Investors and Developers Face Challenges Due to Rising Interest Rates

Take a look at the impact high interest rates and inflation are having on real estate developers and investors.

In a continuous effort to get a handle on inflation, last month the Feds increased interest rates for the third time this year and predict more increases in the future. While rates are still lower than what was experienced 20+ years ago, they are much higher than what we have become accustomed to, and developers and investors are facing challenges as a result.

Contributing Factors

Interest rates are just one of the factors contributing to the challenges faced by real estate investors and developers, but they are significant. High interest rates on construction loans combined with a shortage of loan options is creating a huge problem. Investors and developers are having to get creative and find ways to make up for the cost in other areas of their construction budgets in order to see the returns they were hoping for.

Due to the volatility, many private equity debt funds are limiting their loan options by pooling together construction loans and selling them as collateralized loan obligations. The debt funds that are still providing construction loans with flexible terms are offering high leverage. This covers a huge portion of the costs of large construction projects, however, in exchange for higher leverage, they are charging higher interest rates.

Rising costs of building materials, labor, and supply and demand issues are also main contributors in this volatile environment. The good news for developers and investors is that as inflation drives these factors up, it is also driving up things like rent and property value.

Despite these challenges, developers and investors continue to move forward with new projects. Many remain optimistic and spend time and energy searching for innovative ways to reap their sought after returns. Fortunately for them, apartment rents continue to rise, and the population and job growth, specifically in the SunBelt region, is very promising.

Cleverly managing your budget, finding flexible financing, and investing in the right market are all ways developers and investors are continuing to thrive in the midst of rising interest rates and additional challenges.

The lending professionals at CALCAP Lending are experts at navigating the challenges of interest rates, providing successful outcomes for their clients.

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About CALCAP Lending

A division of CALCAP Advisors, CALCAP Lending benefits from the expertise of a seasoned team of professionals with extensive, successful track-records covering a variety of disciplines and leading large, nationally-recognized institutions. A private money direct lender, CALCAP Lending provides short to mid-term financing for property investors and businesses looking to purchase, refinance, renovate, and construct residential or commercial properties.

Lending FAQs

You've got questions, we've got answers.

What is private money lending?

Private money lending is a collateral-based lending strategy that is often associated with shorter terms and more attractive features. A private money loan offers more flexibility than a conventional mortgage or bank loan.

How does a private money loan work?

Private money lenders provide financing using money from private entities. Private money loans often work as bridges to help investors gather funds to achieve their short term real estate goals, but long term, permanent options may also provide.

Why would I choose a private money lender?

There are many advantages to using a private money lender for your real estate investments! Private money lenders can be more lenient when it comes to borrower credit issues, often there are no prepayment penalties, you can leverage your cash to buy multiple properties, and private money loans are quicker when compared with institutional loans.

Can I get prequalified for a loan?

CALCAP has a responsive loan team who are able to prequalify you. Contact a loan specialist at 833.816.5580 to get started.

How long does the lending process take?

Private money lending can be a quick and painless process. From start to finish, 30 days is common, however, turn around times can be as short as 10 business days.

Can I still be approved for a loan if I have bad credit?

Generally yes, we understand that people have temporary financial issues that come up, and we want to work with you to help you rise up financially to a better place. Offsets to credit concerns may include experience as a real estate investor, good cash reserves, and/or larger down payments.

I am a broker or investor, how can I work with CALCAP?

Business is built on relationships. Ours is no different. CALCAP Value and Preferred Partners receive exclusive rates and services. For more details and to submit your application, visit our partners page.

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