The real estate industry has been experiencing massive change and fluctuation for the last few years. Lower demand for property and other industry factors means we are in what has been termed a ‘high-interest era.’ This presents challenges for all real estate investment strategies, but with the right approach, there are many opportunities to thrive if you plan and respond well.
To thrive in a high-interest era, use these real estate investment strategies: invest in cash flow-positive properties REITs and partner with other investors to leverage capital and bargaining power. Invest in alternative real estate assets and use the high interest rates as a bargaining tool.
There are many tried and tested real estate investment strategies that will help you thrive, but there are also a few you may not know about. Once you’ve finished reading, you will have the tools to thrive in the high-investment era with new real estate investment strategies.
6 Keys To Thriving In The High-Interest Era
When it comes to investing in real estate, while there are high-interest rates, there are many great ways to manage your strategies so that you always come out on top. If you view these times of higher interest as an opportunity to learn and grow your strategy, you will come out stronger.
Inflation means the purchasing power of your money is decreased, getting less than you would have before. If high-interest rates cause inefficient decisions, you could negatively impact your earnings and reduce your ability to respond to interest rates should they continue to climb. The six keys to coming out on top in this higher interest time will help you stay ahead of the pack.
Pay Attention To Cash Flow-Positive Properties
A positive cash-flow property is an investment property that gives a yearly profit after property depreciation and taxes. This means it doesn’t cost the investor to own the property over time. These properties are important in a high-interest era as they allow your overall portfolio to grow without adding burden.
Depending on how much profit the property makes in a year will determine whether you see it more as a long-term investment or a short-term income generator. A cash flow-positive property with low yearly profit could be added to your portfolio with the view that as it appreciates, it will add long-term value to your portfolio with no expense to you.
Sometimes, you will find cash flow-positive properties that generate a significant income yearly. Take advantage of these as they will allow you to either pull the profits off to use personally or can be re-invested in other properties. The second option is a particularly useful tool if you have long-term investment properties that you want to keep but cost you each year. Profits from cash flow-positive properties can offset some of these expenses.
Invest In REITs – Real Estate Investment Trusts
Investment in Real Estate Investment Trusts (REITs) will also positively impact your investment strategy. They add diversification and the potential for higher total returns. If REITs are managed well, they can also lower the overall risk in your portfolio.
Real estate investment trust (REIT) companies finance, own, and operate income-generating properties by pooling the capital of many investors. Adding a REIT to your portfolio as an individual investor is a low-management investment option in these times. You do not have to manage the properties, apply for finance, or buy the properties, so you can focus on those properties in your portfolio that need attention.
A key to thriving in a high-interest market is researching and investing in investment trusts with a strong anchor tenant in retail REITs and urban centers in residential REITs. Investigate the trust’s profit margins, balance sheets, and current debt before investing. A REIT with a significant cash position will have better opportunities to buy out properties at distressed prices to maximize profit.
Invest In Some Alternative Real Estate Assets
Outside factors like changing interest rates allow you to look at your portfolio to find new areas to invest. Often, people will keep doing what they’ve always done because it works. However,, alternative real estate assets have different profit and investment opportunities that you may not be aware of.
Many people stick to retail and residential investments, but you could also consider mobile home parks, storage units, vacant residential lots, condo investments/Airbnb properties, timberland, and other farmland as alternative real estate assets to invest in. These can also show significant capital appreciation over time and are also subject to the disruption real estate in high-interest environments experiences.
Diversification is vital when considering high-interest-rate investments. A key to making the most of alternative assets is to understand and accurately value the type of real estate and consider the income capitalization, discounted cash flow, and sales comparable for each. Partnering with other investors who understand that real estate niche may also be a good idea.
Use Market Flows To Leverage To Your Advantage
High-interest rate investments do not happen in isolation. The rest of the market is responding to real estate in high-interest environments. The rising rates affect the market’s confidence, leading to fewer available properties. This decline has the knock-on effect of decreased market competition.
Look for previously acquired properties but, because of the rates increase, have grown beyond the financial reach of the current owners. These properties would previously have been unavailable, and interest rate trends open them up.
Another advantage you can take while investing in real estate with high-interest rates is to use the interest rates as a bargaining tool. In discussions with agents and sellers, note that interest rates are higher, and your profits will be smaller should prices stay as if interest rates were low. Concessions will often be made to conclude a deal, which is a decisive factor.
Partner With Other Investors
More information when considering how and where to invest in real estate with high-interest rates is always better. Partnering with other investors you trust or with whom you have an existing working relationship has two benefits:
First, you gain their knowledge of the market. This is particularly important if you are investing in alternative real estate types. Use the knowledge and expertise of others to your advantage.
Second, your combined capital could put you in a better financial and bargaining position to invest in real estate you wouldn’t have been able to before. In a strategic partnership, you may be able to negotiate more favorable rates, increasing the cash flow needed to survive rising interest rates.
Conclusion
Not only is it possible to survive a high-interest rate era, you can thrive in this time. Be open to new ways of thinking and be prepared to introduce new skills to your skillset, but there definitely are ways to bring in new real estate investment strategies to help you get on top in these times.
In a high-interest era, the real estate investment strategies of investing in cash flow-positive properties, REITs, and partnering with other investors are practical steps to build your portfolio. Looking to invest in alternative real estate assets and use the high-interest rates as a bargaining tool are new areas to explore.