Just heard from a realtor that interest rates are starting to go up by about a 1/4%.

From a practical perspective, not much. 1/4% is a $12.63 per month payment difference per $100,000 balance on a 30-year note. That's the price of two burger meals at a fast food restaurant. Buyers won't think twice, nor will investors.

Well in my entire lifetime, I NEVER, ever expected rates to be anywhere near this low. I see next to no impact.

The government presently is interested in RAISING interest rates in order to stimulate the economy to recover from the pandemic recession. They want to RAISE inflation (target is 2%, February 2021 rate was 1.68%) to stimulate economy. As a result, investment vehicles are down, interest rates are (slowly) rising and the entire economy is hesitant until the recovery picture becomes more clear.

Home interest rates are still relatively low, the home market is limited by lack of inventory rather than interest costs. Ultimately, interest rates will HAVE TO go up to dampen inflation. It is a classical bubble phenomenon.

It’s all going up...wsj article today discussing pricing going up for many household products (general mills, diapers, TP, hormel foods, etc). Corporations aren’t stupid.

Typically when interest rates increase, so do Cap Rates on the commercial side of the market place.

Having properties in a trust will allow you buy and sell subject to with ease. When you are selling you are able to "add value" because the of the existing financing package in place was based when rates were super low.

6x6,

I'm a bit late responding to you but here goes.

T-bills (Treasury Bills) are the form the US Federal Govt uses to borrow money. They are sold at auctions periodically, or when special needs arise...like creating $1.9 Trillion of funny money to throw at a give-away program.

You can find the rates offered on T-bills just by Googling "T-bill rates". They range anywhere from very short term like 3 months out to 10 years (maybe further).

The rates are usually very low because they are considered one of the most secure investments on Earth. This is where you hear the phrase, "The US debt is backed by the full faith and trust of the US Govt." Theoretically, the US Govt doesn't default on t-bills, but in practice they can by allowing inflation and/or interest rates to shoot up.

Think of it like this: if you are an institutional investor like an insurance company with $10 Billion (with a B) cash to put somewhere, what do you want more than anything: security or the highest possible return? A lot of times "security" is the answer. However, if you check current t-bill rates, they stink. Anywhere between 0.06% to 1.87% So how can you get a better return while still maintaining a very high level of security? Bundles of mortgages! These pay anywhere from 2% and up depending on how the bundles are structures. Riskier mortgages pay more. Low risk mortgages pay less, but they still pay more than t-bills.

So, back to our main topic: if the Govt raises interest rates on t-bills, what does that do to the mortgages? They have to also raise rates, or investors will go with the t-bills which are (theoretically) much more secure. To pay better returns, mortgages must generate more interest income. Thus, mortgage rates also tend to go up.

1/4% isn't bad in the short term, at most it will create a little frenzy by people trying to lock in a purchase. The real problem is when it raises 1/4% in 2 weeks and does this every 2 weeks for a few months. Interest rate are like a big ship, it takes a while to change direction. Every time it rises, the mortgage goes up a little. It doesn't take long before less and less people can afford it. While the house value might remain the same for a while with higher interest, the payment goes up. The result, people either have to buy cheaper houses or just continue renting. This in-turn slows the housing sales which then creates more inventory which puts pressure on owners to lower their asking price.

On the reverse side, higher interest creates higher inflation. Everything gets more expensive. Those living on the edge now can't afford things like replacing the roof of a house, things fall into disrepair. This has a contracting effect on the economy meaning less spending, increased unemployment until it drives interest rates back down and the up/down cycle continue.

This is basic macro economics. Where the T-bill discussion Sid is referring to comes in is when the Fed, acting as the Captain of that big ship, tries to adjust course using their tools to more of a straight line rather than the wild swings that can happen on their own.

So, what does this mean to us investors? There are different problems at different points in the cycle. On one end, deals are hard to find because everyone is buying, on the other end money to buy is hard to find because of the high interest rates.

6x6,

There are T-bills, notes, and bonds. Bills are a security issued by the Federal gov't that matures in less than a year, sort of like a CD, but backed by the gov't. Notes are the same but are for 2-10 years, and Bonds are anything longer than 10 years...often they are for 30 years.

Rates likely will rise, they have been historically low for several years now. For us it probably doesn't mean much....yet.

It means, dear 6 x 6, that it is time for you to expand your empire, and double your holdings of rentals.