The 3 Elephants in the Room – Part 2 – INTEREST RATES
We're back for part 2 of our series "The 3 Elephants in the Room" ... Inflation, Interest Rates, & Recession.
Did you miss part 1 -"Inflation"? Check it out here.
We are discussing the top 3 concerns that real estate investors are grappling with as they look to deploy capital. Using historical data and expert opinion, we hope to help you make a more informed decision without the drama or emotion that media outlets like to dish out.
We will also look at the impact these market forces have on commercial multifamily real estate.
So, let's dig in.
ELEPHANT #2
INTEREST RATES
What's going on with interests rates?
Just recently, the Federal Reserve raised interest rates yet again! This is the 6th time this year, now at around 4%. As we know, it's in an effort to control inflation, which is at its highest rate since the 80's. And, as far as we can see, the Fed is not stopping until inflation is crushed.
Below is a historical look at the Fed hiking & easing rate over the last 50 years...
So, What Is the Direct Impact of these raises?
All of these rate hikes increased the cost of financing for anyone that sought a loan of any kind, and it reduced the amount of a loan that a borrower could qualify for. It impacts all asset types, but currently, single-family housing is being hurt the most.
We are already seeing a slowdown in the mortgage market. With the average 30-year fixed rate around 7.15% - 7.25%, the average monthly payment on a new mortgage has increased $750, from just the beginning of this year, when rates were about 3.25%.
Many would-be homebuyers are simply unable to afford the monthly payments on a new mortgage. This will keep the renters renting and push more people into the rental market.
About the only upside for consumers is higher rates in their saving accounts and CD's. Although putting your money in the bank is better than keeping it under the mattress, you are still losing money when competing against inflation, which is just over 8% (see the latest data here).
With investors seeing the value of their dollars shrinking in a savings account, where can they park their money and see it grow?
Check out this video and guess what asset class remains one of the best places to park your money (even now)...
Impact on Multifamily Development & How We Mitigate Risk:
- Rising interest rates do have a negative impact on multifamily returns, but not as much as you would think. We seek out fixed interest rates to mitigate the risk of rates climbing too high. We model our projects with a stress test that is well above current rates to ensure it can still provide returns.
- Our development projects have a much wider profit margin, and therefore more "room for error" as compared to buying an apartment complex from someone else. We just have to cover the cost to build. We do not have to find a way to increase the value of a complex that is already being sold at maximum current value.
- Lenders provide the most favorable rates & terms for new, class A multifamily apartments, particularly those in strong growth and primary markets... exactly the type of product we are building.
- Even now, during this chaos, we are sourcing debt options for our first project The Cooper and we have options that work for our underwriting. This is very encouraging as we move forward with our projects.
- We expect the Fed to pivot and lower rates as inflation shows signs of slowing down or if data reveals a deepening recessionary environment. Time will tell.
Historically, even in a rising interest rate environment, multifamily real estate has performed very well, particularly with fixed debt and class A buildings and markets.
If you would like to put your money to work in an asset class that outperforms the S&P 500 by a long shot and provides a hedge against inflation, invest with us in our new opportunity.
sterling Rhino Capital Equity Multiple Fund 1
WE ARE AT 80% OF OUR TOTAL RAISE!!
DONT MISS OUT!!
- 8% preferred return - Means you get paid first, before the GP Team
- 80/20 profit split (LP/GP) w/ NO Hurdles
- Projected 3.5x - 4.5x Equity Multiple Total Return in 5-7 years
- *$100k investment is projected to return $350k - $450k (includes initial $100k)
- Diversify your money across a portfolio of six (6) Class A, luxury, ground-up construction projects with ultra-modern amenities
- Markets include Denver, CO - Phoenix, AZ - and Colorado Springs, CO
Invest With Us Today!
If you’re considering investing in real estate, and are seeking an investment partnership, consider what values and skillset the potential partner has that align with your goals.
These are the values and skillsets that guide you on your path to financial security and will help you achieve financial independence and security.
If you want to learn more about investing in real estate, check out our informative podcast where you will find a wealth of valuable information.
If you're interested in learning about how you can start your investing journey with Sterling Rhino Capital, click the button below
Ready to plan your early retirement?
It all starts with passive
income. Apply to join
the Sterling Rhino
Capital Investor Club.
Already working with us?
Welcome back.