Higher interest rates can have a significant impact on the cost of buying land, as they increase the amount of money that a borrower must pay in interest over the life of a loan.
When interest rates are high, the monthly payments on a mortgage or other loan to purchase land may be unaffordable for some buyers, which can make it more difficult for them to obtain financing.
As a result, high interest rates may reduce the number of people who are able to afford to buy land, which can lead to lower demand and potentially lower prices for land in the market.
However it is not necessarily bad for all buyers. And in fact some buyers will be licking their lips right now.
Not all buyers need a loan
What if you have plenty of cash on the sideline? What if you do not in fact need a commercial loan? The higher interest rates will certainly result in less people able to access finance and therefore a ton less competition.
You may have a greater selection of pristine properties to choose from. And if you are a skilful negotiator, you may also have a little more wiggle room in your discussions with the seller.
However it is not all just one way- it never is. Many land owners know that in an inflationary environment, asset prices tend to rise, so many are holding on to their land. This means less supply on the market and results in higher prices.
It depends on the location, the scarcity of the property, the desirable features and utility of the property.
Will the impact of higher interest rates mean that I wont get a bank loan when buying land?
Well, then it is time to get creative! If you are just a little bit out of range of the property price, is there something you could sell? A car or van or boat that you never use?
Do you have a relative, or friend who might lend you the money? Or might want to buy it with you?
You could ask the seller to owner finance it for you. Maybe you have 60% of the price, and could pay the rest off over the next 36 months. Some sellers will be willing to be a little flexible. Each seller will be different. Look at the terms carefully. Make sure you understand the length of the term, the interest rate, the circumstances where you may be at risk of losing the property, any late fees
When is the right time to buy land?
Keep in mind whilst the economy is interconnected, it is also separate. If housing is crashing on the west cost but you are in a stable are of the mid west that did not see crazy unsustainable price spikes in 2021, it is likely that you wont see huge prices crashes either.
Some markets may see a gradual slow down. Some may see big price drops. Other markets will just keep seeing steady growth as always. If you are looking to buy land, keep looking. And keep making offers. These are our current listings.
If you do see a dip in prices, seize the opportunity to scoop up some deals. But do not wait forever "waiting for the downturn" only to realize that a "crash" never came and now prices have returned their upward swing and now it is 30% higher to buy than a year ago.
If you do find your dream property that ticks all your boxes, do everything you can to get it. Ask friends or family for help.
Try your luck with 5, 8 or 10 lenders.
Do not stop at just one "no".
Keep learning what criteria the banks are looking for. Even though there may be higher interest rates when buying land, the banks still need to lend.
Keep improving your presentation. Keep your credit score clean.
Keep building the amount you have to offer as a down payment.
Keep asking sellers if they have some flexibility and can give you time to pay it off.
If you have a 5ac lot, is now the right time to go out looking for the 20 acre lot you have already wanted?
What about finding a hunting property that you can generate an income from?
What are your interests and your view of the future?
How am I impacted by higher interest rates if I am a land owner?
Over the long term land prices (and all real estate prices) tends to go up. If you choose good properties in areas where people want to be, you will be fine. If you are a land owner, continue to maintain and improve your property. There are many ways to add value and keep making it more desirable.
For example, if you go through the process of adding septic and a well to your property, you will be able to achieve a higher asking price.
AND you will have more offers as you have significantly reduced the risk, the expense and the hassle for a new buyer.
AND you will have differentiated your property as the only one on the street with utilities already on site.
Maybe you could add a driveway. Maybe you could add a fence. Maybe you just do some trimming and bush hogging.
A truly unique property rarely goes down in value. It is always desirable and there may be very few like it- eg with a view of the river, or on the top of the mountain etc etc
So do not let the "media frenzy" of doom and gloom send you to despair whether you are the buyer or the seller. Instead look at your local market. Write down what you want and what you are looking for. Then go out and make it happen.
Do not make the mistake of reading headlines then getting stuck in "doom" loops of the worst possible outcomes. Instead go out and look at plenty of properties. Talk to land brokers. Talk to land sellers. Ask them their view of the local market. Tell them what you are looking for and spread the word. Make sure you control your circumstances as best you can.
And remember that holding and accumulating assets is the best way to make sure that inflation does not leave you behind. Land is one of the safest assets you can hold. And requires minimal upkeep. Land is the asset that you can rely on.
Higher interest rates will have an impact on some people for sure. Higher interest rates will make some potential buyers give up, go back to watching Netflix and blame everyone else for their predicament.
Instead look at what you can do. Be creative, be persistent. Keep building your options. Keep connecting with people and you will be amazed at what happens.
Any questions? Feel free to get in touch