We have been looking at interest rates rising steadily since a few months now, and looking at this upward trajectory, it seems like interest will continue to rise going into the rest of 2022. "With inflation running north of 9%, we're not at the finish line and there will be more interest rate increases to come in the months ahead," said Greg McBride, chief financial analyst at Bankrate.com. How does this affect you and your investments? Well, interest rates have a direct effect on the purchasing power of people. When interest rates rise, it is usually followed by a period of rising costs in the economy and marketplace. This means that you need more money for daily expenses and have lesser funds in your bank accounts for investments and other expenses that aren’t immediate.
Does this mean that this is a bad time to buy a house or make real estate investments?
The short answer to this is No! When the economy is in such a state of rising mortgage prices, increasing interest rates etc. it reduces the number of active buyers in the market causing a fall in the asking price of properties. If you have surplus funds that are just lying in your bank account, invest now!
Here are a few advantages of investing during high interest rates –
- Boost your NOI - Rising rates are an ideal way for commercial real estate investors to realize optimal cap rates and improve the NOI or Net Operating Income on their deals. Look for undervalued properties and give them a ‘facelift’ through renovations to increase their market price. In an environment of rising interest rates, there is potential to find inexpensive funding for improvements.
- Tax Benefits - Everybody loves tax benefits and saving on their bucks. This is the ideal scenario for investors to do exactly that! Depreciation on property is one of the biggest deductions that investors can declare. “If you surrender a percentage of income and capital gains on one side of the equation, you can take full advantage of deductions on the other end,” according to leading investment experts. Furthermore, investors can write-off assets not attached to the property, like furniture or appliances, as depreciation over shorter spans of three to five years of time. This reduces the overall impact of increased interest rates.
- Financial Planning Is Key - Real estate experts always suggest starting off investments early on to safeguard financial stability in the long run. Take advantage of the intentionally defective grantor trust (IDGT) to lower taxes and give inexperienced family members experience in the investment market. What is IDGT? It essentially gives the heirs of a property property-ownership while allowing the grantor or patron some control over the property. This is beneficial to both parties as it reduces the taxable estate of the grantor and gives experience to the grantee.
- Sell Assets - Selling dead assets in the ideal thing to do if you want to take advantage of rising interest rates. Because of the uncertainty that rising interest rates bring, buyers ideally look at locking in rates today, rather than waiting for rates to fall tomorrow, as those may go even higher in the future. This makes it a perfect market for sellers to get rid of unneeded property, as they can even ask for a premium which buyers will be willing to pay to acquire property before rates go up.
There are several factors that investors, both buyers and sellers need to consider before investing in real estate. It is always best to take advice from an expert in the field before making any decision. Hiring a brokerage or a real estate agent for their services is always a good idea, as they will be able to match you with the best property for your investment profile.
Real Estate Articles / Nov 15, 2023
Landmark Court Decisions Pave the Way for Lower Property Taxes and Intangible Asset Considerations
Real Estate Articles / Feb 09, 2019
Whether you are a seasoned investor, or you\'re researching for your first property there is always a certain risk factor that makes us hesitate before signing the dotted line.
Real Estate Articles / Feb 01, 2022
What if you were told that you could earn regular dividends from your investments without the hassles relating to buying, managing or even financing a property?
Real Estate Articles / May 11, 2022
Whether you are buying property or selling property, closing is a crucial part that will make or break your deal. We have listed major pointers that will help you deal with your next closing much better.
Real Estate Articles / Jun 19, 2023
The post-pandemic era brought several changes to the real estate market, specifically retail real estate and retail investment. Market trends for retail investment are on the rise. This is the right time to invest in real estate.
Real Estate Articles / Dec 21, 2022
Wetlands are profitable investments if done right. Texas has multiple real estate investment options, including wetlands and you can get great returns on investment from them.
Real Estate Articles / Mar 23, 2019
Commercial Real estate investors, looking to maximize profits have set their sights on Texas. The Lone Star State has made a name for its self as a strong market for Commercial Real Estate Investors.
Real Estate Articles / Jan 31, 2023
Having a multifamily property in a retail center is beneficial for both the buyer and seller and the residents of the property. The demand for rental communities that offer combined spaces for living, working, and entertainment is on the rise.
Real Estate Articles / Feb 09, 2022
Want to invest and make money? We have listed out the pros and cons of the real estate market and the stock market so that you can decide if you want to invest in stocks or real estate.
Real Estate Articles / Mar 02, 2019
The US continues to be the world\'s leading recipient of cross-border capital, and it has no plans of slowing down. During the first half of 2017 the United States attracted 19.8 billion U.S dollars from foreign investors.