What Do Higher Interest Rates Mean?

Happy Tuesday! This is The Real Deal. The email that tells you the latest that's going on with Real Estate in plain jane english.

In Today's Email:

  • 🎁 The 100k Net Profit Story
  • 🏦 The Good Thing About Inflation
  • 📈 What Do Rising Interest Rates Mean

The 100k Net Profit Story

Svetlana has been a long-time client of ours.

She famously went under contract on a property with us on our initial introduction call. Like, seriously, on the call!

She also just did the full cycle of what it means to be a Real Estate Investor and netted 100k from it.

Two weeks ago, she sold a duplex we helped her buy 1.5 years ago.

Kinda've like BRRRR, but we will call it the BRRSR method.

After holding the cash-flowing property in a great location near Joint Base Lewis McChord in Washington state, she decided it was time to sell after seeing comps in her neighborhood rise nonstop.

While she never planned to bet on appreciation, that's one of the side effects of picking a rapidly expanding market.

Where there are good economic trends, there will naturally be good appreciation as a byproduct of that.

The Good Thing About Inflation

What happens when you print 80% of all US dollars in circulation in the last 22 months?

You get inflation.

Back in February, the Feds had announced that inflation had now reached 7.5% according to their CPI.

What's the CPI?

Well for starters, the Consumer Price Index measures a basket of goods for what their change in price has been.

While this is usually a good way to sense what inflation has been across those items, it doesn't measure your true inflation... your basket of goods which may have a slightly higher or lower net inflation rate.  

Ok, so before we get sidetracked, why is higher inflation good?

Fixed-rate debt.

If you can lock in a 30-year fixed-rate debt in the high 3's or even the low 4's, you're creating a hedge against the inflation we know is eating away at your cash.

Sure, interest rates are up, but when debt is essentially being given out as free money, it's a no-brainer to keep buying.

What Do Rising Interest Rates Mean?

It felt fitting to continue the conversation on interest rates so the last topic in today's email will be discussing what rising interest rates mean.

We all know it's happening, interest rates are climbing at an unprecedented rate, especially in the most recent months.

But what does this mean?

First off, going back to our last topic, getting fixed-rate debt significantly below the level of reported inflation is a great hedge against inflation.

While inflation will eventually taper off, it's a good strategy to fight inflation while it's on the up and up.

Secondly, it will soften the price demand since now more buyers are not able to afford as much as they previously could have with lower interest rates.

While it doesn't necessarily mean pricing will go negative as demand and supply will need to take a lot longer to balance, it will be a short-term remedy for a highly appreciating market.

Learn More About Team Kekoa

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