Interest rates are going up – there is no doubt. However, depending on the property’s purchase price, a rise in rates amortized over a 30 year period may not be as bad as one may think. Interest rate increase converts the average home buyer into a renter. This creates a shortage of available rentals, which in return drives up rental rates. This could be the opportunity and time to increase your rental portfolio as a real estate investor. In fact, over the past couple of weeks, we’ve seen an increase in the number of applications received. Most of the applications are not first-time investors. These are seasoned and sophisticated investors that look at real estate investing not as a quick flip but as a long-term hold.
Nick Worthing, America Mortgages’ Head of Sales, states, “The amount of money real estate investors make from rent is more significant when interest rates are higher. When interest rates go up, it will be more expensive for people to borrow money, which means that they will be less likely to buy a house or apartment and rent instead. When rates go up, landlords see an increase in their rental income simply because people will be willing to pay higher rents for properties with higher yields”.
How are increased rates advantageous to real estate investors?
1. Rent is at an all-time high.
Low inventory and higher prices equate to more people being forced to rent. According to John Burns Real Estate Consulting, the overall number of renters has increased 29% since 2000. Vacancies for rental units are at a 25-year low. Interest rates are on the rise, forcing buyers out of the market. This is a perfect storm for real estate investors. Real estate investors can use leverage to increase their property portfolio, fix a specific monthly housing expense for 30 years, and see their yield increase with time.
2. Rent prices are increasing.
In December 2021, single-family rent growth tripled year-over-year in the U.S., as reported by CoreLogic’s Single-Family Rental Index. Real estate professionals and investors tapping into the rental market are capturing this added value and supplementing a sizeable income. Increasing rent prices can translate to increased monthly income for investors. For instance, New York City, where rent has increased over 60% since 2009, still has one of the highest demands for rental properties.
3. The rise of property technology has changed the rental sector.
There is a growing relationship between technology and real estate, commonly known in the industry as proptech (property technology). Integrating technology has exploded during the pandemic and has streamlined how real estate investors, property managers, and other professionals conduct their business. Real estate investors now have more tools at their fingertips to find properties for the right price with the highest-earning yields. As we have always stated at America Mortgages, it shouldn’t matter where the property and the property owner are located with the use of sophisticated technology and an efficient and trustworthy property management company. Real estate investors can use the same technology and software regardless if they are 10 miles away or 10,000 miles away.
What do these trends mean for investors?
The real estate industry is in an exciting place right now. It’s going through some historic moments with interest rates, low housing inventory, and a booming rental market. However, the demand for rentals is unquestionable at this point, so for U.S. Expats and Foreign National investors, we believe this is an excellent time to acquire properties. For those “still on the fence” or “just looking,” we think this is the perfect time to strike while the iron is hot.
At America Mortgages, our ONLY focus is providing U.S. mortgage financing for U.S. Expats and Foreign Nationals looking to invest in U.S. properties. America Mortgages approves 97% of the loans submitted. This is all we do, and no one does it better.
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