Rising interest rate impact analysis

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Check it out at this link! Originally created for the post: ‘Impact of Rising Interest Rates on Investment Properties’

What it is

A set of analysis I prepared looking at the theoretical impact of rising interest rates on investment property returns and prices. It looks at:

  • What will happen to returns if you hold property prices constant
  • What happens to property prices if you hold returns constant
  • What happens to property prices if you increase cash on cash returns

It’s interesting to see what the results suggest – each 0.5% increase in interest rates would imply a 1% decrease in cash on cash returns if you hold price constant. Conversely, if you want to hold returns constant (or increasing), then a 0.5% change in interest rate would imply a ~3-5% decrease in property price.

As we’ve moved into 2018 and seen interest rates creeping up, it’s interesting to see that property prices also seem to continue their rise. Seemingly compressing potential investor returns.

How you can use it

Review it yourself. Make a copy if you like. Play with some of the inputs to see how I modeled things. Let me know if you agree with the analysis or have any added thoughts or suggestions.

Cheers!

Ramen-san

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