Effective June 16th, the Fed raised interest rates by 0.75 %.in an effort to reduce inflation. This is the largest raise since 1994 and will have an effect on every type of borrowing, from real estate and autos to personal loans and construction loans.
As a multi-family property owner, what effects will this rate hike have on you?
REFINANCING
If you need to refinance your property, because of a balloon payment or to pull cash out, it will be more expensive. Also, with your current income, the loan amount the building will qualify for will be less, so it may cause you to move cash from savings or even sell your building.
CONSTRUCTION FINANCING
If you were planning to add on to your building or maybe add an ADU, there may not be enough available cash based on your net operating income. You may have to put that project on hold for a while. However, the cost of funds may cause some competing properties to stay in their present, condition, needing repairs. It may cause other projects, not yet financed, to not get started at all.
TENANTS PURCHASING HOMES
Here is an area where you may have an advantage. With it becoming more difficult to qualify for a new home or condo, tenants will most likely stay where they are- in your building.
We are seeing a slowdown in the residential real estate market, which has been going through the roof with values skyrocketing and multiple offers. Industry leaders don’t expect as much of an effect on the multi-family segment with properties cash flowing, so that is good. Be sure to raise your rents, where it is allowed, every year so that you increase your cash flow, and don’t fall behind- because even where there is no moratorium, there is still statewide rent control. We are experiencing multiple offers, many all cash, on our listings. So, if you are thinking of selling or exchanging, now is still a good time to do so.
What we at PRS PROPERTIES CAN DO. We can discuss with you the current rents in your area and supply you with comparable rental prices for similar properties. Before you hire a manager, make sure the compensation is fair to you! We can also look at your building for changes that might allow you to get a higher value in order to create value without huge expenses for your building. We can help you to get the maximum value for your property, should you decide to sell, or the maximum return if you are planning to keep your building.
We always have many investors who are looking for “as-is” properties and are willing to purchase with low rents, a moratorium, or even with a problem tenant in place. We have put together numerous transactions over the years which involve properties that are not listed for sale. Many investors are in 1031 exchanges and need to identify a replacement property before their 45-day identification period runs out.
Should you decide to put your property on the market, we will put together an aggressive, targeted, and professional campaign to get your property sold fast. We have been doing this for over 40 years, and we will use all the tools available to bring you the most dollars at closing. If you are thinking of selling or are just curious about the value of your property, don’t hesitate to give us a call.
Remember – KNOWLEDGE IS POWER!
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