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Is It a Good Time to Make a Move?

May 15, 20243 minute read
G2 Loans Real Estate Investoy Blog Hard Money Loans Bucks County

Spoiler….. it is always a good time to make a move!

One of the major questions on every real estate investor’s mind is: Should I buy now or wait for interest rates to decrease?

To evaluate this question, you need to determine your investment strategy. In today’s, ever changing real estate market, investors are running with whatever pricing dictates.

Common Investment strategies:

  • Fix and flips
  • Fix and holds
  • Turnkey purchases

Are you a fix-and-hold rental investor or a fix-and-flip rehabber?  If you are a rehabber, you can use a simple formula. Add the purchase price and the projected construction costs together and subtract the sum from the after-repair value.  That is your potential pre-tax profit.  That spread should be significant enough to absorb the additional interest payments and holding costs associated with the flip. Today’s bridge loan rates are 10.5 to 13 percent plus points.

In addition to calculating your lending costs, you must determine your carrying charges and miscellaneous expenses. If a sufficient profit exists after that calculation plus the additional interest costs and cost of doing business, you should keep moving. 

If you are a turnkey investor or fix-and-hold rehabber, you have other considerations. Your first question is what is the market rent for the property? The market rent determines the monthly cash flow, and everything is derived from that number. To analyze a deal, subtract from the market rent by the principal interest taxes and insurance (PITI). This will determine your monthly income, which should be positive. (for more information on DSCR and PITI see our blog post below)

If the property cash flows reasonably at today’s interest rates you can purchase the property today and refinance after the pre-payment period expires, reducing your rate and increasing your monthly income all while your property appreciates in value.

Why not just wait for lower rates? The short lived 2.5% interest rates are over. Historically, they have never happened before and are very unlikely to ever emerge again.

Since Covid, real estate values have exploded year over year. Lower interest rates increase the value of real estate plus the lack of inventory. So, if you wait for lower rates, you will encounter higher prices. It really is the same story as always. The investors who are buying are buying and the investors who are thinking about dipping their toes in are still on the sidelines waiting.

A good deal is a good deal and interest rates should not be the determining factor on whether to purchase. If it cash flows get it closed.

Here at G2 Loans we are experienced rehabbers and investors. We help all our clients analyze their deals to help ensure that they are successful. The last thing we want to do is get you into something you can’t get out of! If you have a deal, run it by us!

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