In the midst of everything that’s been going on over the past year, we are very fortunate to know that good financing, for the most part, has been available for purchasing commercial properties. However, the retail and hospitality sectors have been especially hard hit, and getting good financing to purchase within those sectors has definitely been more challenging.
We’ve also been fortunate, since the early 1980s, to have experienced interest rates falling for the most part since then. Back at that time the prime rate was more than 20%, and it would have been very difficult at that time to ever envision that we would one day have the kind of interest rates that we have today. In addition, interest rates are such an important component in determining the affordability of properties, and when interest rates are lower, meaning that monthly payments then become lower, it becomes easier for people to afford buying their next property.
In addition to this, the down payment required to purchase property will also impact its affordability, too. When properties can be purchased with a 30% down payment, more people will be interested in buying than if a 50% down payment were required in order to obtain the financing. So when the economy worsens, and lenders begin demanding higher down payments in order to obtain financing, there will be people who won’t want to part with that additional amount of money needed to buy the property, and as a result, the number of interested buyers for a given property will wane. This is why people who can buy all-cash without needing to obtain financing can get such good deals when times are tough. Their competition is now sitting on the sidelines, and these all-cash buyers can now swoop in and make great purchases at reduced prices, and the property owners, if they need to sell, will have to accept these prices…otherwise the lenders on their loans may come knocking on their door.
In addition, with interest rates, when they are rising, this impacts the monthly payments for the buyers who need to obtain financing in order to purchase. But for all-cash buyers, who will not be getting financing and who will not be making those monthly payments, they can once again swoop in and make great deals, because the buyers who need to get financing will be losing their interest in purchasing. Keeping all of this in mind, shifting market conditions within financing will definitely impact both the demand to purchase, and the ultimate price that will be paid for a property. However, keep in mind that what will always be most important to you will be investing in the property that’s the best one for you, and doing so at the price and terms that you’ll be absolutely thrilled with.
