4 Things to Consider Before Commercial Real Estate Rates Rise
Interest rates on commercial real estate loans have been at all-time lows for about a decade, and they were still quite low for much of the decade before that. As the economy recovers, though, those rates are going to rise. That’s why you should consider making these four moves before the commercial real estate rates rebound if you want to take full advantage of historically low rates before they disappear.
To start with, it’s a great idea to borrow while the rates are still low. If you can leverage your assets and your credit now to get working capital at low rates, you can build up your reserve finances by building equity in properties while taking advantage of historically low rates. Then, when you need to access that equity to expand your portfolio in the future, you can easily use your assets instead of taking out more debt at higher rates.
You’ll also want to restructure any existing debt you should make sure you are taking advantage of the currently low commercial real estate rates. This will let you reduce your interest rates on debt you still hold from before the rates were slashed in 2008. The result will be a streamlined monthly overhead that allows you to get more out of your income by paying less on your debts.
Cut back on your investments in the REIT and similar long-term bonds and mutual funds. This will give you more capital to spend on financing when the rates rise, because you will still need to finance some, even if you build your equity nest egg enough to offset a variety of rising costs. These funds are likely to decrease some in value as costs rise, too, making them a less sound investment than in recent years.
Last but definitely not least, you should invest in commercial real estate now, while the rates are still low. Experts are predicting that the rising commercial real estate rates will affect the cost of properties, and the number of investors trying to make purchases before the change will drive demand, pushing property costs up for those who wait. The sooner you take advantage of the current landscape, the better-positioned you will be when the change comes, and the better your long-term returns will be.
Just remember, commercial real estate is an industry in motion. To stay on top of the game, you need to stay abreast of all the changes that come from year to year, so you can shift your strategy with the markets.