Interest rates for investment properties have been unfavorable since the January 2022. Only recently with the rise in residential interest rates has it come to the attention of the public. For my most recent purchase, the conventional loan terms for the investment property are 7.5% interest with about 2.75% in upfront fees making it the most expensive mortgage I have ever gotten. However I believe interest rates won’t be high forever. Predicting the future is stupid but necessary for business planning. For my prediction, the FRED chart below shows residential interest rates since the 1970s. Investment property interest rates are about 1% higher than residential loans. I annotated the chart with my findings about recessions marked with grey boxes.
Most importantly I note the average rate for the past 10 years has been 4.25%. Interest rates are around 6.5% now and I have noted how interest rates drop about 2-3% during a recession. So my guess is that in October 2023, the residential and investment loan interest rates will be 4.25% and 5.25%, respectively. My plan is to buy properties at a discount now due to high interest rates and refinance them next year when interest rates go down. In my next post, I will discuss how buying now to refinance later will save me money and how I create margin in my calculations for wrong predictions.
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