You may have heard talk of rising interest rates on the news, or seen it in the financial times. However, it’s entirely possible that you aren’t clear on the ramifications this may have for your investment strategies. What do rising interest rates mean for you when you want to invest your money? There are several important things to remember, especially if you’re a high-level investor with a lot at stake.
As you probably know, interest rates are best explained as a percentage of unsettled debt. The higher the interest rates, the more a borrower must pay for the privilege of taking out a loan. For example: if you have an interest rate of 10% on a hundred-dollar debt, you will pay $10 in interest the first month. Still, wondering how this could affect your investments? Hold on; we’re getting to that.
Interest rates affect more than debts between consumers. They also affect banks. In fact, one of the US government’s most common strategies for controlling inflation is to raise interest rates, because this makes it harder for banks to purchase money. When banks can’t obtain as much money, less money enters the market and inflation is avoided or curtailed. However, the banks often compensate by raising interest on their prime lending rate. The result is that credit-worthy customers such as yourself often have to pay more interest on the money they borrow. This can prevent certain investment strategies from being practical.
Rising interest rates may prevent you from borrowing the money you need to buy a house because interest also goes up on mortgages. However, there are other ways to invest in real estate. For example, you can choose to invest with a real estate investment company that would do all the work for you. Companies, like ours, purchase homes from owners who need to sell quickly (for various reasons). We then allow investors from all over the country to make private investments backed by real estate. We then offer programs like our Rent-to-own option allowing people to become homeowners who may not be able to secure a loan at this point in time. This is a win-win for all sides; people who can’t secure loans get put on track to become homeowners and investors get monthly cash-flow from their rent in the meantime.
On the other hand, if you are thinking of selling some of your investment properties, now would be the time to do so. As interest rates continue to rise it’s going to get harder to find people who want to take on such a high-interest loan in order to purchase your property. Selling to an experienced investment company that has cash on hand may be the best solution to this problem.
No one likes to hear that interest rates are rising, but as an investor it’s something you need to be aware of. Luckily, whether you’re looking to continue investing or sell, there are options available to you regardless of where interest rates stand.