09 Mar Do Interest Rates Have Any Effect on Cap Rates?
By MW Real Estate Group
LOS ANGELES, CA. – Mortgage interest rates as of 3/6/18 are 4.625% for a 30-year fixed mortgage loan and rates are predicted only to continue increasing in the coming month’s thanks to a strong economy.
In the last 7 days, the Fed increased interest rates for the 3rd instance this current year, increasing the benchmark fed funds rate from 1.25 percent to 1.50 percent.
Additional increases are predicted as the central bank continues to be very confident in the U.S. economy’s sturdiness.
The Fed also has chosen to lessen its very own holdings of long-term notes and bonds, that they purchased at some stage in the Quantitative Easing programs which were implemented as a result of the “Great Recession”.
These kinds of policy modifications translate to increased interest rates on customer loans, a number of kinds of mortgage loans, as well as corporate and business loans
Multifamily Rentals Are A Great Hedge Against Rising Interest Rates
One question some investors have asked is if multi-family rental properties are a great hedge against rising interest rates?
The answer to this question is simple. Multi-family rental properties are a smart hedge against rising interest rates. How? With a multifamily rental property, you have the benefit of having more doors to cover your costs compared to owning a single-family home which only offers you just one door, or one source of income.
Are Higher Interest Rates Going to Spoil Returns?
In spite of the Fed’s introductory hike in December 2015, U. S. interest rates continue to be quite affordable.
Thanks to a strong economy, the Federal government is predicted to continue on lifting mortgage rates and many real estate property investors are concerned.
Their anxieties are originated in the viewpoint that growing interest rates are going to diminish property or home prices, as well as commercial real estate property (CRE) investment overall performance. However, historical facts indicate that increased rates of interest have never actually derailed CRE overall earnings.
Interest Rates and Cap Rates – Is There Any Correlation?
As a Real Estate investor, you may be wondering if there is any correlation between rising interest rates and Cap rates.
When you study the data, it’s difficult at best to make any correlation between interest rates and Cap rate increases.
Yes, it’s true that Cap rates tend to increase when interest rates increase but the reality is that Cap rates for the residential rental property have stayed low and this continues to make owning rental property a smart investment.
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