Joe Homs explains how Federal Reserve rate hikes affect real estate investors and what to do about it. Lower your maximum offer from 70% to 60% of property value, consider seller financing instead of hard-money lenders, and save cash for market bottoms. He shares a seller-financing deal from the 1980s as an example.
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In today's video, I'm discussing the newest interest rate hike and what it means to investors. In an effort to rein in inflation, the Federal Reserve boosted interest rates in March, early May, June by 3/4 of a point. And now the Fed has raised rates again, announcing again another 3/4% hike on September 21st. But what does this mean for investors? Before we begin, make sure that you like and subscribe. If you're looking to live the life you've always wanted through real estate, I made this channel to help you, the new or experienced investor. So what can you do during this time that the Fed is increasing rates? If you're out there looking for deals, then let's say your maximum allowable offer was 70%. I'd probably reduce that down to 60% down. Yeah, you're going to have less deals, but those deals that you get at the 60% number are going to be way better deals in case the market does start to go down. So the interest rates, at the end of the day, yes, they can affect the mortgage rates. Usually takes a little bit longer for that to happen, but, you know, the, the rate that the Fed is raising interest rates right now, it's really mind-boggling. It's just unheard of. So everybody's playing catch-up at this point. So be careful out there. Another thing you can do is maybe utilize seller financing. All the cold callers are instructed that as they're putting the deal together, ask the seller, are you willing to do seller financing? That's a great option because the seller finances the deal for you. You go in, you don't have to necessarily put any money down into this project. You go in, you put your rehab money in place, And then at the end of the day, you put it back on our market and sell it. So you're really cutting out a business partner, and that business partner may be that hard money lender who's going to charge you up to 10% interest for that short period of time. But he is your business partner. So if you can cut him out of the picture and just let the seller finance the property for you at a way lower interest rate and no points, that might be an option. The last time I saw rates like this, Jimmy Carter was in office. And it was a pretty scary time, just like it is now. What happens normally is banks start to adjust. You have to remember that banks are in the business of loaning money. So let's say their bottom FICO score for some borrower that wants to borrow money is 650. They're going to come out with a program that now it's down to 600. We do run into issues. You know, over 10 years ago, we had the issue that lenders were literally lending out money if you had a warm body. They were lending with no money down to unqualified people. Hopefully that doesn't start to happen again, but that's usually what happens in this type of market because normal Americans need to buy and sell homes. If you're in the military, for example, and you're getting deployed someplace You're going to obviously need to sell the house where you're at and then buy something else someplace else. And that happens in the corporate world as well. If you have a job in New York and now you're getting transferred to California, you're going to need to sell your house in New York and buy in California. So all that can happen. I remember when I sold my house in the '80s, I actually did seller financing to close that deal and gave that buyer a 5-year period to refinance all the loans. Thank God we elected a new president, Ronald Reagan, and he started to change everything. And so the market started to go up again. So that was great because that protected my seller financing a lot more than if the market would have gone down. But there's creative things out there to do. You just have to find them. Remember to stick to the fundamentals of investing and reduce your risk if or Or when we head further into a recession. Save your money and be ready to buy at the bottom of the market. If you want to know 5 reasons that you should invest during a recession, click on this video right here. If you're feeling scared and you need help picking out your next property, just book some time with me. Reach out anytime. I'm always here to help.
