“Should I just wait until interest rates are lower?”
I get this question all the time with my house hacker clients in Colorado Springs. Waiting is a common mistake.
Waiting for rates to come down is a foolish game. It’s often used as an excuse to stay in one’s comfort zone.
Here are some helpful ideas to think through when considering if it’s a good idea to wait (on interest rates) to buy real estate:
When House Hack Investors are concerned with current interest rates its usually for one of these reasons:
- They are overly focused on the short term expenses, risks, or one year returns
- They are under emphasizing the long term financial benefits and upside potential
- They are worried about being able to afford the payments
- They are a product of education from 2018-2022 that overemphasized cashflow and quitting their job early
What might happen in the near future (whether you buy or wait)?
- Maybe rates keep going up. If they do, you’ll be glad you bought.
- Maybe rates stay the same forever.
- Maybe rates drop. If rates do drop then competition increases because all the people waiting on the sidelines jump back in to buy. This will put an upward pressure on home prices.
- Prices may drop.
- Prices may stay the same.
- Prices may go up.
All these scenarios are used to illustrate that NO ONE knows what’s going to happen. However, there are things we do know. This is what we know…
What we know if you wait to buy?
- You will lose out on appreciation and loan paydown.
- You throw more money away on rent.
What we know if you buy now?
- You can refinance if rates drop.
- You bought when the competition was lower.
- You bought when it was easier to negotiate concessions and homes for under asking price.
- You can get a HELOC on your home to help you buy more real estate in the future.
- You create opportunity for yourself. You’ll be eligible to buy another house hack sooner. This allows you to scale your net worth building machine.
What happens if interest rates go down?
- Bidding wars.
- Increased competition.
- Home prices increase.
- If you already own a home, you can refinance.
Risks to buying now?
- Home prices decrease after you buy (always a potential risk). How to mitigate this risk? The massive shortage of inventory for sale right now is currently putting a floor on how far prices can fall. Over the long run, real estate goes up. Plan to hold it for the 5-7 years.
- You can’t afford the mortgage. How to mitigate this risk? Save up reserves. Get a job with more pay. Or buy a good house hack where enough of your mortgage will be covered by tenants.
- You lose your job (always a potential risk). How to mitigate this risk? Have reserves. Have a good house hacking plan where tenants cover most of the mortgage.
If you can handle those risks and you are in the Real Estate/House Hacking game for the long run, buying a home now is an excellent long-term investment. It will put you in a much better financial situation down the road. There is no better investment with a better ROI than House Hacking. This is true even if cashflow is negative.
There are so many unknowns when buying a house in any market. Put the known facts that people have experienced for decades in the United States are:
- Real Estate is a fantastic investment.
- No one regrets buying real estate 10 years later.
- There is no bigger builder of wealth for the average American.
- There is no perfect time to buy!