A Response to the 3,200 Unit Portfolio Closure in Houston, TX
A recent article in the Wall Street Journal described the loss of 3,200 units a Houston apartment owner experienced, which was quite unfortunate for the industry. The apartments were foreclosed on due to the operators’ inability to make their payments to the bank, which stemmed from the escalation of interest rates on the loan used to purchase the apartments. While some may view this as a negative development, it actually is an opportunity for passive real estate investors to become more educated in making sound investments with better operators.
Rising interest rates are always a concern for real estate investors, but they are not a reason to shy away from investing altogether. In fact, there are several strategies that passive investors can use to mitigate the impact of rising rates and protect their investments.
One strategy is to invest in properties with fixed-rate loans, which are not affected by changes in interest rates. This can help to provide a level of stability and predictability to your investment, as your monthly mortgage payments will remain the same regardless of interest rate fluctuations. This would be the primary strategy at this point in time to hedge against risk associated with market volatility.
Another strategy is to invest in properties with shorter loan terms, which can help to reduce your exposure to rising interest rates. Shorter loan terms typically have lower interest rates than longer-term loans, which can help to lower your overall borrowing costs.
It’s also important to consider the overall health of the market before investing in any property. If interest rates are rising, it may be a sign that the economy is strengthening and that rental demand is on the rise. This can be a positive development for real estate investors, as it can lead to higher occupancy rates and rental rates, which can help to increase the value of your investment.
And finally, having a solid exit strategy in place is crucial. This means knowing when to sell a property and having a plan in place for how to do it. This will help you to minimize your losses and maximize your returns, even in a rising interest rate environment.
So, while the recent foreclosure of 3200 units in Houston may be a setback for some investors due to rising interest rates, it should not discourage passive investors from entering the real estate market. By using strategies like investing in fixed-rate loans, shorter loan terms, and staying informed about the health of the market, investors can protect their investments and maximize their returns.