For many real estate investors, access to credit isn’t the problem. In fact, it’s the cost that matters. Fortunately, costs for hard money loans and real estate loans have been coming down and mortgages may be getting even cheaper in the new year.
This is a big benefit for the real estate development and rehabbing industry. In the past, the potential return on a project was often too low relative to the cost of borrowing. For example, if you had an investment opportunity that would yield a 5% return on capital, but the cheapest mortgage you could get was going to cost you 6% in interest. In this case, the investment just didn’t make much financial sense. This has been the problem for a lot of independent real estate investors seeking to rehab property.
Fortunately, that’s becoming less of a problem, and many experts expect credit to get even cheaper. Let’s take a look at the prediction and what’s driving this welcome trend.
BlackRock’s Call for Cheap Loans
Back in the summer of 2014, fixed income and bond mega-giant BlackRock confidently said that interest rates would go up in the middle of 2015. Citing rising inflation and higher economic growth, the firm said that Janet Yellen would raise interest rates on U.S. Treasuries.
This is important for real estate investors because mortgage rates are connected to Treasury rates. When Treasury rates go up, so do mortgage rates. Therefore, BlackRock was certain that we would slowly see the cost of loans going up in 2015, pressuring real estate investors and causing many projects to become unprofitable.
Well, BlackRock just changed their mind. In fact, BlackRock is now predicting the exact opposite: interest rates in the U.S. and abroad will no longer go up in the near future but could actually fall further.
When this happens, mortgages will also get cheaper, meaning easier access to credit for real estate investors and bigger profits for their projects.
Interest Rates in 2015
Already, rates have fallen steeply in the country. 30-year mortgage rates have fallen to 3.66% and 15-year rates are down to less than 3%. Freddie Mac Chief Economist Frank Nothaft noted, “oil prices plummeted and long-term Treasury yields continued to drop,” which was causing mortgages to fall, as well. Many economists expect the trend to continue, including some at BlackRock.
Hard Money Loans
Lower interest rates for real estate projects, whether it’s a new build or a rehab project, mean more manageable costs and higher profits for developers. This is already encouraging many property developers to take a fresh look at old ideas. Projects that weren’t profitable just two years ago are now starting to look attractive. The market is heating up for people interested in rehabbing and flipping residential properties.
For real estate developers who want to get a new project up and running, it’s time to look at equity-based financing as the smartest, fastest way to get started. Whether your project is big or small, you can always get a hard money loan regardless of your credit. And with Socotra Capital, you can get approved for a loan within 10 days so your project can proceed without delay and you can take advantage of new opportunities as they arise. Socotra Capital is currently offering more credit to investors at today’s record-low rates so you can get started rehabbing property right away.
Your real estate assets are your best investments for the future. At Socotra Capital, we’re proud to be the premier direct hard money lender for California real estate. Contact us today to learn more about how we can help.
