Private Lending Rental Market - The Impact of Rising Interest Rates
How Are Interest Rates Changing?
Interest rates have risen dramatically. In the final week of January, the average 30-year fixed mortgage reached a 3.5 percent interest rate, the highest rate since the COVID pandemic began. And since that time, rates have continued to rise. The Fed anticipates that short-term rates will continue to rise throughout 2022. These hikes are meant to battle the present inflationary surge, which remains a key goal for the fed. As interest rates continue to increase, the higher rates may discourage people from taking out loans, slowing the economy and reducing inflation. Both potential homeowners and investors must plan for these continuous adjustments regarding investment decisions on property until our economy stabilizes by adjusting their budgets for increased interest rates.
Increasing interest rates impact every investor differently based on their unique approach. For example, investors who plan to sell might expect high profits, but those who intend to buy will almost certainly pay more. Furthermore, there are additional considerations regarding where to invest money for those selling investment properties.
The price of homes is not anticipated to go down in 2022; however, growth is expended to slow down as the previous year's market begins to cool. Prices are expected to rise by 7.5 percent this year, implying that investors wishing to acquire new houses will continue to face high prices. As rates rise, the cost to borrow money will increase and can potentially raise monthly loan payments making it less feasible to borrow in comparison to borrowing when interest rates are lower.
In the near term, rising interest rates may make acquiring new homes more costly, but that doesn't mean there aren't choices for investors looking to buy real estate in today's market.
Rising interest rates can be beneficial for investors who currently own real estate and have the ability to adjust the monthly rents they are charging. For example, this option is available in multi-family residential properties and hotels. The investor's mortgage rate may remain unchanged, depending on the type of mortgage they have, adjustable or fixed. However, the property's potential to profit may be higher as rent prices rise. The national median rent has increased by 15.2% and continues to increase. Investors can adjust their monthly rental rates to align with the current market pricing.
The Impact on Private Lending
One significant distinction between conventional and private/hard money lenders is that rising federal interest rates do not directly influence hard money. Private lenders set their own interest rates and criteria for loan approvals. Private loans are often short-term loans, and the lender can flexibly structure the loan, exit plan, and collateral release. Private money lenders look at the borrower's development goals and the project possibilities in greater depth, then construct a loan payment plan that benefits both the borrower and the lender. This varies from traditional lending and gives borrowers more independence from the consequences of fiscal policy.To read more articles on The Private Lending Rental Market, check out Liquid Logics Blog.
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