Interest Rates are So High! Why Should I Invest in Real Estate Now?

The classic question. Except for this one from last year: “Interest rates are so low and that makes prices so high! Why should I invest now?” Or this one: “Prices are going up. Why should I invest now if I didn’t last year?” I’ve got news for you: There will always be a question like this in any market. You will always have a little fear.

You are a High Performer. Chances are that you have been considering investing for the last few years. Maybe the pandemic made you cautious and you put your money in bonds, waiting for the right time. You’ve probably got a fair amount of money saved up but are worried that you’ll put your money into an investment and pay too much for a property because the interest rates are too high. You can’t afford to keep doing this.

The Fed has signaled this week that it will continue raising interest rates as long as the consumer is strong (i.e. people keep buying and inflation continues to rise). Take a minute to think about that – that means that interest rates will keep going up until inflation slows down. That won’t happen until people start feeling the interest rate burn (among other things) and the economy slows down. For the economy to slow down, people need to slow down their buying – and they won’t do that until prices cause them pain – whether that’s gas or clothing or an apartment building. Pain is coming. Be prepared.

Why Invest Now?

That money you keep in your 4.5% treasury bond is losing money. It is. When you compare it to the 6.4% inflation rate we have right now. If rates stayed the same, that $100 invested right now would earn you $4.50 next year, but the total would be able to purchase what only $97.81 could buy. You can’t afford to keep your money in bonds. Stocks you say? You poor soul: they lost money last year. $100 invested in stocks on average is now worth $92.31, but due to inflation, only purchases $86.40 worth of goods. Multifamily investment returns were 7.1% last year. Slightly above inflation – hooray! Your $100 can now buy $100.25.

I get it: You won’t get rich off 7.1% in this market. The point is, only the gamblers who get lucky will get rich right now. And most of them will lose big. The rest of us want to weather the storm, to have a safe place to not lose money. Add to that the tax benefits, equity gain, and personal control of a knowledgeable investor, and you can do pretty well. I’m actively looking for the right deal. They do exist right now. You should too.

Dr. Equity