Slimmer Property Selections
With climbing interest rates, real estate listings have a longer life on the market. The process of solidifying these transactions may take longer because of hesitancy and extra caution from banks. Plus, fewer people are able to commit to the interest rate, which means a decrease in shown interest in properties.
With the number of real estate buyers shrinking, the demand for housing is moderate. This leaves the opportunity for serious buyers to be more selective and not need to be as competitive in bidding. With the decrease in demand, materials for new construction should become more available and affordable.
The cost of borrowing has been extremely low for an extended period of time and has now begun to increase. The Federal Reserve’s interest rate sat at 0% for over 3 years and now ranges from 0.75-1%, but is expected to possibly nearly triple in 2023. Although the Federal Reserve claims that they do not wish to continue to raise these rates, due to inflation, they say this increase will not end soon.
The Benefits of Rising Interest Rates
Despite the dissatisfaction expressed by the general public about inflation, the cost of goods are still expected to rise. The Chairman of the Federal Reserve states: “We understand that our actions affect communities, families and businesses across the country. Everything we do is in service to our public mission. We at the Fed will do everything we can to achieve our maximum employment and price stability goals.”
Soon after the market cools, prices of commercial real estate will drop due to less demand. Since there was so much demand for both housing and commercial real estate, it made sense that the cost for such properties continued to rise with demand. Investing in existing properties still allows investors to purchase properties without the expense of construction materials.
Existing commercial real estate properties will reach more affordable prices for those looking to purchase. The aftermath of the last few years’ real estate-purchasing frenzy has created prices out of people’s reach. However, with existing properties reaching an affordable price, this can help sell properties that have been sitting on the market for too long. Investors can also work with an existing property rather than bear the expenses and delay of construction to be completed.
Finding the Best Lending Terms for You
While shopping for your rates, it is best practice to speak with an alternative lender. Reaching out to your bank may seem like the first option, but the flexibility lenders have may give you more opportunity. Lenders like ReProp Financial help to create plans for individuals looking to invest in commercial real estate.
To ensure you are receiving full service, be sure to look into multiple lenders and get an idea of all of your options. Some lenders’ prices, terms, and LTV vary based on location, so look into multiple lenders to see what they can offer you.
Reach out to lenders directly when inquiring about a rate. It is beneficial to negotiate. Like all extended offers, duration, valuation, balloon payments and interest rates are subject to the uniqueness of your circumstances. Do not hesitate to go over your credentials with your lending advisor to negotiate the best rate for you.