make numbers work. Save more cash or try out a different market.

          #86282 Reply
          JW Leonard

            ‘High’ interest rates are 10% and above.

            We had close to a 15 year stretch where interest rates were at historic lows, now they’re beginning to normalise.

            5-7% interest rates are ‘normal’

            #86283 Reply

              Buy in lower cost areas, or buy with low to no cashflow and then hope to refi if rates drop. Or simply let inflation in rent increase the cashflow over time.

              #86284 Reply

                Being a cash buyer in a less competitive market can put you in a position for a good deal. This goes for new construction also.

                Builders are now hungry for new projects which drives more competitive bids, material prices are down, etc.

                The only way I see capitalizing on the moment is not using the banking system and paying cash.

                Don’t miss: I’m looking for suggestions, is it good idea to buying REIT vs buying investment properties?

                #86285 Reply

                  Rates are only one variable. Do the math with the current interest rates. Either it makes sense or it doesn’t.

                  Prices were high in hit markets and many haven’t adjusted to rising rates yet.

                  #86286 Reply

                    Why have you selected that property type & location?

                    Something that “desirable” is rarely going to be even close to optimum fir income production.

                    #86287 Reply

                      I feel this.

                      I would love to buy a property for rental income … and any time I get ambitious about a property I think might be a good deal, running the numbers tells me to sit the F down and just keep saving/investing in the market.

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