How can real estate professionals mitigate rising mortgage rates?
- Tips & Tricks
- 5 min read
Real estate professionals are usually among the first to experience changes in the broader economy. This can be explained, at least partially, by homebuyers factoring in a diverse set of variables before committing to a purchase – from the breadwinners’ career prospects to market forecasts.
Given the centrality of mortgage rates to this equation, the recent 55% hike in average monthly payments (as compared to early 2021) will have many potential homeowners asking, “Is this the right time to buy?”.
Needless to say, this will also affect the bottom line of realtors, real estate agents, and brokers across the US.
Will prices rise or fall?
Even though some analysts have claimed that rising mortgage rates might stabilise the overheated housing market and slow price growth, first-time homebuyers aren’t likely to experience the impact anytime soon.
For instance, Logan Mohtashami – lead analyst at the housing industry news outlet HousingWire – speculates that increased mortgage rates will likely force some people, especially those with no pre-existing equity, to temporarily pull out of the housing market altogether. This, in turn, will further pump up demand in the already crowded rental segment.
With the median existing-home price up by 15% from last year ($357,300 vs. $310,600) and interest rates still hovering around 5.08% (2.67% in 2021), potential homebuyers are really starting to feel the squeeze.
This is reflected in the frequency of searches for “homes for sale” by 10% year over year, and a slight dip in the number of people going to look at homes.
So, what strategies can real estate agents deploy in light of this situation? Let’s take a look!
Alternative sources of income
Training would-be realtors in the art of real estate
You may not reach the level of Tom Ferry – a true-blue real estate coaching superstar – but with business in a slump, the moment is ripe to start imparting your hard-earned knowledge and skills to aspiring realtors.
In order to become a coach, you’ll have to complete some kind of training. Here you have two basic options: a course tailored specifically to real estate instructors or a certification program for business coaches.
Whichever one you choose, the next step is designing your own program. To clarify your offer, ask yourself the following questions:
- Who is your program design for?
- What skills can participants expect to master upon completion?
- Do you want to do group or one-on-one coaching?
- Why should people choose your services over someone else’s?
To get off the ground, you’ll want to focus on lead generation via social media and other marketing channels, including referrals, to get the word out that you are starting a coaching business.
In addition, you may want to offer your services at a discount and then start charging your target rate once the ball is rolling. In other words, this is a strategy that might pay off nicely if you put enough time and effort into it.
Starting a brokerage and having others work for you
Another way to earn additional income from homebuyers or renters is by starting your own brokerage. If you succeed, it could net you upwards of $160,000 a year or thereabouts (there’s quite a bit of state-to-state variation), plus a cut of your agents’ commissions.
Be warned, though, startup costs for real estate brokerages vary from at least $10,000 if you’re bootstrapping to over $200,000 if you’re looking to start one under a franchise. On top of that, you’ll also be paying ongoing fees, such as licence renewal.
Having your own firm comes with a set of advantages – being your own boss, higher earning potential, and so on. Still, given the time- and resource-consuming nature of making it work, you’ll first need a top-notch game plan and enough savings to last you 1+ years without stable and predictable income.
Investing in real estate
Being a real estate pro, chances are the idea of investing has already crossed your mind at least once or twice in the past. Moreover, the experience that you’ve accumulated up to this point can give you some real guidance.
Like the previously outlined sources of extra income, real estate investment is again a branching path. Let’s discuss each fork very briefly to give you some idea of the options before you.
Buying rental properties
If you’re handy and have something extra stashed for a rainy day (and don’t mind dealing with tenants), rental properties can be quite lucrative. With the exception of a slight dip around the 2007-2008 financial crash, the median sales price of houses in the US has been rising since about the mid 1960s.
The pandemic and rising interest rates might change that to some degree, but rental properties are still a great investment, as evidenced by the ongoing rush of buying up houses and other rentals.
The practice of buying real estate and then reselling it within 6-or-so months is called “house flipping” – a kind of “wild west” of the real estate investment scene. Two main strategies apply here: “pure” flipping and investment proper. The first kind resell properties with intrinsic value that don’t need repair to make a profit, while the second buy reasonably-priced houses and renovate them before reselling.
House flipping is fairly capital-intensive and requires significant experience in real estate valuation, marketing, and renovation.
Real estate investment groups (REIGs)
These are essentially small mutual funds where a company buys or builds apartment blocks or condos, and then allows investors to join the group by purchasing them. This is a great option if you want to own a rental property and charge rent without dealing with maintenance, advertising vacancies, interviewing tenants, and performing other managerial tasks. The company that runs the REIG will do all of that for you and take a small cut of the monthly rent.
Real estate investment trusts (REITs)
REITs are basically more formal REIGs (holy alphabet soup!), but instead of making hay in the form of rent, you get dividends. This is because REITs are bought and sold on the major exchanges, like any other stock.
REITs are a great option if you want a regular income and/or want to invest in non-residential properties, which are simply not a viable purchase for a one-person investor.
Securing repeat business and getting more deals by going the extra mile
Diversifying your sources of income sounds like good advice, but does it mean that you should go searching for a second job? If you see real estate as a passion, rather than simply a job, you might want to instead think of how you can secure repeat business and get more deals by going the extra mile for your clients.
Realthy – a depository of services that your clients might need and a platform for offers that can help you boost your personal brand – is a great way to create more value for your clients and become a go-to for new deals. All you have to do is sign up, select one of our hand-picked offers, and then send a referral link to your client. Services include:
- Moving companies
- Home improvement services
- Home décor
- Bedding products
- Lawn maintenance
- Storage solutions
- Furniture and lighting
- Security solutions
- and more!
No matter the path you choose, Realthy, which is more than just a platform that real estate professionals can use to create more value for their clients, is here to help you boost your business. Follow us for tips and expert advice that you can start applying today.