At the time of this writing, the Fed hadn’t yet met for its May meeting. However, everyone is predicting another hefty interest rate hike. As rates continue to rise, the market will have more frequent and more extensive peaks and valleys. To survive and thrive through these turbulent times, you must remain flexible. Anyone who sticks their head in the sand will be in big trouble.
I hear from people all the time, “real estate prices aren’t ever going down” and “this market is different.” I remember hearing the exact same thing in 2006 and 2007. No doubt, interest rates are on the rise. They will continue to rise thru the rest of 2022 and maybe 2023. There is no way this can have a positive effect on Real Estate. However, that doesn’t mean the market will crash; it means the cost to borrow money will increase, which will hurt the debt to income (DTI) of many borrowers and the cash flow of others. In addition, as interest rates rise, lending will surely tighten because borrowers will be less qualified. As a result, sales will slow, or lenders will change their terms to allow less qualified borrowers to be eligible under new guidelines.
You need to be able to make money regardless of the market. So how do you make money and protect yourself in this volatile environment? Below are the key areas I focus on during times like this.
Stay True to Your Core Values
You always need to follow your core values. Changing your business model or sacrificing your integrity in a down market isn’t worth it. But make sure you continue modifying and tweaking your goals and adapting your daily practices to stay on track.
Don’t Try to “Time” the Market
It’s impossible to time any market. If we could do that, we could take our crystal ball and go to the casino. But unfortunately, too many in our industry think they can outsmart a volatile market and wind up making things worse for themselves. So pay attention to trends, try to remain patient, and use common sense as your guide. Rising interest rates aren’t the end of the world!
Move Fast
Anything you are doing needs to be quick. Turn your flips fast—that means a maximum of 4 to 6 months from the time you buy to the time you sell. If you keep a property as a rental, refinance it quickly. Make sure you have your lender lined up, you are prequalified, and turn that vacant home into a rented and refinanced property ASAP.
Speed will lessen the negativity of any mistakes you make. It will take the sting out of them. For the last two years, time has been your friend. The market has gone up, so even if you made a mistake, the market corrected it for you and made you whole. As we advance, it may be the opposite. If you are wrong, you leave a little money on the table but live to fight another day. If you are right, you stay in business when the market turns down and all these people drinking the kool-aide go out of business.
As long as you pay attention and are prepared to pivot, you can survive and thrive in any economic environment.
Good Luck.
If you or someone you know is interested in an asset-based loan, click here to get prequalified or call 248-385-3750 to talk with a member of my team or me.