A Quick Thought On Real Estate Strategy
April 17th, 2006 by Grant in: Real EstateA very basic and fundamental concept entered my mind over the Easter holiday about strategies behind real estate acquisitions:
You will have many opportunities to renegotiate a mortgage rate, but you get one chance to negotiate the sale price.
It’s such fundamental and logical concept, but it had never really occurred to me the significance of the statement.
You negotiate the price of the house once and only once, but you could refinance the house every year if you want, for better or worse, of course.
Therefore, when looking for rental acquisitions, you should be in favor of rising interest rates. Overall, the rising interest rates will reign in the appreciation rates in most areas, bringing list prices down as there becomes more and more product on the market, and if you can make a property cash flow with a 10% interest rate, just think what you could do when you refinance it, if and when rates fall, say, 5 years from now.
Don’t get me wrong, interest rates are very important, but they’re always changing. You can try to gauge the market to strategize on how to get the most out of your money, and the old adage still stands: Buy Low - Sell High.
The one thing you can’t change is how much you bought the house for.
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April 17th, 2006 at 2:34 pm
Isn’t that just the way it is supposed to work when interest rate is used as a tool of monetary policy?
April 17th, 2006 at 2:37 pm
Yep, it sure is Nick, but I had never thought of it that way. It’s so fundamentally simple…
April 19th, 2006 at 10:22 am
Thank you for a simple explanation of what a zillion people seem to overlook. Every time I try to explain this to people, they cock their head to the side and look at me cross-eyed.
April 19th, 2006 at 10:25 am
No problem Jon. Note that this theory holds as long as you deal in fixed interest rates…
With variable rates, all bets are off (unless you like to gamble).
-Grant