Interest Rates Just Went Up. Now What?

For the first time in more than three years, the Federal Reserve has raised interest rates, and another increase may not be far behind. If you own rentals in Central Indiana or are shopping for your next one, here's what this shift really means for your numbers, and why it may open more doors than it closes.

Rates Are Back in the Conversation

For much of the past few years, interest rates held steady enough that many investors stopped talking about them. They had become just another fixed input in the spreadsheet. That changed in September, when the Fed voted unanimously to raise its benchmark rate by 25 basis points, citing inflation that remains well above its 2% target.

The bigger story may be what comes next. Most Fed officials have penciled in at least one more hike before year-end, and some economists expect a series of increases rather than a one-time adjustment. That uncertainty is weighing on investors as much as the hike itself.

In our conversations with investors, the mood has shifted noticeably. Buyers who were already careful about finding the right property are now more cautious still. The question has changed from "Is this a good property?" to "Does this deal work at today's rate?" Investment property loans already carry higher rates than owner-occupied mortgages, so every added fraction of a point squeezes cash flow that was already tight.

Listen to the Episode Rate Hikes and Rental Investing in Central Indiana Hear our team break down what the Fed's latest move means for buyers, sellers, and landlords. Watch on YouTube →

The Fed doesn't set mortgage rates, but the two are connected

It's worth remembering that the Fed's move doesn't translate one-for-one into mortgage rates. Thirty-year fixed rates track Treasury yields, inflation expectations, and broader market sentiment. Still, the two tend to move in the same direction over time. The average 30-year fixed rate climbed from 6.74% to 7.03% in the weeks surrounding the Fed's decision, and investor loans typically price above that average.

What a Quarter Point Actually Costs You

Headlines about rate hikes can sound alarming, so let's put real numbers to it. Say you're buying a $300,000 single-family rental with 25% down, leaving a $225,000 mortgage on a 30-year fixed loan.

$300,000 purchase, 25% down, $225,000 loan, 30-year fixed

Thirty-eight dollars won't make or break a well-chosen property. But for investors who have spent the last few years absorbing higher insurance premiums, rising property taxes, and steeper repair costs, it's one more pressure point on margins that are already thin. And if the Fed raises again, those small increases start to stack.

It's also worth noting that $300,000 is on the higher end for a single-family rental in Central Indiana. At that price, you're typically looking at a newer home in a highly desirable area. Many investors here are buying well below that number, which makes the dollar impact even smaller.

Why Central Indiana Absorbs Rate Hikes Better

Central Indiana is what many investors call a refuge market. Price points here remain reasonable enough that you can buy an excellent property in an excellent area, including new construction under $300,000, without the price tags common on the coasts.

That matters when rates rise, because the same quarter point costs far more on a more expensive home. Compare what a 7% to 7.25% increase does to the monthly payment at different price points, each with 25% down:

On a $700,000 to $1 million property, a quarter point is a serious hit. On a $250,000 or $275,000 Central Indiana rental, the change is real but manageable, and it rarely upends your long-term return. Lower price points mean rate changes cost fewer actual dollars here, which is one more reason Central Indiana continues to attract investors from higher-cost parts of the country.

Higher Rates Aren't All Bad News

There's a common assumption that rising rates are purely bad for investors. The reality is more nuanced. Rates have gone up for everyone, not just investors, and that changes the competitive landscape in ways that can work in your favor.

Less competition from owner-occupants

For an investor, a rental is a long-term financial asset, not a dream home or a move-up purchase. Owner-occupant buyers who were already stretching to qualify are the ones most likely to drop out when rates rise. That means fewer offers competing with yours on the same properties.

More motivated sellers

Sellers who have held firm on price or resisted offering concessions are starting to feel the shift too. Many listing agents are likely having frank conversations with their clients: rates are higher and may climb again, so the asking price may need to adjust.

Here's the math that makes that meaningful. To bring the payment on our $300,000 example back to what it would have been at 7%, the price only needs to come down to roughly $292,500. If prices adjust to reflect higher rates, and sellers sweeten the deal with a new roof, an HVAC replacement, a rate buydown, or help with closing costs, you may end up paying the same or even less than you would have before the hike.

Already Own? Your Low Rate Is an Asset Too

Many investors locked in mortgages at 3%, 4%, or 5% during the pandemic years. Those rates are a big reason why some owners are now reconsidering plans to sell.

That doesn't mean no one should sell. Plenty of owners have built substantial equity through appreciation, and there are good reasons to exit, such as reaching the natural end of an investment plan or hitting a target return. But if your property has a sub-4% loan, adequate rent, and steady appreciation, think carefully before letting it go. A rate that low is historic, and you likely can't buy down anywhere near it today.

In other words, it isn't just the property you'd be giving up. It's the financing attached to it. Even a property that's underperforming slightly on cash flow can still be a strong long-term hold when it carries a rate you're unlikely to see again in your investing lifetime. Neighborhoods change over time, too. Fountain Square took roughly two decades to become what it is today, and owners who held on through that stretch saved enormously on interest along the way.

If you do need to sell, there may be options. Accidental landlords with an FHA loan, for example, may hold an assumable mortgage, which can make the property far more attractive to buyers in a high-rate environment.

What Kinds of Deals Still Work?

There's no single magic property type or neighborhood. A deal that works comes down to the same fundamentals it always has: location, age, condition, maintenance history, and achievable rent. That said, two profiles are holding up especially well right now.

Hunt the Property, Not the Rate

Rates matter, and every investor should run their numbers carefully. But single-family and small multifamily investing is a long-term game, best measured over five, seven, or ten years and beyond. With that horizon, the right property matters far more than the perfect moment to buy it.

Long-time investors almost always share the same regret, and it isn't buying at the wrong rate. It's not buying more. Properties that looked ordinary at purchase often become the best performers in a portfolio after a decade or two of rent growth, appreciation, and principal paydown.

That's why the interest rate is only one of several ways a rental property makes you money. When you evaluate a deal, look at the full picture:

If a deal looks marginal because of a higher rate, it's worth digging deeper before walking away. Small savings on maintenance, smart negotiation on price, or a value-add improvement can often make up the difference of a quarter point, and a clear five- and ten-year projection gives you a far better read than worrying about the next Fed meeting.

Whatever the Fed decides next, good properties will still be available. In fact, the opportunities may get better.