Why Interest Rates Matter To Duplex Sellers And Buyers

rate increaseIn recent weeks you may have heard a lot of media noise and eavesdropped on conversations where the hot topic was the rise in interest rates.

And maybe, if you’re thinking of buying or selling a duplex, triplex or fourplex you’re not that worried about it. After all, even with a rise from say, 3.5 percent to 4.5 percent, rates are still low, right?

Yes, of course.

However, an interest rate increase of one percent on a loan of $400,000, translates to $4000 more a year. Broken down by month, that a buyer’s monthly mortgage payment will be $333 higher than it was just one month ago.

For many, that will render the duplex unaffordable. For others, it will mean the difference between what might have been a healthy positive cash flow, to an investment property barely able to support itself.

Low interest rates mean higher prices for sellers, because it’s simply less expensive for buyers to borrow money. Low interest rates are good for buyers too, because more of their payment is going toward the actual property as opposed to the cost of borrowing the money.

In spite of this rate increase, it remains a great time to both buy and sell duplexes and other small investment properties. After all, can you imagine what another rate increase would do to your cash flow?