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How rising interest rates could benefit California investors

According to reports, in December 2016, the Federal Open Market Committee voted to raise interest rates 25 basis points and plans to raise rates three more times during 2017. While the market had been expecting the increase, many commercial real estate investors have concerns that the change may bring about a negative impact on the commercial real estate market. However, these fears may be unfounded.

While interest rates should not be ignored, the real concern people should have is over the condition of the economy because interest rates are artificial. In fact, whenever interest rates are normalized, it is typically because the Fed believes the US economic recovery is strong enough to handle the hike without the false support of low rates. This factor should encourage property owners and commercial real estate investors as a thriving economy is what investors rely on despite rising rates. A strong economy spurs jobs, produces higher wages and brings in more cash to investors via higher sales prices and rents. It is also interesting to note that, prior to the rate hike in December, the last time the Fed raised the rate was back in 2006.

When the economy is strong, property investors might consider preparing a balance sheet that will help them make wise investments amidst increases in interest rates and prices. Despite the level interest rates are at, commercial property owners should stay vigilant about the market and capitalize on ways to advance their portfolio.

Successful real estate investing takes a lot of hard work. Investors must be cautious about the market and the economy and practice due diligence about properties prior to purchasing them. A knowledgeable attorney can also offer valuable real estate advice and assist with legal aspects, such as easements, preparing contracts, financing and title and zoning issues. Source: Commercial Observer, "The Upside of Rising Rates for Commercial Real Estate Investors", Al Brooks, March 6, 2017

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