Rising Rates and Real Estate Investments

How Do Rising Rates Impact Real Estate Investments?
As economic drivers are slowly pushing interest rates upward, they are having an impact on real estate investment. The impacts are wide-ranging, and investors could experience fluctuations in vacancy rates, property valuations, and property capitalizations.

Although rates remain historically low, and the incremental changes in rates are not at a debilitating level for most consumers, as interest rates increase over time, property values can become stagnant or even decrease. This can create a property supply that is greater than the demand for property, which turns the real estate market into a buyer’s market.

With these factors in play, real estate investors should keep in mind the following potential impacts of rising interest rates.

Residential buyers are losing borrowing power. The rate uncertainty can drive prospective home buyers to rush into homeownership before they are financially stable. When this occurs, unexpected financial challenges down the road (such as job cuts or vehicle repairs) can have a drastic impact on a homeowner’s ability to maintain the property, make mortgage payments, or both. These factors can contribute to potential buyers’ reevaluating the rent-versus-buy scenario.

Although certain property types will be able to withstand increases in interest rates, some investors will be drawn toward the debt market in search of lower-risk opportunities. This means that there will be fewer opportunities for residential buyers to borrow money for home purchases and that the cost of borrowing will increase.

Fewer qualified buyers means higher occupancy rates. Just because a potential home buyer can’t afford to purchase doesn’t mean they don’t need a place to live. Renting may be the best option available and will often result in greater competition for residential units, especially in larger urban areas. This greater demand can result in higher income per unit and lower vacancy levels. Investors can seize this opportunity to fill rental units, thereby strengthening their real estate portfolios.

This scenario can have a positive impact on capitalization, or cap rates. An increase in rental income without increased expenditures allows an investor to maximize return on investment, or ROI. Increased cash flow also means that an investor can pay down loans faster and free up more capital for additional investments.

Rates may affect the purchasing costs for investors. Just as borrowing costs would increase for residential buyers, an increase in interest rates can have a detrimental impact on investors, too. On the one hand, property values in an investor’s existing portfolio could be dwindling. No investor wants to be caught in the position of having to sell off property in a down market.

On the other hand, an investor looking to allocate cash flow to a purchase will be required to spend more time and effort qualifying potential opportunities. It would be prudent for investors to create a portfolio that can withstand an increase in interest rates. Spending time and money qualifying suitable investments that are over-leveraged at this time can strengthen your investment portfolio, thereby lowering the risk of losing money in the long term.

Leverage LinkedIn to Expand Your Reach

LinkedIn is a thriving content platform that can give you plenty of organic visibility at no cost. Posting content on LinkedIn helps you grow your personal brand and connect with customers, potential employees, industry influencers, and others.

So why not capitalize on the free exposure?

Here are some tips to get people to pay attention to your postings and actually read your LinkedIn content.

LinkedIn gives more exposure to status updates, which have a limit of 1,300 characters (around 250 to 300 words), than to articles. Make sure that the first sentence of your status update is compelling. People scroll through their social media feeds quickly, and if your first sentence doesn’t grab them and make them tap “See More,” your posting is sunk.

Don’t put links in your status updates, because LinkedIn doesn’t want people leaving its platform. To share a link, place it in the first comment of your post and let people know where they can find it.

Limit paragraphs to one or two sentences. Short paragraphs are more digestible and keep readers engaged. For best results, use proven content formats such as lists, tips, case studies, and lessons learned. Even failure stories are useful to help readers connect with your content.

Encourage your network to ask you questions. Then be sure to reply to every comment on your post.

Replies don’t need to be lengthy, but the more you engage with commenters, the more visibility your content will get in the news feeds of your network.

Also, make sure your comments on other people’s posts show up in the news feeds of your connections. Remember, the more “links” you can establish with your content, the better.

Working from Home? Don’t Miss These Home Office Musts

Whether you occasionally take work home from the office or run a small business out of your spare room, your home working environment is important and should be functional and inspiring.

First off, select a location that suits your needs and your working style. Do you work best amid buzz and activity, or do you prefer a quiet space? Will clients be stopping by? If so, privacy and ample seating are essential.

Colors can affect your mood, so give some thought to the surroundings. Some people feel energized in a bright, cheery environment. Others prefer to concentrate surrounded by cool, calming tones.

Give yourself a view and make sure your office has plenty of light. Natural light is best to reduce eyestrain and prevent headaches. Position the computer monitor to avoid glare from a window or overhead light fixture.

Organize both vertically and horizontally. Give yourself plenty of storage space, including shelves, drawers, and bins. Don’t overlook uses for corners and nooks. Make sure your electronic equipment is close to outlets and easy to access. Invest in a good-quality, comfortable, ergonomically correct chair. If you’ll be spending many hours here, the added expense is well warranted.

Add some greenery. It’s been shown that plants reduce stress and increase productivity; plus, plants are an inexpensive way to add charm to a home office.

Lastly, don’t leave out your office pet. If your furry friends like to hang out in the office, a comfy bed or basket for your dog or cat is well worth building into your design.

Utilize Time Frames to Strengthen Your Bids
Time management is essential to the successful operation of any business. The same is true when investing in real estate. Your offer, or purchase agreement, will likely contain several conditions, and the timing for those conditions will not only impact the purchase price but also your ability to secure the property. Here are three things to consider when adding time-sensitive conditions to a purchase agreement.

Conditional time frames for inspections and due diligence are common in commercial offers. By knowing how long inspections and assessments take, you can make a stronger offer. However, there can be a trade-off with shorter conditional periods. Unforeseen delays can result in a renegotiation between the buyer and seller, which will carry some risk. Sit down with a knowledgeable commercial realtor to seek guidance on conditional time frames to strengthen your negotiating position.

Closing dates have the potential to impact business operations for all parties involved. Flexibility with closing can often work in favor of the buyer. If the buyer allows for seller accommodations, the buyer may be able to gain concessions in other areas of the deal. The same goes for the seller. It can be advantageous to remain flexible with closing dates if the buyer needs or wants possession by a certain date.

Uniform dates should be used whenever possible. Having multiple conditions with a variety of dates may seem sensible at first, but it can make your offer look unnecessarily complicated and overwhelming. Additionally, a delay in one area could have a cascading effect on remaining conditions or time frames.

SA Realty Watch Group
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