Top Locations Invest in Real Estate Now as Investment Property Mortgage Rates Are Rising by Sylvia Shalhout September 13, 2018September 11, 2018 by Sylvia Shalhout September 13, 2018September 11, 2018 When is the best time of year to buy a house for real estate investing? Typically, the answer to this question comes in the form of a season or month, right? Summer, spring, July, December. But in 2018, the answer is somewhat different. The best time to invest in real estate is right now and that’s because investment property mortgage rates are on the rise. The average homebuyer might think that this answer makes no sense as this real estate buyer is being priced out of the market. However, the not-so-average real estate investor should know that rising investment property mortgage rates (under the right conditions) can present some of the best investment opportunities. Let’s explore why this is the case for the end of 2018. It All Starts with Short Term Interest Rates and the Federal Reserve It’s best to start at the beginning and that’s with the Federal Reserve System. All US financial institutions are essentially controlled by the Federal Reserve. This control encompasses short term interest rates which are the rates at which financial establishments are allowed to give each other short term loans. To put it simply, short term interest rates can be viewed as the “cost of money” as it is the rate at which the Federal Reserve sells money to these institutions. Currently, these short term interest rates are on the rise and are forecast to keep rising. At the moment, they stand at around 2.17% per annum (annually). How Do Investment Property Mortgage Rates Fit Into All of This? Because the money mortgage lenders pass on to real estate investors is “bought” from the Federal Reserve at this short term interest rate, it makes perfect sense that the two numbers are related. As short term interest rates rise, investment property mortgage rates tend to rise as well. In fact, Freddie Mac reports that mortgage rates have increased by 0.5-0.6% over the last year. The average rate for a 30-year fixed-rate mortgage is at 4.53%. So, it’s key to watch out for both numbers to fully comprehend real estate market trends, property values, the perfect time for buying an investment property, and even changing cap rates. Related: What Are Your Options for Financing Rental Properties? But What’s Causing Investment Property Mortgage Rates to Rise? We know that the Federal Reserve makes the decision to increase short term interest rates which inevitably increases the mortgage rates of real estate investment loans. But what is this decision based on? Economic conditions, in general, are the deciding factor. The Federal Reserve decides whether the state of the US economy can allow for a raising/lowering of mortgage rates or if it is actually required. These economic conditions include: Level of unemployment Inflation Level of consumer confidence Total income of the state To name a few. Of course, some of these conditions have a greater impact than others on mortgage rates. This year, the driving factor is demand. We know a basic rule of real estate investing is: As demand for property goes up, property values increase. There is a similar rule that holds true here: As the demand for money goes up, so does its “cost”- short term interest rates. With the US economy doing relatively well, the desire of consumers to purchase and own things is rising steadily. If we look at real estate investments specifically, the US real estate market 2018 is in a general seller’s market. The demand for buying investment property is high and becoming a real estate investor is a top priority for many. While only a part of the reason for the rising demand for money, this desire to own rental property and make money in real estate goes hand in hand with rising investment property mortgage rates. Don’t want to deal with a traditional rental property mortgage and rising interest rates? Read A Guide to Creative Real Estate Investing. What Do Historical Trends Have to Say? Before you make any real estate investment decisions, it’s important to take a look at what history tells you. A real estate investor needs to know the likelihood/direction of the change in these rates for investment property loans and historical data holds the key. Short term interest rates reached an all-time high of 18% per annum in the 1980s. And due to their relationship, investment property mortgage rates also reached historic highs of 18.63%. After that time, these rates dropped steadily, eventually reaching historic lows: May 2014- Short term interest rate: 0.11% July 2016- 30-year fixed-rate mortgage: 3.41% Now, as we have already seen, these two numbers are growing. But these historical trends reveal a few key things for the real estate market: With the consistent and growing health of the US economy, these rates will continue to rise. Even with the increase, mortgage rates for real estate investment loans are closer to historical lows than highs. Both short term interest rates and investment property mortgage rates will continue to rise together. Why Exactly Should You Invest in Real Estate Right Now? With all this evidence of the continuing rise of investment property mortgage rates, a real estate investor might have a “bad taste” from the very idea of more expensive real estate investment loans. However, with the historical numbers showing us that mortgage rates are actually pretty low, it’s the best time to take advantage of what a real estate investment has to offer you in the long run. Savvy real estate investors know that current mortgages are providing “cheap money” with the interest rates of today. Combine that with the rate of real estate appreciation which is much faster than that of interest rate growth. What you’re left with is a great real estate investing opportunity- buying investment property whose value will increase with a cheaper interest rate than you will be able to land in a few years’ time. What about the question, “When will it be a buyer’s market again?” Typically, when investment property mortgage rates increase and homebuyers can’t find affordable investment properties, real estate prices balance out and fall in time. But again, history teaches us they will be on the rise soon after, as is the norm with appreciation. So, with prices balancing out in the US soon, interest rates historically low, and real estate appreciation on your side, you can’t lose, real estate investor. Learn of the many other reasons why you should buy real estate now: Thinking of Buying an Investment Property in 2018? Don’t Wait Any Longer Where to Invest in Real Estate Right Now The key factor here is to invest in real estate in locations with high appreciation. So, here are three of the best cities to invest in real estate for high appreciation (This is based on data from Neighborhoodscout.com as well as Mashvisor’s investment property calculator. Learn more about our product here): San Diego, California Tampa, Florida Austin, Texas Related: 8 Best Cities for Real Estate Investment 2018: Part I Take advantage of these real estate market trends now. Don’t wait for higher investment property mortgage rates in 2019! Make sure you start your investment property search the right way with Mashvisor’s tools. Click here to start looking for the best investment properties to take advantage of the best time to buy real estate now! Become the ideal candidate for mortgage lenders with this guide. Start Your Investment Property Search! START FREE TRIAL Start Your Investment Property Search! START FREE TRIAL Austin TXTampa FL 0 FacebookTwitterGoogle +PinterestLinkedin Sylvia Shalhout Sylvia was the Content Marketing Manager at Mashvisor. As a real estate writer, she has been covering topics for the beginner and advanced real estate investor, helping them make smarter decisions as well as real estate agents looking to take their business to the next level. 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