The impact of loan rates on direct real estate investment holding period return
DOI:
https://doi.org/10.61190/fsr.v13i2.4787Keywords:
Sensitivity analysis, Direct real estate investment, Mortgage rates, Holding period returnAbstract
Today's low mortgage interest rates make direct real estate investments attractive lo individual investors. However, low rates may result in an investor paying too much for the property. Sensitivity analysis conducted on a set or projected financial statements for a direct real estate investment shows the potential impact of changing rates on holding period return. Higher subsequent loan rates can have a significant negative effect on the investor's return, but the impact may be mitigated by extending the holding period. Individuals can use the system presented here to compare the expected return or alternate holding periods given expected interest rates.
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