If lower rates come, you’re not missing the upside
One of my long-time clients has spent years buying, selling, and developing small retail centers. You’ve seen the type—five or six tenants in a strip center, maybe a Domino’s, a nail salon, a tax office.
I’ve sold him several sites for these projects, plus at least one that was already developed. From my side, the developed project was better—since my commission is a percentage of the sales price. So I always made sure to send him anything that looked promising.
On one of the first deals I showed him, the rental income looked strong. Even better, every lease had automatic renewals with scheduled rent increases. I told him it looked good now, and even better in the future.
That’s when he gave me advice that was so obvious, I didn’t see it until he said it:
Those future numbers in the lease? They aren’t guaranteed. They’re the ceiling, not the floor.
If a tenant isn’t doing well, when renewal comes around, they’ll ask for a cut. If things are going great, they’ll still ask for a cut. Your choices: reduce the rent or watch them leave. And then your “future income” goes to zero.
That lesson carries over to where we are in land sales today.
(Cue the standard disclaimer: I’m not a CPA or an attorney, I’m a real estate broker. None of this is financial or legal advice—it’s for informational and illustrative purposes only. If you have questions in those areas, talk to the right professional.)
(Got it? Ok.)
A lot of buyers are sitting on the sidelines, waiting for interest rates to drop further. Yes, there’s been some movement lately, but not as much as people hoped. More cuts may come later—or not.
Here’s the key: real estate loans can usually be refinanced without penalty. Your interest rate won’t go higher than whatever your loan agreement says. But if rates go lower, you can refinance and take advantage of it.
In other words, locking something in now gives you the upper limit on your loan cost. If rates fall, you can adjust later. If they don’t, at least you own the property and beat the folks still waiting.
Is there risk? Of course. But sitting still has its own risks too.
Is it ever a bad time to look at something from all the angles?
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