When the Going Gets Tough, Cash Out

Why Real Estate Investors Should Tap into Their Equity in the Current High-Interest Rate Environment

The recent years have been transformative for the real estate market. Between 2020 and 2021, property values surged, and rental rates followed suit, providing investors with a significant influx of equity and income from their portfolios. However, there’s a looming factor causing apprehension amongst real estate enthusiasts –high-interest rates that have risen to around 8% and are predicted to remain high well into 2024.

The prospect of borrowing at such rates can be intimidating and is leading some investors to press pause. However, no matter your outlook, cash-out refinancing is one of the best tools you can leverage in today’s economic environment.

For many experienced real estate investors, the recent surge in property values has translated into portfolios brimming with equity. This equity represents a valuable resource that can be harnessed strategically. The key lies in understanding how and when to utilize it to your advantage.

As a real estate investor, you will find yourself in one of three distinct categories:

The Optimist’s Perspective

For the optimist, the real estate game is all about seizing opportunities when they arise. They understand that time is a limited resource, and sitting on the sidelines for an extended period isn’t in their nature. Remember, just like properties purchased in 2006 that looked like a questionable investment in 2009, the same assets became valuable in 2020. The lesson is clear – keep buying real estate, even in challenging times. Utilizing a cash-out refinance allows investors to stay liquid and keep business going as usual.

The Pessimist’s Approach

Pessimistic investors are more cautious, fearing that properties may take a long time to sell. This situation can lead to cash flow crunches, a real concern for real estate flippers. Rather than selling properties at distressed prices when times get tough, staying liquid by cashing out even just a portion of your equity can provide a financial cushion to weather the storm.

The Super Pessimist’s Strategy

Super pessimists go even further by anticipating a wave of distress in the market. They believe that the coming months will unveil unique property-buying opportunities. Being liquid in this scenario allows them to pounce on these deals, effectively converting the 8% interest rate into a source of cheap equity.

Whichever lens you look through, the conclusion that emerges is undeniable – refinancing a portion of your portfolio will help you stay liquid for the opportunities ahead.

Long-Term Approach

It’s essential to remember that real estate is often a long-term game. If you’re concerned about borrowing at high interest rates, consider that real estate investments can pay off over time, even when interest rates are high. In fact, the Federal Reserve’s interest rate predictions extend into 2024. This means there’s a need to adapt and make informed financial decisions.

In the ever-evolving world of real estate, it’s clear that no matter where you stand on the optimism scale, staying liquid is the key to success. Leverage your equity, secure cash on hand, and be prepared to capitalize on the unique opportunities that the real estate market can offer, no matter what the future holds. Dominion Financial’s DSCR Rental loan is a valuable tool that can help investors stay flexible and adaptive in the face of a changing landscape. It’s time to tap into your equity and thrive in the current high-interest rate environment.

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