What Landlords Should Think About Rising Interest Rates

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What Landlords Should Think About Rising Interest Rates

by Neal Collins

As a real estate professional, I find it very amusing to watch my real estate agent colleagues talk about the real estate market slowing down as if the sky were falling.

They grasp for explanations while bemoaning the lack of offers they are getting on their listings.

What many fail to recognize is that when interest rates rise, there is going to be an inverse effect on values.

We have been in a bull market for several years now due to a pick up in the economy and historically low interest rates.

With rates as low as 3.31% just a few short years ago in 2013, home buyers and investors alike have enjoyed cheap financing, which in turn made it easier for buyers to bid up properties. Sellers got used to multiple offers, many over asking.

Interest rates have steadily been rising and are now hovering around 5% for owner-occupied loans. That means buyers are looking at much larger monthly payments for the same priced home as they would have faced a year or two ago.

While real estate agents may not welcome these changes, landlords have something to celebrate.

The rising interest rates price out the would-be home buyers and keep them in the rental pool for longer. These are quality tenants as well that more than qualify for the rental income and do not need to split a house among many different roommates (nothing against roommates, just increased hassle and wear and tear at times).

So for those of you landlords out there that are wondering how this market shift is going to affect you. Fear not!