How Interest Rates Affect Real Estate Investors

It has been a crazy year. And as we head towards the finish line, we should expect things to get even crazier, especially in the real estate market right now.  

Ever since the Fed announced a major rate hike in a bid to slow down the effects of inflation, market experts are expecting demand to cool down after nearly two years of red-hot activity.

But how will this affect real estate investors in the long run? How will major property markets like New York City deal with rising rates coupled with the steep rise in consumer prices?

For that, let's look at how the real estate market is influenced by fiscal policies as well as other factors that will shape your investment strategy.

Decoding Interest Rates

Whether you are buying a home or adding an apartment building to your investment portfolio, you need to look at current interest rates before making any major financial decision. 

After all, real estate costs a lot of money. In Manhattan alone, a condo will cost you around $1,190,000. So, in order to secure the ideal property, you might as well get a lender to help you finance your purchase. 

Any form of borrowing comes at an extra cost in the form of interest. This amount is closely tied to the 10-year Treasury bond rate. When this rate increases, so does the number of interest borrowers will need to pay. 

This also means that certain types of real estate will become less affordable. Other than that, the demand for such properties diminishes, allowing the market to cool further and keep real estate prices from rising. 

For homeowners, this could still mean being priced out of their dream home. They can only count on new inventory to offset the effects of the rate hikes on affordability. 

On the other hand, real estate investors can look at this as an opportunity to generate more income. 

A Silverlining in the NYC Real Estate Sector

Despite rising property prices, investors remain motivated in buying up condos, coops, and other apartment types in high-value neighborhoods in NYC. This is due to the fact that demand for rental living spaces keeps rising as priced-out homebuyers turn to rent. 

According to this article from Yahoo, asking rent hit an all-time high in July as home sales take a free fall. Although new constructions are expected to come through later in the year, although at a slower pace amid supply chain disruptions. 

Considering these factors, demand for rental buildings has skyrocketed outside of high-end markets like Manhattan. Buyers who want to delay their home purchase and instead opt for rentals are starting their search in neighborhoods in Brooklyn and Queens. 

So, what does this mean for investors? With the demand for apartments growing, the median rent is also on an uptrend. If you are looking to purchase a rental property investment, then now would be the best time to do so. 

Apart from a high occupancy rate, you also get tax perks and raise the rent whenever you need to keep up with maintenance and utility costs. 

All it takes is knowing where the best property deals are found. If you are an investor looking to leverage today's market climate, then allow me to help you get started. 

I have a few listings that fit your needs, so let's connect and I can share them with you. Call me at 917-627-5677 or send an email to [email protected].

Talk soon, 

Eli