Our economy has made a huge recovery since the crash of 2008. People are investing in real estate on both a personal and commercial scale, which also means that people are taking out short-term loans to help finance those investments. The effect of all of this is that while all of this property investment puts money into the economy, having so many people and corporations taking out short-term financing is going to cause commercial real estate rates to rise by the end of this year.
In anticipation of rising commercial real estate rates, we have compiled a list of things investors can do to prepare themselves.
1. Borrow While the Commercial Real Estate Rates Are Low
With commercial real estate rates slated to rise, anyone who needs working capital should borrow money now, and work with finance professionals to lock in their interest rates while they are low. A small increase of 2% can cause loan payments to jump by a few hundred dollars a month, even on a small loan of $15-20K.
2. Restructure Existing Debt
Before commercial real estate rates change in the upcoming months, it would be a wise move to refinance, consolidate, or restructure existing debt at lower interest rates. This will protect you from any commercial real estate rate increases, which will have a ripple effect and cause loan rates to increase as well. Being able to restructure debt at a lower fixed rate will safeguard your debt payments against future rate increases.
3. Reduce REIT Investments
Mutual funds, such as a Real Estate Investment Trust (REIT) has always been a sound method for commercial real estate investors to make money. With commercial real estate rates on the rise, property owners will have to pay higher interest on mortgages and loans, which will translate to less money that can be paid to investors. REITs, long-term bonds, and other mutual funds will decrease in value as commercial real estate rates climb by the end of this year.
4. Invest in Commercial Real Estate
Both market and Federal Reserve speculators are predicting an increase in commercial real estate rates over the next few months. How big or small, no one can say for certain, but market trend are pointing to an increase that will impact everything from short-term financing to the actual cost of commercial properties. That being said, if you are debating whether or not to purchase commercial real estate, or if you should refinance commercial properties that are already in your portfolio – now is the time to act. As commercial real estate rates rise by the end of the year, even a small increase of 1%-2% may make commercial property prices unobtainable.