The last few years have seen record numbers of real estate investment purchases. Now, with increasing interest rates and continued talk of a real estate bubble, many so-called experts are trying to steer people away from investing in real estate. However, almost no true industry expert is warning about a wholesale crash in the real estate market, and increasing interest rates actually create an excellent environment for savvy investors.
Increasing rates result in two market factors that can improve the potential for solid, long-term real estate investing. First, increasing rates drive a perception, especially in the lower end of the market, that buyers and investors may no longer qualify for mortgages. This translates into reduced competition for good rental property. While appreciation of real estate tends to slow, the ability for savvy investors to pick-up prime properties increases, as fewer investors are looking for properties and many would-be-buyers stay on the sidelines.
Sidelined buyers create the second positive market factor, strong rental demand. Most of the would-be-buyers still require housing similar to that which they may have purchased. In times of increasing rental demand, the pool of potential tenants becomes larger, and finding and keeping good tenants becomes easier. Potential competition from major apartments also decreases as apartments drop incentives, and raise lease rates. Property financed, a rental property becomes easier to cash flow.
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