Rising Interest Rates

Viewing 8 posts - 1 through 8 (of 8 total)

Pricey
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@pricey
Join Date: 2004
Post Count: 2
January 13, 2004 - 7:37 am
Hello everybody,
I have read many books on real estate investing and i really want to buy a positive cash flow property in the very near future. If i did own a property and was receiving $50 net profit a week from a rental property and interest rates rose by a certain amount would this make this property a negative cash flow property and if it did how could I possibily avoid this.
Thanks your mate Pricey![^]
luckyone
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@luckyone
Join Date: 2003
Post Count: 148
January 13, 2004 - 7:40 am
You could lock in your interest rate
Monkeybam
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@monkeybam
Join Date: 2004
Post Count: 32
January 13, 2004 - 7:44 am
Fixed rates are an option. I find that even if things tend to go bad a good property will have potential. When the lease expires if the market can take it put up the rent. You wont make any friends but will keep property positive. Think about it would you move for $10 a week increase. moving costs make moving difficult.
Still in School
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@still-in-school
Join Date: 2003
Post Count: 1,844
January 13, 2004 - 8:13 am
Hi Pricey,
Steve Mcknight made a bonus chapter for the interest of rising interest rates.
Here is the Link
Cheers and hope this helps,
sis
People 4get that by saving just $3 a day & investing it sensibly
over a working life, you’ll end up with around $1 million
westan
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@westan
Join Date: 2002
Post Count: 1,950
January 13, 2004 - 8:23 am
welcome to the forum pricey
yes, you are right enough rate rises will turn a cash positive into a negative one, but think of what happens if rates go down, your profit goes even higher. if you own one or two properties i wouldn’t be too concerned of rate increases, but if you owe a lot then as the guys have already said lock some rates in just to be safe.
the other point is what happens to negative geared properties when interest rates go up – it hurts even more.
regards westan
JetDollars
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@jetdollars
Join Date: 2003
Post Count: 2,435
January 13, 2004 - 11:39 pm
Pricey,
Beside lock in interest rate, you can have some cash reserve in high interest rate account. If the interest rate rise then you can inject those cash into your home loan. I know this is not a smart way to do by injecting cash into home loan, but it is one way that will help you to move forward.
Warm Regards
ChanDollars
[Keep going, you’re nearly reach the end of financial freedom]
peterp
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@peterp
Join Date: 2003
Post Count: 307
January 14, 2004 - 12:31 am
ChanDollars wrote:
Beside lock in interest rate, you can have some cash reserve in high interest rate account. If the interest rate rise then you can inject those cash into your home loan.
I’ve wondered about this. If you were getting 5% interest, after tax you’d only just be keeping up with inflation. Not good!
Wouldn’t it be better to put it into an offset account (assuming the interest rate on the associated loan is no higher than a no-frills loan) so you’re reducing the interest component? Or if you don’t have an offset facility put it into the loan, reducing the principal faster and thus the risks of higher rates. You could then redraw if you needed it.
Regards, Peter
MJK
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@mjk
Join Date: 2003
Post Count: 157
January 14, 2004 - 12:56 am
Originally posted by westan:
welcome to the forum pricey
yes, you are right enough rate rises will turn a cash positive into a negative one……….
……….
the other point is what happens to negative geared properties when interest rates go up – it hurts even more.
Westan,
The problem with this argument is that the reason people are buying for cashflow is ruined by interest rate increases but the reason for buying neg geared is not defeated as people are after capital gain not cash flow.
It can be argued that pos cashies will get cap growth butI think only in major centres and it is less likely to be the way forward.
What do you think?
MJK