Additional Side Effects of Higher Interest Rates

One segment of the market that is affected by higher rates than most is income property. Income property typically trades based upon what a property generates on a monthly basis. When cross referenced against higher rates that eat in to profitability, prices start to come down to reflect the higher monthly payment to ensure proper cashflow.

It’s not to say that there are no cash buyers. However, sellers are forced to compete for those cash buyers more so than they did before. This is particularly true for properties in excess of more than 5 units where financing changes from residential to commercial.

What does this mean for the market today? Well, if you have a rental property that is less than 4 units, there is a possibility that you could trade into a property that generates a lot more money for a very similar property. For example, I have a client who could sell her property and acquire a new one at the same price, but generate twice as much in rent!! Yes her property taxes would go up. Twice the rental income is more than enough to offset higher property taxes. And given that she has owned the property for roughly 30 years, she can begin to depreciate the property again!!

Another client has a property where the net difference between the property they would sell and the property they would acquire would be about 20%. However, they would increase their cash flow by 3x!! That increased cash flow would not only make up for the higher property tax cost, but also the higher mortgage payment. This would be like getting a 50% bump in pay for doing the same exact job!!

Moral of the story, if you are a landlord with a single door or something that a young couple/family would be interested in purchasing, there is a strong possibility that you could generate more rental income for in a multi family property elsewhere. To find out if that could be you, contact me today!!