The times, they are a-changin’, as they used to say. While we’re accustomed to change in the real estate investment industry, it’s usually not as drastic as a Federal interest rate hike. When the Federal Reserve raised the interest rate one-quarter point to a range of 0.25 to 0.5 percent in December 2015, it marked the first increase since 2006.
How will this affect investors? It will make it even more critical to close on deals fast, both to beat out other investors and prospective homeowners, and to get in under the wire before another rate hike. Finding the right funding source means more now than ever before.
Prices of Homes Increases Due to Supply and Demand
The interest rate hike shouldn’t stifle home-buying, because demand will continue to outpace supply. Houses will keep moving and we’ll continue to see home prices rise, especially in highly-coveted areas of states like California and Florida.
This is good news for investors who stand to make even more off the sales of homes they purchased below market value, such as foreclosures, short sales, and REO properties. But it also creates an even more competitive landscape with new investors looking to jump on opportunities to “buy low, sell high.”
The prospective buyer with the best cash-based offer or fast access to financing will emerge victorious.
Conventional Lenders Loosen Requirements
When interest rates rise, banks and mortgage companies have more to gain with every loan, which makes these conventional lenders more likely to take a risk on a borrower with a smaller down payment or less-than-stellar credit.
More lenient lending requirements along with high resale values may convince newcomers to foray into real estate investing. Investors will also be competing with a wider range of prospective homeowners for the hottest properties. Investors with cash in hand or access to funding faster than their competitors will gain the advantage.
More Rises on the Horizon
Economists predict we will see at least two, and maybe four, more interest rate hikes in 2016. The December Federal Reserve meeting minutes, however, didn’t commit to a number, instead declaring a “gradual” interest rate hike over the year to creep the rate up to the Feds’ desired 2 percent.
With this news out in the open, investors will want to close quickly in order to lock-in the lower rates, and we may even expect to see a mad scramble just prior to Federal Reserve meetings, when rates could rise overnight.
At 5 Arch Funding, our paperless closing process and straightforward terms help avoid delays, so you won’t miss out on deals or pay more interest than you should. You’ll get the financing you need within three to five days for fix-and-flip deals and two to three weeks for rentals, putting you ahead of other investors, as well as homebuyers working with conventional lenders. Additionally, because we have a steady stream of working capital, we won’t hold up your closing to accommodate our pipeline. You’ll be able to safely take advantage of today’s rates rather than taking a chance on tomorrow’s.
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