Passive real estate investing is an excellent opportunity for real estate investors who are less interested in being landlords and doing potential labor—but are more concerned with passive income generation.
The real estate market is a complex one. The prices of goods and services in real estate activities are affected by a variety of factors, including local, regional, national, and global conditions.
The housing market is influenced by various factors, including supply and demand, mortgage rates, inflation rates, economic downturns, and annual growth rates around the world.
Table of Contents
Investing in a healthy economy when long-term interest rates begin to creep up can present several challenges for many real estate professionals.
An economic growth that looks promising may lead to higher rental income, especially in and around large cities, as demand increases for multi-family homes and other rental properties. Meanwhile, it raises concern about rising interest rates and a subsequent spike in borrowing costs.
For the same mortgage amount, higher mortgage rates mean higher monthly payments for borrowers. Using a 4% interest rate as an example, a $250,000 mortgage would cost $1,194 per month, while the same loan would cost $1,439 if it were charged at 6%. For larger loans, the effects and credit risks are even more pronounced.
A rise in interest rates is often perceived as a negative factor in the real estate market. In reality, however, raising interest rates has several key advantages as well. As the interest rate can rise at any time now, you need to be aware of the most important pros and cons.
The returns on real estate investments may be lower when debt is more pricey due to higher interest rates, as more of the monthly rental income must be used to pay interest rather than going directly to the investor's pocket.
In the short run, the difference might not seem like much, but over time, these numbers can add up to your passive activity losses.
Real estate business activities in a higher-rate environment can be intimidating to some investors because they have to pay higher interest rates and take lower profits. In general, the higher the interest rates, the more problematic they become for investment income.
As future homeowners are now facing competition from large corporations, finding a house becomes even more difficult. The bigger players keep outbidding and pricing out many future single-family home buyers. As a result, more and more people opt for the rental of property.
A rental property becomes an asset if it generates income—through rental income. Because economic activity pushes rents up, financial institutions hedge against inflation or leverage it to their advantage
Rents will rise in the event of high inflation, according to countless studies. As a result, cash flow increases. Compared to other commodities like food prices and energy prices, rent can be even more expensive.
During times of rising interest rates, many real estate investors switch back to long-term bonds and mortgage-backed securities. The reason for this is that investors believe they will be able to earn higher returns with high-yield bonds than with real estate investments. As a result, many investors consider higher interest rates a hindrance to a healthy investment income.
As a result, many of them turn to other assets like bonds to protect themselves. Although many people consider bonds to be safer investments, their rates of return can be low over time as well. Therefore, switching to bonds during times of higher interest rates in financial markets does not, by any means, ensure higher returns and may even be a mistake.
Investing in genuine real estate property investment results in property appreciation and cash flow—in the sense that you are adding passive cash flow to your current-year net income. Investing in real estate is a great investment due to its superior returns over other asset classes. However, you should be careful not to park your money in wasteful investments.
The idea is to have your property work for you, not the other way around. A reliable commodity that outperforms recessions is real estate.
There can be an impact on real property development from upward pressure on the annual rate of real gross domestic product (GDP) growth, especially for materials such as construction materials, petrol, energy, and other similar items. As a result, the cost of capital needed for a single activity may become more expensive.
However, even if the cost of all materials rises, the benefits of inflation exceed the drawbacks from the standpoint of a real estate investor.
Passive investments in real estate can generate financial assets over time without the hassle of managing real property developments or landlord responsibilities.
However, high-interest rates pose a threat to investors because they will raise the cost of borrowing, reducing cash flow and demand for rental activities. When investors understand how economic factors impact their investments, they can make more informed decisions.
The development of real estate becomes more expensive as a result. Real estate investors who do their due diligence and puts their portfolio at risk of inflationary pressures could benefit more than they could lose from economic downturns.
There is no need to worry about passive real estate investment since Saint Investment Group provides all the information you need. As a real estate firm, we offer investment opportunities in passive opportunities to a select group of investors. Our business is our life, and we dedicate a lot of time to finding potential markets, securing great deals, and implementing our vision for our clients.As a long-term wealth builder, we are passionate about the process and want to offer you the opportunity to do that with us. Our team can answer any questions you have about interest rates and passive real estate investing by sending an email to general@saintinvestment.com or by calling us at 949-881-7128 at Saint Investment Group today!
A master in Investment, Marketing, and Capital Raising.
Nic has honed his focus on the Real Estate and debt markets with Saint Investment Group and pursues large-scale Distressed Asset purchases with his partners and syndications.
