During the pandemic we saw interest rates fall to historic lows creating a highly competitive real estate market. As we move through 2022 mortgage interest rates are rapidly increasing. The Federal Reserve has announced that they will be raising interest rates as a means to combat inflation which will have short and long term effects on real estate investments, development activities, and home buying.
So how exactly will this impact the real estate market, and more specifically, investors?
Investors during the pandemic saw an opportunity to invest in more properties due to the historically low interest rates, however, as funds become more expensive to borrow it is less advantageous to continue investing at the same pace as before. Investors will need to prepare and budget for a continued increased cost of capital as they consider properties in this economy.
An investor's strategy will determine how rising interest rates will impact them. If an investor is interested in value appreciation and intends to hold onto the property as a rental, high interest rates might not be such a bad thing. For investors who have the option to adjust rent, rising interest rates may actually benefit them. With a fixed mortgage, the payment remains the same while rents can increase due to inflation and changes in the market. For investors that are more focused on strong, instant cash flow, they may experience reduced margins on their projects due to rising interest rates, forcing them to hold for longer than they had intended.
Regardless of rising interest rates, real estate acts as a hedge against inflation. With the right strategy and preparedness rates are nothing to fear as a real estate investor. Fortunately, with the product variety offered by private lenders, the question isn’t whether or not you should buy, but rather which loan product makes the most sense for you.