Can Lenders and Investors both win with Collateralizing?

A new (old) way to pay for your investment

These days the news is full of stories about inflation and the stock market falling more and more.

In addition we keep being reminded that the FED is raising rates a few more times this year, doesn’t want to print more money and actually plans to remove funds form the currency market.

We are also keenly aware that we have all been doing well with our real estate investments. Prices are stable with still some increases in 2022 and rent keep moving up with inflation. Supply and demand remain in a huge imbalance with housing starts nowhere near what they would have to be to keep us with interest, let alone making up any of the gap that has grown since the crash in 2008.

As real estate investors we are always dealing with lenders because we want to take advantage of leverage and what it does for us and our profits.

As the readers of my articles know by now, we live in markets that I would characterize as anticipatory rather than reflecting reality. Take a look at the chart below.

As you can see mortgage rates have increased from around 3% in 2021 to over 5% now. This is for loans that are used to buy personal owner occupied residences. if you want to know what that translates to for our investment properties, you can typically add about 1%. That means the 30 year mortgages we used to use even last year are not about 6% interest and can lead to a situation where the investment can’t generate cash flow anymore when I would have just 6 months ago.

On the one hand you could say that the massive increase is anticipatory because the FED has only increased rates by 0.75%. The increases in the real markets are more than 2% and already anticipate that the FED will ultimately increase rates by 2% or even more.

Nobody knows for sure and the questions becomes:

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