Owning rental property can be an excellent way to build long-term wealth, but this type of business is especially sensitive to rising interest rates. Whether you are a full-time real estate investor, an experienced part-time landlord, or someone just getting started, the amount you have to pay for money matters.
When interest rates are low, real estate investors have many options at their disposal. They can scoop up bargain-priced properties, expanding their empires and their rent rolls. They can leverage the portfolios they already have, even as they build toward the future. The problem is interest rates do not stay low forever, and when they turn, investors can use these three survival strategies to survive the storm and thrive on the other end.
#1. Consider Buying Out Leveraged Properties
Carrying a mortgage on rental properties can be risky, especially when rates begin to rise. If your properties are financed with a fixed-rate loan, you can rest easy, but if your rates are variable, it is time to look at other options.
Buying out your leveraged properties could help you weather the financial storm, especially if interest rates continue to rise. Once those properties are fully in your name, you can work to maximize the rent roll, streamline the cash flow and make other changes that will put more money in your pocket.
#2. Get Aggressive With Your Rent Collection
If you have been letting late payers slide, it is time to get aggressive with your collection efforts. In a rising interest rate environment, landlords and real estate investors cannot afford to reduce their income.
Maximizing the streamlining rent collection and cash flow is always important for the real estate investor, but it becomes absolutely critical when interest rates are on the rise. Having cash in your pocket will give you additional freedom and flexibility during these difficult times.
#3. Consider a Strategic Partnership
When times are tough and rates are rising, two heads can be much better than one. Even if you have gone your own way until now, you might want to consider a strategic partnership or two during this critical and challenging time.
Teaming up with a fellow investor or two can be a winning strategy for everyone involved. The extra capital could allow you to buy those heavily leveraged properties outright, all while giving you additional bargaining power for the purchase of additional rental units.
You and your new partners may also be able to benefit from economies of scale, especially if you rely on property managers to collect the rent and make the necessary repairs. As a larger entity, you may be able to negotiate more favorable rates, giving you the extra cash flow you need to survive those rising interest rates.
A rising interest rate environment is not ideal for real estate investors. Landlords and property owners are especially sensitive to changes in interest rates, and when those rates go up, discretionary income will likely go down. The good news is that rates will not rise forever, and adopting the strategies outlined above could put you in a better position when things do start to turn around.
