High Interest Rates? Good. Here Are Three Moves That Print Money in This Environment.

Everyone is waiting for rates to drop. I am praying they stay elevated for another twelve months.

That statement will sound insane to anyone who thinks property investment requires low interest rates. But here is the reality: high rates create the exact market conditions that produce the best deals. Reduced competition. Motivated sellers. Off-market opportunities that vanish the moment rates drop and buyers flood back.

The RBA cut rates by 25 basis points in February 2025, and immediately the auction clearance rates in Melbourne's southeast jumped from 55% to 68%. Properties that were sitting for 4-6 weeks began selling in 2 weeks. The easy deals evaporated overnight.

Another cut and the window closes further. Two more cuts and the bargain hunting is over.

So rather than waiting for lower rates, here are three strategies that specifically exploit the current high-rate environment.

Move one: buy negative, renovate positive

High interest rates mean higher holding costs on investment properties. A $700,000 house at 6.2% IO costs $34,720 per year in interest on an 80% loan. At 4.5% (where rates were in 2022), the same loan costs $25,200. That is $9,520 per year more — and that gap is exactly why other investors are sitting on the sidelines.

Their loss. Literally.

Our strategy: buy the property knowing it will be cash-flow negative in its current state. Then immediately implement a renovation that transforms the cash-flow profile.

Example: $700,000 purchase. Standard rental: $450/week ($23,400/year). IO interest at 6.2%: $34,720. Annual loss: $11,320.

After renovation ($12,000 cosmetic + $110,000 granny flat): Dual rental income $850/week ($44,200/year). IO interest on total investment ($822,000 at 80% = $657,600 loan): $40,771. Annual surplus: $3,429.

The property went from -$11,320 to +$3,429 per year. The renovation transformed a liability into an asset, regardless of interest rates. And when rates do eventually drop, that positive cash flow becomes even more positive.

"I do not invest around interest rates. I invest around land value and renovation potential. Rates change. Land scarcity does not." — Joey Don, PremiumRea

Move two: exploit the 'scared seller' pipeline

High rates create motivated sellers. People who bought at the peak with variable rates and thin margins. People going through divorce. Deceased estates where the family wants cash quickly. Business owners whose cash flow has tightened.

These sellers prioritise speed and certainty over maximum price. They do not want to wait eight weeks for an auction that might pass in. They want a clean unconditional offer with a 30-day settlement.

Our off-market network is built precisely for this environment. Local agents know we can produce an unconditional offer within 48 hours and settle in 30-45 days. We do not need finance clauses because our clients are pre-approved. We do not need building inspections because we have already assessed the property type and know what to expect.

In 2024, approximately 40% of our acquisitions were off-market. These properties were purchased at an average discount of $20,000-$50,000 below comparable on-market sales. On 100 purchases, that discount totals $2-5 million in collective savings for our client base.

High rates are the mechanism that creates this deal flow. When rates drop, motivated sellers disappear. Off-market volume dries up. Competition returns.

Move three: lock in the renovation cost advantage

Construction costs have stabilised in 2025-2026 after the post-COVID surge. Builder insolvencies have cleared excess capacity from the market. Material costs have normalised. Labour availability has improved.

Our granny flat construction costs have remained steady at $110,000 + GST for a 30-square-metre standard specification. Two years ago, similar builds were quoting $130,000-$140,000 with 6-month wait times.

Simultaneously, the value uplift from a completed granny flat has not decreased. A $110,000 build still adds $150,000-$180,000 to the bank valuation. The arbitrage between construction cost and valuation uplift has actually widened.

This construction-cost stability will not last. When rates drop and development activity increases, builder capacity will tighten again. Wait times will extend. Prices will rise. The smart play is to build now, while costs are contained and builders are hungry for work.

Frequently asked questions

Won't property prices drop further if rates stay high? Melbourne's correction is already priced in. The 5-12% decline from 2022-2024 reflected the rate hiking cycle. Current prices in the southeast corridor are climbing $5,000/month despite rates remaining elevated. The floor has been established by fundamental demand — people need houses to live in, and Melbourne's population is growing by 150,000 per year.

Should I fix my interest rate or stay variable? For investment loans, we generally recommend variable IO. Fixed rates lock you into a structure that prevents refinancing. Variable allows you to benefit immediately when rate cuts arrive, and IO preserves your tax deduction. The 30-40bp premium for IO over P&I is small relative to the tax benefit.

What if rates go higher instead of lower? A possibility, though markets are pricing cuts. Even if rates increase by another 25bp, the impact on a $600K IO loan is approximately $1,500/year. That is manageable within our cash-flow modelling, which stress-tests at rates 100bp above current levels.