Interest Rates Don't Matter? Interesting Read

A Newbie’s First Big Lesson In Real Estate Investing


By Phyllis N. Schwartz
Staff Writer

From the Trump Real Estate Expo In LA . to home prices reaching
unheard of highs. to the much awaited announcements from Alan
Greenspan - this great nation of ours is clearly in the throes of a
real estate frenzy.

There is talk about a “foreclosure gold rush” and speculation about
when the real estate “bubble” will burst . And it seems like anywhere you go these days, people are using real estate lingo.

There’s talk of bird dogging, short sales and flipping junkers. And what about lender seasoning and littoral rights - care to bet some earnest money?

Mostly what I overhear in my travels goes in one ear and out the other. But recently someone made a comment that wouldn’t leave my head:

“Interest rates don’t matter to real estate investors.” What exactly did that mean? I simply had to know.

Doing what any nosy rosy would, I pulled out my laptop
and googled it. I started with a search for “real estate investing.” When 7,870,000 listings came up,

I went to plan ‘B’ - straight to the experts. I
typed in “real estate investment programs” and the number of listings DOUBLED.

It wouldn’t have taken a genius to see that Real Estate investing is HOT, HOT, HOT! But that didn’t tell me anything about why interest rates don’t matter. So I did more research, signed up for a few programs and now I am armed with a notebook of new information.

Please note that I am not going to make any course recommendations.
What I will do, however, is share some of the incredibly valuable lessons
I’ve been learning . things that really surprised me . things that all
serious investors need to know.

Lesson #1:
It is absolutely true! Interest rates don’t matter to real estate investors.

It makes perfect sense and I will explain why. In fact, for many people, this is fantastic news. Because it backs up the claim that, in real estate investing, money and credit (or rather lack thereof) should not stand in anyone’s way.

In the words of Robert Kiyosaki. “You’ve got to get
out of your comfort zone!”

There are always ways to get money; from private lenders, credit lines, other investors, owner financing, partners. And, yes, to get private or bank money, you may pay 18% interest or even more.

But, when you know how to buy real estate the right way, you will still profit – and then quickly build on those profits. Don’t let the numbers scare you.

Negative credit is not the only reason to go with higher interest rates, either. Speed is another factor. With all the steps and paperwork involved, conventional mortgages take anywhere from 45 to 90 days to fund.

A private lender can complete a deal within 7 to 10 days.
That timing could make the difference between a great deal and no
deal at all.

Another Kiyosaki truism , " freedom means having more choices,
not security
." Of course, having lots of money and good credit is
But you can work around that in many different ways. And,
while you’re putting yourself out there and making money with your
investments, that bad credit can be turned to good.

The most important thing is not to let a high interest rate scare you away from a good real estate deal. With a higher interest rate, you can still net a nice profit. And, even if your margin of profit is small the first time out, the next deal is just around the corner.

Interest rates DO matter IMHO. They Don’t matter when they are close.

For example, going from 5.5% to 7.5% might not matter much at all. However, going from 6% to 10% can be a significant jump in holding cost.

A $300,000 loan at 10% will cost $900 more per month over a 6% loan. That is a big difference. It would kill a buy and holder looking to rent the property out.

The only time I see such a big spread not mattering is when someone is doing a Rehab because you will be out of the property in months (less or more) and there is a big spread of profit involved (unless you messed up the numbers).

Again, a couple % difference is not going to kill a good deal, but any more could depending on the type of REI being done.

Howdy Yall:

I have been saying exactly the same thing for years. I have had bad credit since my 2000 Bankruptcy and still do. I have not gotten over the problems I had. I am paying 12 to 14 % interest and 5 points plus do not be late or man they gig you even more. I paid 10 of the payment plus $450 collection fee to a hard money lender because they sent me an attorney letter, The attorney only charged $150. I will get over all that on Wednesday when I pick up my $100,000 check for the difference in what I paid and what I sold it for. Not bad for 6 months work.

The rate does not matter. I have seen even some of my potential partners back out of a great cash flow deal because of a few points higher rate for an investor. Man get over it and do the deal. I paid my private lender just recently 18% interest per quarter to borrow $10,000 and will do it over and over. I just saw an ad too where the borrowers are willing to pay 60% interest. Both these are usury and I do not know how they are going to get around the law but I just paid the money and said thanks.

The rate does not matter as long as you can turn a profit. Sure it would be better to have your own cash to do deals and not have to borrow but in the interim do a deal and do not set on the sidelines but you need to find a deal that is better than marginal.

GREAT POST above by the way LOL

Ted, I love you man, but you just contradicted yourself in one sentence. The rate obviously does matter, if it did not, any rate would do.

A property might be profitable at 6%,7%, and 8%, but not 10%. Therefore, rates do matter. If you can get in at 6-8, it is a deal. If not, it is a pass.

In the 6-8 range, the rate does not matter.

I know I am being technical, but I just don’t like loose English language usage, like that displayed by the article writer.


It depends what you plan to do.

If you plan to cash flow a property, then I would have to say interest rates certainly do matter. If your paying 4% interest, your going to have a bigger spread for profit, or maybe offer a lower rent/lease price which should keep your property occupied. Both good things. If your paying 8%, then your spread is smaller, or you must charge a little more rent, thus making the chances of your property sitting empty that much higher.

If your flipping or rehabbing, as long as you work the numbers, then no, it doesn’t matter at all. Theres of course exceptions…1% on a million dollar home is going to be a LOT more then 1% on a 100k home.