Is Real Estate Still Worth It at These Interest Rates
You're looking at a property that penciled beautifully two years ago and now the same deal loses money every month. Or you're sitting on cash, watching rates hover well above where they were, and wondering if you missed the window entirely. That's the question. Here's the answer.
Yes, real estate is still worth it at these rates, but the deal has to work at the rate you're actually getting, not the rate you wish you were getting. The math changed. The strategy has to change with it. Buying the same way you would have in 2021 and hoping the numbers work out is how people lose money right now. Buying with the current cost of debt built into your underwriting from the start is how people still make money.
That's the short version. The rest of this is why it works that way, what people get wrong, and what to actually do about it.
Why Higher Rates Change the Deal, Not the Asset
A rate increase doesn't make a property worth less to a tenant. Rent is still rent. What it does is change how much debt you can service with that rent, which changes how much you can afford to pay for the property.
Here's the mechanic. On a $400,000 loan at 4%, your principal and interest payment is roughly $1,910 a month. That same loan at 7% runs about $2,660 a month. That's $750 more coming out of the property's income every single month, for the exact same asset.
If the property was cash flowing $300 a month at the old rate, it's now losing $450 a month at the new rate, unless something else moves. Either the price you pay has to come down, the rent has to go up, or you put more cash in and finance less.
That's the whole story. People who bought at 2021 prices with 2021 assumptions and 2026 rates are underwater on cash flow. People buying today, at today's prices, with today's rates baked into the offer, are working from a clean starting point.
What People Get Wrong
The biggest mistake I see is comparing today's rate to the rate from a few years ago and treating the difference as a reason to wait. That comparison is emotional, not financial. The rate you got in 2021 is gone. It's not coming back for this decision. The only comparison that matters is: does this deal work at the rate available to you right now, on the property in front of you, today.
The second mistake is underwriting the purchase price like it's still competing in a bidding war. Prices in a lot of markets haven't fully adjusted to reflect higher borrowing costs. Sellers are anchored to what their neighbor's house sold for eighteen months ago. That gap between what a property is priced at and what it's actually worth at current rates is exactly where the negotiation happens. If you offer full price on a rate-adjusted deal, you're paying 2021 prices with 2026 financing, and that math doesn't close.
The third mistake is ignoring that higher rates also mean less competition. Fewer buyers can qualify, fewer investors are willing to underwrite thin margins, and cash buyers have more pull in negotiations than they did three years ago. That's not a small thing. Less competition is one of the reasons deals still work right now, if you're structured to take advantage of it.
A Worked Example
Say you're looking at a duplex listed at $340,000. Combined market rent is $3,400 a month.
At a 7% rate with 20% down, you're financing $272,000. Principal and interest lands around $1,810 a month. Add property tax, insurance, and a maintenance reserve of roughly $700 a month combined, and your total monthly cost is about $2,510. Rent of $3,400 minus that $2,510 leaves $890 a month before vacancy and management, which is a workable margin.
Now say the seller won't move off $340,000, but a similar unit two blocks over sold for $310,000 last month with slower days on market. You take that comp back to the seller. If you land at $315,000 instead, you're financing $252,000, your payment drops to about $1,680 a month, and your margin widens to roughly $1,020 a month for the same property, same rent, same rate.
That $25,000 in negotiated price didn't come from a lower rate. It came from refusing to pay a 2021 price with a 2026 loan. That's the adjustment that makes deals work right now: not waiting for rates to drop, but pricing the asset correctly against the rate you actually have.
What to Actually Do
Get pre-approved and know your real number before you look at anything. Not the number a lender says you qualify for, the number where the property still cash flows after taxes, insurance, and a maintenance reserve, at the rate you're actually being quoted.
Run every property at the current rate, not a hoped-for rate. If a deal only works assuming rates drop next year, it doesn't work. You can always refinance later if rates fall. You can't refinance your way out of buying an overpriced deal.
Negotiate on price, not on hope. Sellers who've had a property sitting for sixty or ninety days are a different conversation than a fresh listing. Use days on market, use recent comps, and use the fact that fewer buyers can qualify right now as your advantage.
Consider seller financing or assumable loans where they exist. Some sellers, especially ones who own the property free and clear, will carry a note at a rate better than what a bank will give you, because they'd rather collect interest than pay capital gains all at once. It's not common, but it's worth asking on every deal.
The Honest Limitation
Here's what I won't tell you: that every market and every deal works at current rates. Some don't. In high-priced coastal markets where rents haven't kept pace with purchase prices, a lot of deals simply don't cash flow no matter how well you negotiate, and forcing one to work by underpricing your maintenance reserve or ignoring vacancy is how people get hurt two years in. If the spread between what a property costs to own and what it rents for doesn't close with reasonable negotiation, the right move is to pass and look somewhere the math actually works. Rates test discipline. The investors who get burned right now aren't the ones who bought carefully at 7%, they're the ones who bought a deal that only worked on a rate they didn't actually get.
If you want to see what a deal that actually works at today's rates looks like before you make an offer, that's exactly what we built Deal Machine for. Run the real numbers, at your real rate, before the seller sees your offer instead of after.