Interest rates are at an all-time low, so what does this mean for you and your property portfolio? Now may be the time to buy. In an effort to spur the U.S. economy, the Federal Reserve has drastically reduced interest rates.
Decreases in interest rates can save investors thousands over the life of the loan if they choose to invest in an investment property now. Lower interest rates mean you can borrow money to purchase your next house at auction and accrue minimal interest before you flip, rent or re-sell. Some buyers may be willing to jump into the housing market at the current low rates which could benefit you once you’re ready to sell your investment property. Keep in mind that auction properties may already be sold at reduced prices, so coupled with lower interest rates, investors without cash on-hand have an unprecedented opportunity to save money. Lower interest rates make it cheaper to borrow money and invest, so consumers can both borrow and spend more to help stimulate the economy.
Buying Without Cash On-Hand
If you’ve been considering adding another investment property to your portfolio, whether it’s a potential fix-and-flip project or rental property, now could be the optimal time to buy. Contrary to popular belief, even if you don’t have the cash to pay upfront, you can still buy at auction. While most in person courthouse step auctions require cash deposits and buying with cashier’s check, there are still ways to buy at auction without cash. Online auctions offer another convenient way to buy. Hubzu markets thousands of online auction, many of which are financeable.
Private and Business Loans
Buying a cash only auction property requires taking out either a private loan or a business loan. If you choose to utilize these types of loans to pay for your auction property, the interest charged by the lender determines the extra money you’ll pay along with the actual loan balance every month. In simple terms, a lower interest rate means you’ll pay less for the term of your loan. Depending on the lifetime of your loan, even minimal monthly savings could add up. Just remember that business loans typically charge a higher interest rate because they involve more risk for the institution and offer a quicker turnaround time.
When it comes to borrowing for auction properties, the lender could be a private company rather than a bank or credit union. And, the loan will likely be short-term, between one and five years—giving you just enough time to fix and flip the property.
Thankfully, traditional home financing methods and business/ private loans are similar in the sense that they’ve both been made easier to obtain. While before you had to visit an institution in person in order to move through the loan process, you’re now able to apply for loans entirely online within a day. You also won’t have to wait for an extended period of time because most online lenders will let you know quickly whether you’re approved or not.
Interest Rates
That said, you can also use the current rock-bottom interest rates as a starting point of where your rate should stand. Since your loan will likely be an agreement between you and a private lender, the interest rate will be based on your unique circumstances.
Generally, interest rates will differ based on your region, local competition, the current state of the economy and the financial climate. Your credit worthiness, past relationship with the lender, and projects and current holdings will also play a role. With federal interest rates at an all-time low and a possible economic downturn, you have the leverage to negotiate a lower-than-usual interest rate. Locking in a lower interest rate could save you thousands over the lifetime of the loan.
These rates fluctuate daily, so keep a close eye on them and stay informed about where they’re headed. Trying to predict interest rates isn’t a perfect science, so be sure to keep up with economic news and trends, so you know what to expect.
Greater Demand and Competition
Another thing to keep in mind is when interest rates are low, there’s usually an influx of buyers entering the market that may not have otherwise. Obtaining financing is relatively cheaper and easier, causing those that were on the fence to move forward with their investments and property purchases. So, we may start to see an increase in demand and competition soon. Start the purchasing and borrowing process as soon as you can to avoid greater competition and missing out on your ideal investment properties.
Secure a Loan
Whether you’re searching for a personal loan or a business loan, reach out to your personal network or your network of real estate professionals, including local real estate agents, investor groups and lenders. If they’re not interested at the moment, they may know someone else who is. And remember to shop around—talk to a few investors to find the best rate and opportunity.
By making the right moves now, the current interest rates can help you build your real estate portfolio. If you act fast and take advantage of the declining rates and money-saving opportunities, you could come out of these times with a profit rather than loss. Get in the market and secure your financing and purchases sooner rather than later to avoid the influx.
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