Real Estate is one realm that has always been considered as one of the stable forms of investment. Every businessman wants to invest in real estate as they are profitable too.
Real estate investment opportunities are huge. However, this industry like every other industry is not immune to economic disruptions. Many investors closely monitor economic factors as they largely affect the profit and risk in real estate investments.
Here, we will discuss the impact of interest rates and market cycles on real estate investment.
How Does Interest Rate Impact Real Estate Investment?
We all know that interest rates influence homebuyers but they also impact investors. Investors always invest in real estate when the interest rates are low. Lower interest rates mean lower loan payments. The lesser the loan payment, the more profit investors will earn.
Investors rarely invest in real estate companies or projects when interest rates are higher. Thus, the impact of interest rates on real estate is very crucial and real.
How economy & interest rates are related to each other?
Economy and interest rates are inversely proportional to each other. Higher interest rates will mean higher payment of loans and lesser buying. This will lead to low economic growth.
When interest rates are higher, buyers buy less property and investors do not invest much.
What are market cycles and how do they affect the real estate industry?
Market cycles mean observing economic trends of highs and lows in different business environments.
In the arena of the real estate market, market cycles are called the ‘Property Cycle’. The property cycle describes the entire process of real estate buying, selling, or holding property.
Different Phases of Property Cycle and their impact on investment:
Market trends and real estate investments have a crucial impact on each other.
1. Recovery: This is a stage where the country’s economic condition is improving after facing a downtrend. This is a risky period for investors to invest in. However, this is also the phase where properties are priced low with higher ROI potential.
2. Expansion: In this stage, the economy expands with a high growth rate. This also means the demand grows for properties by both sellers and investors. Investors in this stage became excited about acquiring real estate properties at this stage because of high property demands.
3. Growth: In this stage of growth, there is a high supply for the high demand in the real estate industry. However, most of the real estate investors will hold on to their properties to get steady income during the coming recession.
4. Recession: In the last stage of the property cycle, the industry sees a lot of imbalance. The growth rate is meager and the investors are forced to lower their property rates. However, they can also buy distressed properties at low prices and wait till the turnaround of the property cycle.
To sum up, good investors always conduct thorough research before making any real estate investment decisions. By knowing the impact of economic factors, such as interest rates and market cycles, the best real estate investment companies like Glenwood Equity, plan their strategies. It is of utmost importance to note that each economic factor provides the opportunity for investors to invest either with great returns or low.
With a thorough understanding of real estate investment opportunities, investors can increase their profitability chances and reduce their risk factors.
