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How does the interest rate affect real estate

How Does The Federal Interest Rate Work?

What is the federal interest rate? How does it affect Real Estate?

Dillan Thompson (00:05):

Hey, how are you doing? I’m Dillan with easy man buys houses. Let’s talk a little bit about real estate, the interest rate who sets the interest rate. And what does it mean for the real estate market? Interest rate is a tool used when loaning money, essentially what an interest rate is, is you’re evaluating the risk of who you’re loaning the money to. And you’re going to increase that interest rate to determine how likely you are to get paid back. If you’re, um, if you’re loaning money to a individual who has a higher risk, you’re going to tend to see a higher interest rate because that bank’s going to want to make sure that they’re getting their money back. And by increasing the interest rate, if the person does fail to pay him back, as long as they paid up front for the most part, and they’ve been paying on that interest, the bank’s gonna have a little bit more security and they’re not going to lose as much money.

Dillan Thompson (00:57):

A good example of the industry that uses interest rate to their advantage. And to also help individuals who are looking for the product is the vehicle industry. When individuals go to go purchase a vehicle, if they have bad credit, the dealership is going to still offer them financing, but you want to see higher interest rates. A lot of times you can see like up to 20%, but a high interest rate would probably be about 14% that a lot of these companies will go out to. And the other side of it, if you have good credit, if you pay your bills on time, and then, um, if you’re a good client, then you’re going to see lower interest rates. And also kind of depends on how much money you’re putting down. So for 20 – 25,000 dollar car, if you put $5,000 down, you can sometimes see like around a 3% interest rate currently.

Dillan Thompson (01:50):

And then if you’re no one puts your percent down, your risks going to go higher because that, um, that company doesn’t have as much of a buffer. So that’s why you’re going to see a higher interest rate, same thing with a pure real estate market. If you’re doing conventional financing and you’re going to put money down the higher, the larger than the dollar amount that you’re going to be putting down the lower your monthly, payment’s going to be. And then subsequently a lot of times you can probably get a little bit lower rate. So who sets the federal interest rate? I mean, people have heard of the federal reserve, but not too many people know exactly what they do. So the federal serve is a government entity that regulates banks. They enforce policies, they monitor mortgages. And then they’re the ones that set that federal interest rate.

Dillan Thompson (02:38):

So essentially what the federal interest rate is, is the percent of interest being charged to banks. When they’re borrowing money from the, from the government, from the federal reserve, how does the federal reserve determine what the interest rates want to be? A lot of that has to do with how the economy is currently functioning, like great example of when they lowered the interest rate substantially is in the 2009 housing market crash. A lot of people stop spending money is there’s a lot of foreclosures. The economy was just tanking. And in order to try to jumpstart the economy back up, but the federal reserve did, they put the interest rate on loans close to 0%. So it was pretty much free money for the bank to borrow. And it was, it was to make it a lot easier for individuals to borrow money from those banks.

Dillan Thompson (03:29):

And that’s why at those times, you’ll see if somebody purchased a house back then not only was it, did they get a good deal on the house? Because the price of the house market were so low, but a lot of times they could get pretty good financing if they still had a good, good credit and still had a recurrently working. We’re seeing that right now with the, um, with the current coronavirus, since there are so many individuals out of work, um, not too many people were wanting, buying as many houses. People are still buying. It’s still a great real estate market, but you’re going to be seeing a lot more people trying to hold their money back and they’re not going to be borrowing as much money. So that’s one of the tools that the federal reserve uses is the one on decrease the interest rate.

Dillan Thompson (04:08):

It’s, um, it’s decreased about a percent since the coronavirus. We’ll see if it decreased a little bit more, but essentially that’s to try to get people to continue to borrow money and spend money. And so the banks are getting, getting that income from the, from there, their loans. So when the federal reserve lowers interest rate, what exactly does that mean for individuals? Just normal individuals, not necessarily the bank. So what that means is that because the bank is able to borrow cheaper money than not having to pay as much of an interest rate on that money, it’s back to the federal reserve. They’ll be able to give lower interest rate loans to individuals trying to purchase houses. So even though the lowering of interest rate does make mean it’s a good time to purchase and get a good rate on your loan, it is still a good time to sell your house.

Dillan Thompson (04:57):

Especially in the Tucson area, there is still a shortage of inventory. There’s houses being built, but they’re not being built fast enough. And there’s been a lot of industry that’s moved out into the city. There’s if you think about, we have Caterpillar now there’s, um, Raytheon has shut down some of their locations and other areas, and they’re moving their personnel to Tucson. We just got the new Amazon warehouse out here. So our industry is still pretty good out here. The need for housing is still really high. So even if you are, if you’re on the fence for selling, you still can get a pretty good price since there is such a lack of inventory. So you’re going to have a little bit more leeway when there’s lack of inventory. What does that mean as a seller? So essentially what that’s gonna mean for you is your one be able to be a little bit more picky about those offers that are coming in, because you’re more likely to get several different offers.

Dillan Thompson (05:51):

You’ll be able to choose the highest one. And then you can actually have a little bit more control on those tendencies. On those counter offers. A lot of individuals are going to want to ask for their, uh, for your refrigerators. They’re going to ask you to do repairs on the house. Sometimes people ask some pretty excessive stuff because I mean, they are, it is a big ticket item that they’re purchasing. So they want to have a little bit more control and have be able to determine the condition of property one. They’re going to get it. So since there is a lack of inventory, that means that when a individual does come with two to you after your offer, after you accepted offer, and they want to go ahead and have you do repairs, you can be a lot more picky if they want you to friggin redo the entire roof, or maybe even a lot smaller stuff than that.

Dillan Thompson (06:38):

Maybe there is some, um, something due for water heater. They want new water heater. For some reason, even though the one in there is working, you’re going to have a lot more control and be like, no, I’m not doing that. I’ll help you out with maybe fix these couple of these little holes, maybe this Dean’s all frigging and do some paint and we’ll call it good. And you’re going to have a higher likelihood to be able to sell that house and have them accept that just because there is that lack of inventory, and it’s going to be a larger pain in the butt for them to go find a new property and purchase than it would be to fix those small items themselves. If you don’t want to sell your house, a traditional means you’re able to use a lot of different tools that are currently online tools like Craigslist, Zillow, and even Facebook marketplace are a great way to go and do for sale by owner.

Dillan Thompson (07:31):

It’s very beneficial about doing for sale by owner is you have the option to finance the house yourself. So especially if you want to do like a rent own property, which is a great option. If you’re looking to make a little bit more money on your property, you can get a down payment upfront, which you can actually use those funds to put money into the house and fix it up. And then you actually can make a little cash flow on top of that. And then after a certain amount of time, if the individual hasn’t purchased the house, then you could actually increase that interest rate a little bit on that loan and who knows, maybe they decide they don’t want to purchase house. Then you can sell it again in the future and still get a dump.

Dillan Thompson (08:11):

What do you do? You, if you’re in a situation that you need to sell your house quickly, maybe you’re going through foreclosure. Maybe your family member died and you’re going through the probate process and you need to liquidate, liquidate that asset quickly. I mean, many, many reasons, but what you want to do is you want to go ahead and you want to look at these home buying companies in your local area. You can go one of the larger companies like open door offer pad, but I recommend going to a local and in stay in city company, they’re wanting to be able to help you out better. They’re going to be a list of your problems a lot more. And especially if you have unique situation, they’re going to be a lot, lot more flexible than other companies. So what you want to go ahead and do is just give them a call.

Dillan Thompson (08:59):

ACE man buys houses. Actually we do work with flawed individuals going through these situations that need to sell fast. So give us a call. We’ll talk to you. We’ll figure out what this situation is, what your goals are. The most important part is what your goal is and what you’re trying to do, because sometimes maybe you do have a little bit, a little bit more time than other people. It’s different situations. So if you do have more time that it’s great because then you’ll feel able to put some money into your house. So they’ve cleaned it up. Maybe put a coat of paint and hire a realtor. And we actually have a realtor that works with us when we can give you a discounted interest rate. So if you don’t want to spend 6% on your listing, go in and talk to us. We have realtor that will give you a discounted rate by anyways.

Dillan Thompson (09:44):

If you do have the time, you’ll be able to fix up the house, put the house on the market and get top dollar for it. And that’s wonderful. And we want you to be happy and get the most out of your property. But when you’re in a situation where you do need to sell fast, go ahead and give us a call and we can, can tell you a lot of times, we’ll be able to give you a very comparable offer for the time that is wanting to take this on. So usually we can close a house in two weeks, we’ll break down everything. We’ll take a look and see how much it would cost and repairs. We’ll talk about, um, how much it costs for your realtor fees or closing costs you have. If you also are selling it traditionally, then you’ve got your holding costs.

Dillan Thompson (10:23):

So essentially what that means is how much money you’re going to be spending on your electricity, on your gas, on your water, sewage and all that stuff. So not to mention your taxes and insurance. So it does cost money to hold onto the property while longer. So when you come and talk to us, our offers are very, very comparable on the very competitive. So getting back to what we were talking to talking about. Initially talking about interest rates. If you’re looking to purchase a house right now, make sure you shop around different banks are going to have a little bit different interest rates, even though they’re those banks are borrowing the same amount of cost money from the federal service, but you want to make sure you’re shopping around. Um, if you don’t qualify for a mortgage, having, trying to buy a house through a rent to own, or it’s also called lease option, or some sort of owner financing is a great option. Um, so remember again, if you do, if you are in a situation where you need to sell your house quickly, go ahead and call it easy. Man buys houses. We love to talk to you and give you as much guidance and help as possible. And, um, if even if we can’t purchase the house ourselves, we’ll help you figure out what the best solution for your problem is. Thanks.

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