When we see rising interest rates, some people think of it as a negative, which can be true regarding the financing cost of real estate. This line of thinking concludes that the value of the real estate compared to other investments in the market will decrease as the cost of investing in real estate rises.
However, what is often overlooked in a rising rate environment is that real estate tends to be a hedge against inflation. In most cases, which is the case now, interest rates are rising, with short-term rates being pushed up by the Federal Reserve to slow down the inflation rate. So, yes, investing costs are increasing but offset through higher rents and increased values.
What do rising interest rates mean for a mortgage fund like Fidelis Private Fund?
Additional security and future opportunities.
Fidelis has a loan portfolio of fixed loan amounts secured by real estate that is increasing in value because of inflation. This means the equity in the secured real estate is rising, creating a more secure Fund for the investor over time.
The Fidelis loan portfolio consists of short-term loans, and the average loan pays off in less than one year. Therefore, interest rates can be adjusted to follow the market, generating a competitive yield for the corresponding risk.
As the year passes and the effects of higher interest rates flow through the market, it will eventually result in higher cap rates offsetting the higher rents and dampening the upward trend in the real estate values of investment properties. However, this again will create future investment opportunities to utilize private money like Fidelis Private Fund.
One thing we know in times of uncertainty and volatility in the market, it generates opportunities.
If you are an accredited investor interested in escaping the volatility of the stock market and want an investment secured by appreciating hard assets (real estate) and generating a competitive return, call me for more information.