Epic Real Estate Investing - 9 Huge LIES About Interest Rate Cuts Nobody Talks About | 1350

Episode Date: September 13, 2024

In this episode, we dive deep into the truth behind nine major misconceptions about interest rate cuts and their real impact on the real estate market. Join us as we meticulously debunk widely-held myths, revealing why lower interest rates might not necessarily result in lower mortgage payments or even indicate a thriving economy. We’ll explore how rate cuts could signal economic weakness and encourage risky investment behaviors that could jeopardize your financial stability. Additionally, we’ll discuss why waiting for an interest rate cut before making decisions to buy, refinance, or invest might not be the most strategic approach. Instead, we’ll guide you on focusing on essential factors like cash flow, staying ahead of inflationary trends, and adapting wisely to shifting market conditions. By the end of this episode, you'll gain practical insights and actionable steps to safeguard and grow your investments, even in a landscape of fluctuating interest rates. Don’t miss out on crucial strategies that can help you make informed decisions and thrive, regardless of what the interest rate environment throws your way. Learn more about your ad choices. Visit megaphone.fm/adchoices

This is Terio Media. Hey, strap in. It's time for the epic real estate investing show. We'll be your guides as we navigate the housing market, the landscape of creative financing strategies, and everything you need to swap that office chair for a beach chair. If you're looking for some one-on-one help, meet us at rei-aise.com. Let's go, let's go, let's go, let's go, let's go, let's go.

Let's go. Everyone's talking about interest rate cuts like they're a magic solution for the real estate market. But there are nine huge lies. Nobody's telling you about that could derail your plans because these lies could crush you financially if you're not careful, especially number six and number nine. So please stay with me until the end. Lie number one, rate cuts always lead to lower mortgage payments. One of the biggest lies out there is that rate cuts automatically mean cheaper mortgages. But here's the truth.

Banks don't always pass those savings onto you. With increasing fees and stricter lending standards, your monthly payments might not drop as much as you think, or at all. Or, you know, after the fees, it might take four or five years to break even on the savings. So don't believe the hype. Don't fall for it. You got to do the math for yourself. Lie number two, rate cuts indicate a strong economy.

Many people assume that rate cuts mean the economy is strong, but the opposite is often true. Cuts usually happen because the economy is slowing down or in trouble. So if you see rates dropping, it's a sign that the market might not be as healthy as it seems. For example, last week, the economy added a disappointing 142,000 jobs as unemployment rose to 4.2%. Interest rate cuts are often seen as a good thing for the economy and for real estate investors. But that's only part of the story. What you're not hearing is how these rate cuts can actually actually.

create more problems than they solve. For example, a surge in housing prices will make it harder for first-time home buyers to enter the market and could ultimately create a housing bubble, or they encourage risky borrowing, taking on more debt than people can realistically handle, believing the cost of borrowing will remain low. If rates rise again or the economy slows down, these borrowers may find themselves struggling to make payments leading to defaults or weakened savings. rate cuts often mean lower returns on savings accounts and fixed income investments like bonds. This can hurt retirees or those that are saving for long-term goals as they rely on interest income. If you think rate cuts are all good and will save the market or make deals better,

you need to stay with lie number three. Rate cuts are great for real estate investors. Yes, lower rates sound great on the surface, but they also encourage more competition. it. You see, when money is cheap, more people enter the market, driving prices up. If you're not careful, you could end up paying way more for property than what it was just before the rates fell. When we're done with this list, I'll show you how to protect yourself from overpaying. Lie number four, rate cuts don't cause inflation. That's what many believe. I see you in the comments, but when borrowing is cheap, people and businesses, they spend more, which increases demand and it drives

prices up. Bad inflation can hit your bottom line, especially when you're managing the costs of running a property. Now, this next one, it's one of the most damaging lies. Lie number five, you should wait for a rate cut to buy. Waiting for the perfect rate cut often means missing out on great deals. Successful investors know that timing the market, they know that that's a losing gain. Instead, focus on finding deals that cash flow and make sense, regardless of small rate fluctuation. Contrary to popular belief, you're more likely to get a better deal when rates are higher. I've been watching happen the last several months here with our clients at cash flow savvy because the higher rates have finally started causing sellers to get

real and drop their prices. They're coming to grips with what's really going on out there. And that's a great example of how believing these lies can cost you a fortune. From inflating bubbles to locking in bad deals, these misconceptions will lead investors straight into financial traps. As rates fluctuate, so do your opportunities. And, so do your risks. Lie number six, refinancing is always a good idea after a rate cut. I mean, everyone loves the idea of refinancing when rates drop, but it's not always in your best interest. There are costs involved in refinancing, and if you're not careful, those can wipe out any savings you think you're getting. Plus, if rates drop even further after you lock in, you could

essentially end up paying those fees twice when you refinance again. And we're almost at my personal favorite, number nine. But first, lie number seven. All rate cuts are created equal. No, not all rate cuts are as significant as they sound. A quarter point cut may not make a huge difference in your mortgage payment, but the media, they love to hype it up. If you're splitting hairs over tiny rate changes, you're focusing on the wrong thing. What matters more than the purchase price and more than the rate that you're paying is whether or not your investment cash flows. Listen, everyone's feeling the pressure.

Home prices soared in recent years. interest rates shot up, and that hardly stopped the home prices from soaring. Inflation has made everything more expensive, and property owners are getting stung with higher property taxes and insurance. For those with adjustable mortgages, you're feeling it or you're about to, and all you're trying to do is just stay it profitable until the market strikes. And that leads us to line number eight, rate cuts will fix a weak real estate market. Well, people, they tend to believe that lowering interest rates will save a struggling

market. So far it hasn't. I mean, we're down almost a whole point in just the last four months. And as mortgage rates move even lower, the market is wondering, where are all the homebuyers? When they do come back because of the rate cuts, then you run the risk of fueling the bubble, especially when investors jump into deals without considering the underlying fundamentals. Just because rates are low doesn't mean a bad investment will magically become a good one. Believing these lies could lead you to live a financial nightmare. I mean, we've seen it before. People buy it the wrong time, they over leverage themselves, or they assume that prices are going to keep on rising, then the market shifts, and they're stuck with properties worth less than their mortgage. That's exactly what led to the biggest real estate market crash of our lifetime in 2008.

And that's why it's critical to understand the truth about rate cuts and rising costs and how to adapt your strategy right now. Because there are ways to navigate these tough times, to protect yourself from market volatility, and even, even find opportunities where others see only problems. And they'll break down an action plan for you right after lie number nine. Rate cuts make real estate less risky. In reality, rate cuts often encourage riskier behavior. Investors, they over leverage, they take on more debt and assume that the good times they're just going to keep on rolling. But when rates eventually go back up or the market slows, those risks can come back to haunt you. Just ask all the greedy flippers in 2008 who got caught with the chair when the music stopped playing.

golden houses to flip, but no one left to buy. So if you're all up in your head wondering, you know, what's going to happen next, feeling like you just can't catch a break, although you probably deserve one, or feeling like you're damned if you do, damned if you don't, hey, you're not alone. Whether you're an investor, a homeowner, or just trying to make sense of all this, there are positive actions that you can take. I'll run through quickly nine things that you can do to protect yourself, whether rates get cut or go back up. So number one, really important.

Focus on cash flow, not the rates. I see a lot of people in the comments waiting for the perfect rate cut to buy or refinance. The truth, that's a losing gain. Rates will go up and they will go down. But what you need to focus on is whether your investment cash flows right now. Two, don't count on rate cuts to lower prices. We saw massive price jumps since 2020. And even if rates drop slightly, it doesn't mean that the property prices are got to follow.

Prices for homes have gone up 45% since 2000. It usually takes 15 years for prices to move that much. Number three, prepare for ongoing inflation. It's not going anywhere. Reality is, even with small decreases in rates, prices for everyday goods and services, they're still going up. For example, a Chipotle Bowl has risen from $6.50 to $8.85. And just the last two years, that's like 35, 36%.

That's the real inflation rate, not that 2.5% that they're telling you about right now in the news. The Consumer Price Index is a joke. It's the Chipotle Price Index that's real. Reform, invest, where you have to control. Owning rentals, it gives you control over the rents that you charge. And some expenses can be passed on to TEDx, like shared utilities, or implementing strategies like rubs. That's ratio utility billing system. And that can help offset rising costs too.

Or add additional services like charging for pets, storage, and parking, or change the use of a property to a short-term rental or, change the use of a property to a short-term rental or, of mid-term rental or assistant living is you've got control over all in that. And that can help you make better buys and confidently hold on to your brokerage. Be strategic and drive revenue, phallowing for the tenants. Number five, think long term, not short-term damage. It's easy to get caught up in the panic of short-term market fluctuations, but smart investors, they play the long game. You can't control every rate changer, cost increase,

but you can't set yourself up for long-term success by buying properties that cash flow and are located in areas with strong demand. Pay attention to the migration patterns. You want to go and invest where people are going. Six, diversify your investments. Not everything should be tied to one market or one type of investment. Like a private client of mine who recently sold their home, their primary residence, and invested enough proceeds into U.S. treasuries to cover their rent on a new place that they're living in.

And then they took some more of that and put it into a dividend stock. And then they took the rest into, and they put that into three small income properties from cash flow savvy. Number seven, prepare for rising property taxes and insurance. Because I know many, myself included, are feeling the pinch of rising property taxes and insurance costs. These aren't going down anytime soon, if they ever do. So make sure that you factor these increases into your rental prices. Eight, stay adaptable. Don't overcomit.

While it's tempting to go. go all in. Now is not the time to over leverage yourself. For example, it's clear that the rental market is facing challenges in several parts of the U.S. as eviction surge in major cities in the American Sunbelt. What's better

is placing your bet on solid property management. It's as important as the property itself. Number nine, look for market opportunities, not perfection. There's never a perfect time to buy or invest in real estate other than right now.

if financial freedom is important to you. You just don't stand a chance at any sort of it unless you incorporate real estate into your plan. Waiting for the market to settle always means missing out on great opportunities. For example, if you would have purchased, say, an income property the day before Lehman Brothers went out of business. Like possibly could have been the worst day in history to have purchased a property. As long as you didn't sell it, you would have tripled your money. Consider this, too, that there's less competition in the market right now, meaning more negotiating power for homeowners and investors. And prices, they're softening, allowing for better deals.

The market is adjusting. For example, increased inventory is leading to concessions from sellers and easing purchasing conditions. This is when you want to be in the market. But the real point here is don't let uncertainty about the market and the economy stop you from taking advantage of what the market is presenting. The key is to make smart and firm decisions. They just keep them forward, even when,

things look uncertain. Smart investors, they can capitalize on current trends and market shifts. You want to be a smart investor right now. That's all I got for you today. I'll see you next time. Take care. And that wraps up the epic show. If you found this episode valuable, who else do you know that might too? There's a really good chance you know someone else who would. And when their name comes to mind, please share it with them and ask them to click the subscribe button when they get here and I'll take great care of them. God loves you and so do I. Health, peace, blessings, and success to you. Matt Terrio, living the dream. Yeah, yeah, we got the cash flow.

You didn't know, home boy, we got the cash flow. This podcast is a part of the C-suite Radio Network. For more top business podcasts, visit c-sweetradio.com.