Interest rate ripples – Talk Business & Politics

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I am often arrogant in my view of everything in Northwest Arkansas. Our area is growing, and we continue to outperform our region and nation in terms of job creation.

Our region is home to a large population of educated, high-income earners and an ever-increasing wealth. That kind of growth attracts all the other businesses that come with those kinds of household incomes. Good times ahead.

He expects the real estate market to continue to fluctuate with population and income growth. And for the most part, it is. But after more than a decade of strong appreciation and extremely low interest rates, the business market appears to be in the process of cooling. And while that “cooling off” won’t last forever, it may not end.

While we’re still out of the market — and we continue to have a shortage of retail and office space in some areas, such as downtown Bentonville — there are a few clouds on the horizon that present opportunities for some investors. Intimidation of others.

The biggest risk – which is here now – is that interest rates on commercial property loans are skyrocketing. Those new rates could put loan renewals in jeopardy for many investors who secured their property with a 3% or 3.5% mortgage two to five years ago. Real estate loans typically have three- or five-year terms with balloon payments at the end of that, requiring borrowers to refinance periodically. For every $1,000 borrowed at 3% on a 25-year Amortization Program loan, for example, requiring a 9% refinance, payments go from $4.74 per month to $8.39 per month, or nearly double.

Only some people can increase their rental collections enough to pay for it.

Mark Zweig

Existing long-term leases or market conditions at that location and time. Therefore, it is inevitable that there will be some non-renewable loans and bank-owned properties in the next few years.

Those bank holdings and other long-term holdings can be good investment opportunities for committed and liquid investors who want to liquidate them now, while protecting their credit before that happens. From 2009 to 2015, we had some fantastic deals from local banks that could happen again in the not-too-distant future.

Of course, any business owner with a company that rents space should always look into the benefits of owning the facilities. It’s a long-term, classic wealth-building strategy for privately held business owners. You control the rent you pay yourself (often the real estate is held in a legal entity other than the business that owns it), which greatly reduces the risk of ownership.

Whatever you do — buy, sell or rent — find a qualified commercial real estate professional to help you. Good people know the market and often have buyers or sellers that you might not be able to find on your own. Besides, school can help you with all these things and save you from trouble.

Mark Zweig is the founder of two Fayetteville-based 500/5000 companies. He is also an Entrepreneur at the Sam M. Walton College of Business at the University of Arkansas and the author of the award-winning book, “Confessions of an Entrepreneur.” The opinions expressed are those of the author.



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