Economical Factors No Real Estate Agent Will Explain You: Part 2 - Interest Rates

The set of articles should act as a guideline for current and future real estate investors and it will explain some basic fundamentals to follow, that no real estate agent explain you about.

Interest Rates- Interest is charged by lenders as compensation for the loss of the asset's use. In the case of lending money, the lender could have invested the funds instead of lending them out. Borrow when it is low, avoid when it is high.

Rate 3% - 10%

Family Homes - Low interest rates can be due to government actions to stimulate stagnant market. It is beneficial to borrow at low fixed rate for investment as your loan repayments will stay low and predictable for a fixed period. Time to make most returns of your rent.

Buy/Hold/Sell

Apartments - Low interest rates can be due to government actions to stimulate stagnant market. It is beneficial to borrow at low fixed rate for investments as your loan repayments will stay low and predictable for a fixed period. Time to make most returns of your rent.

Buy/Hold/Sell

Raw Land - Moderate interest rates are sign of stability. They are good for land values, as land values depend on economic stability

Buy/Hold/Sell

Office - Good conditions to invest with expansion of the business. Follow vacant space and demand curves. Essence to have flexible lease where owner will be protected from rising interest rates for a long period of time.

Buy/Hold/Sell

Retail - Low interest rates beneficial to retail sector as consumers are willing to borrow and spend and goods. That leads to increased business revenues and demand for retails premises therefore higher ROI.

Buy/Hold/Sell

Rate 10%+

Family Homes - High or rising interest rates is a signal to sell, due to market saturation. Government may use to raise interest rates as a method to stop rising inflation. Beneficial to sell even if your mortgage is prefixed at much lower rate.

Sell

Apartments - Periods of high interest rates are not a right time to invest. Selling is a good option if you have an assumable loan at a lower interest rate giving the purchaser a reason to pay premium for the property at the lower rate.

Hold/Sell

Raw Land -  High interest rates make land harder to sell as any other real estate. Land prices will not decline where interest rates are high as price is more dependent on area economic growth.

Hold/Sell

Office -  It is a pricy investment and rising interest rates makes it expensive to keep as it will affect your ROI also tenant’s profits. Recommended to sell with first signs of rise as buyers struggle to get a finance

Sell

Retail - Increasing rates lead to declining consumer spending, therefore less money in the circulation. This will lead to business closures and extensive periods of time in tenant replacement. Relay on location

Hold/Sell

Rate < 3%

Family Homes -  Shrinking interest rate can be beneficial can be a reason to stimulate lending and economy. Indicator of low of falling house prices. Sell if you interest rate is much higher than current, follow the market signs – borrow and Buy

Apartments -  A factor specific to apartments is when interest rates are low or declining a home becomes better option to rent than apartment, therefore house demand will increase.

Sell

Raw Land -  Declining interest rate will have negative effect on land prices on a long run. In case where investor purchased land with cash it is beneficial to hold to better market phase.

Hold

 

Office - Declining interest sign of economic problems, can lead to extensive tenant replacement times. “Do not retain if you cannot maintain”

Sell

Retail -  Declining interest sign of economic problems. Sell if you borrowing rate is much higher than current, Buy at the bottom, structure long terms lease for a tenant and enjoy rewards;

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