The Fed has recently announced plans to raise interest rates. The stock market reacted with horror. There was a significant drop across the board as unfavorable interest rate increases threaten the speed of the economic growth. Inflation must be managed, but rising interest rates do have effects on the commercial real estate world.
What Rising Interest Rates Means for Investors
Today, multifamily investors can get a mid 3% interest rates on a 10 year commercial loan. In the world of rising interest rates, that number can go up to 4 or 5 percent. This should not be a surprise, as interest rates cannot stay low forever. But what does that mean for investors? Since investors cannot control interest rates and sitting out of investing in an asset class that has a significant shortage may not be the right answer, investors must manage what they can control. And that is the buy price.
⁉️ Buy Right
Increased costs of borrowing means that investors and firms must generate even greater returns or buy at a lower price. The price at which you buy is more controllable than the potential income growth and the eventual sale price.
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