Why Low Interest Rates Might Make This the Best Time to Acquire Rental Properties in the Last Five Years

It is common for investors to do their best “Monday Morning Quarterback” impressions when it comes to choosing the best time to invest in rental properties. How many times have you heard a friend, family member, or colleague say something like this:

“Real estate values have come up so much in the last few years. I wish I would’ve bought more properties five years ago!”

Maybe you’ve even said or thought this yourself or are currently thinking it.

Well, don’t beat yourself up. You now have an opportunity for a do-over. Today might just be the best time to acquire rental properties and here’s why: LOW INTEREST RATES.

The “Monday Morning Quarterback” investors yearn for the “glory days” saying they wish they had bought more rental properties. They are only looking at one thing to come to that conclusion… real estate prices.

As a long term buy-and-hold rental property investor, you should be considering a lot more than just housing prices today to determine when you should be in acquisition mode. Our #1 goal of investing in rental properties is…


Only after we achieve positive cash flow can we then focus on home price appreciation and the other profit centers.

You earn positive cash flow by the combination of the right price to pay and the ability to charge high rents, while having low expenses. And the largest component of your expenses is your mortgage payment.

When it comes to your mortgage payment, the main variable is interest rates. (I don’t see down payments or 30-year terms on investment properties anytime soon.)

Right now, interest rates have never been lower. Check it out for yourself here at the Freddie Mac website: www.freddiemac.com/pmms/pmms30.html. July 2020 is the lowest interest rate ever reported by Freddie Mac and they started reporting rates back in 1971 (almost 50 years ago!).

So, why is a low interest rate so impactful when acquiring rental properties?


1. Higher positive cash flow and better return on investment (ROI)

About a year ago, interest rates on rental properties were roughly 5% on average. Now, we prepare our clients to expect 4% (although it can be less in certain situations). Just reducing your interest rate by 1% drops your monthly mortgage payment by $75-$100. And guess where that additional money goes? It goes straight to the bottom line as it increases your return on investment.

2. Additional buying power allows you to acquire more rental properties quicker

When a lender qualifies you for a loan, one of the criteria is your debt-to-income ratio (DTI). This measures the amount of your recurring monthly payments compared to your monthly income reported on your taxes. When you drop interest rates 1%, that drops your monthly mortgage payment on your recurring debts. With the low interest rates in our economy overall, this also probably drops your recurring debts on your home equity lines of credit, credit cards, and other debts that are variable. That means you now can earn less income to support the new payment and it is easier to qualify for the loan.

3. Your interest rates are fixed for the next 30 years

When my parents bought the house I grew up in 1981, the interest rate on their loan was 18%. It was certainly a different time back then but, wow, that’s a high interest rate. One of the reasons I’m such a big fan of rental property investing is because you can acquire assets using smart, inexpensive debt. Being able to borrow money at 4% interest rates that are locked in for 30 years is an incredible opportunity.

4. Even though your rates are already low, your monthly payments will continue to get de-valued as inflation happens over time

This is the kicker that most investors don’t value enough. A basic rule of inflation is that it causes the value of a currency to decline over time. In other words, cash now is worth more than cash in the future. Thus, inflation lets debtors pay lenders back with money that is worth less than it was when they originally borrowed it. This means that the $750 mortgage payment you have on your rental property today will feel like a lot less in ten years because of the value of goods and services (including rent prices and real estate values) will have gone up… but your payment will stay the same. This is a huge hidden benefit even when interest rates aren’t at an all-time low.

One of the best parts of investing in rental properties for the long haul is that you don’t have to time the market as far as real estate prices. History shows us that prices in Jacksonville appreciate at a rate of 4.3% on average per year, assuming you hold on for a full market cycle (10-20 years at least).

Instead of asking yourself if prices are going to go up or down, I’d recommend you focus on the tangible questions that you can control.
  • Will my ROI for rental property investing beat my other alternatives or at least allow me to diversify and still maintain my current returns?
  • Am I investing in assets that pay for themselves every month or am I investing in liabilities that don’t produce positive cash flow and force me to be speculative?
  • Can I lock into smart, low interest rates that will be in place for 30 years if I choose to hold that long?

If you’ve been thinking about investing in your rental property portfolio, now is a great time to chat with our team.  Call or text our office at (904) 677-6777 or set up your appointment directly at www.ChatWithJWB.com

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