After the Federal Reserve raised its benchmark interest rates again, the move to curb inflation further affected mortgage rates. On September 29, the average 30-year fixed rate mortgage went up to 6.82%. This starkly contrasts prices from precisely a year ago, where they stood at a seemingly modest 3.01%.
In turn, the Fed’s attempts to control inflation have increased monthly home loan payments to twice their amount last year. At the same time, the increase in mortgage interest rates is turning real estate debt investment into a lucrative option.
The Real Estate Market Has Slowed Down
This interest rate increase has not affected home prices, so sellers are still rolling with rising home values. But due to higher interest rates, potential buyers are reluctantly stepping back from their home-buying plans. This has caused home supply to start growing, in contrast to the tight inventory the market maintained earlier.
Even though demand has dwindled, there is no significant indication that home prices will come crashing down abruptly. But as the market grapples with this unique challenge, it has also opened doors for investors to enhance their portfolios.
Even though demand has dwindled, there is no significant indication that home prices will come crashing down abruptly. But as the market grapples with this unique challenge, it has also opened doors for investors to enhance their portfolios.
Real Estate Debt is Attracting Investors
Typically, investing in real estate debt offers a lower return on investment (ROI) than many other assets. This causes many investors to pass this option in favor of higher returns from other assets. But with an increase in mortgage interest rates, real estate debt investment opens doors for investors to make better returns.
Investors can benefit from higher interest rates by putting their funds toward debts. But they can do so without heavy real estate lifting, such as buying, renovating, and selling a home. It is this ease that attracts people to this often-underrated investment option.
Investors can benefit from higher interest rates by putting their funds toward debts. But they can do so without heavy real estate lifting, such as buying, renovating, and selling a home. It is this ease that attracts people to this often-underrated investment option.
Which Factors Make Real Estate Debt a Favorable Investment?
Besides their easy returns, the short tenure of real estate debt investments works in their favor. The holding period for these types of investments can start from 6 months. This allows you to bet on the short-term gains from interest rates. But if you want to invest for the long haul, these investments can go as long as 24 months.
The overall risk management of these investments is another plus point. For instance, if a debtor is unable to pay off their home loan, investors have the option to auction their property. This is a huge benefit compared to equity investments, which typically offer no chance to recoup your investment.
The overall risk management of these investments is another plus point. For instance, if a debtor is unable to pay off their home loan, investors have the option to auction their property. This is a huge benefit compared to equity investments, which typically offer no chance to recoup your investment.
You Need to Be Careful While Choosing This Investment Model
The increase in mortgage interest rates makes real estate debt investment an unmissable opportunity. But you need to keep in mind that the investment comes with its drawbacks. These include a possible decrease in interest rates and lower ROI compared to other options.
By comparing your options and assessing all pros and cons, you can make an informed decision for this investment model. This lets you make the most out of your investments while also keeping you aware of the risks.
By comparing your options and assessing all pros and cons, you can make an informed decision for this investment model. This lets you make the most out of your investments while also keeping you aware of the risks.
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