Bubble in commercial real estate?

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Bubble in commercial real estate?
Posted by: Guest_Scott Jul 10 2004, 06:48 PM
I want to buy apartment building but I am afraid that with interest rates going up the price will be going down after the rates keep going up.
Also is it too late to buy commercial real estate?
Prices keep going up and up.
Whak kind of rate do you get? I hera about the bubble in real estate and how it will affect the rate of the loan and the price of houses.

Your coments are thanks
Posted by: loanuniverse Jul 11 2004, 02:04 PM

It is true that housing has been going up in price at a faster rate during the last three years than it has historically. It is also true that low mortgage rates have had a lot to do with that. However, it is my opinion that a rise in the rates should not have a significant effect in the price of multi-family properties specially if you are looking to get in now before rates go up.

You are correct to assume that a rising tide lifts all boats, and that if the bubble bursts in the residential market, prices in the commercial multi-family will be affected as well, but I think that rental-properties also benefit from houses becoming to expensive for people. After all, this means that more people will have to rent.

It is never too late to buy commercial real estate as long as the deal makes sense. This means that the most important number in the transaction is the price paid for the property. You need to find information about “income valuations” and “capitalization rates”. I am sure that there are a couple of pages in the site.

The rate that you get for the transaction depends primarily on the term of the loan, the structure, your financial strength as well as your negotiation skills. I would use a 6% rate for a five-year term loan and a 7.00% rate for a ten-year loan as guidelines. Then again, I am writing this on July 11, 2004 with the prime rate at 4.25%. It also doesn’t mean that you could not get a better rate, I see better rates all the time.

Good luck.
Author: Commercial Loan Underwriter