Business

‘Most economists are predicting a recession in 2023’: I own a rental property. Is this a good time to get a bank loan and renovate – or should I wait?


Dear MarketWatch,

With a sibling, I own a rental property of over 40 rooms in the Caribbean, which we rent out weekly.

It is close to the city center but in need of repair and renovation.

Is this a good time to go to the bank for a loan to renovate? We are also open to changing our business model.

Please advise and thanks.

Signed,

Ready for action

Big move‘ is a MarketWatch column that looks at real estate insights, from navigating your search for a new home to applying for a mortgage.

Do you have a question about buying or selling a home? Do you want to know where your next move should be? Email Aarthi Swaminathan at [email protected].

Dear Ready,

You did a great job maintaining and running this 40-room short-term rental. With the worst days of COVID already behind us – I hope – tourism is booming and people are going crazy exploring every corner of the planet. So, proceed only if there is a need to make a reservation.

I don’t know what lenders are offering where you are, so take a few weeks to reach out to a group of lenders to see what interest rates they are offering and if those rates are trending. decrease or increase or not.

In America, there was some respite. The average 30-year fixed mortgage rate fell to 6.67% last week from 6.9%, according to the latest data from the Mortgage Bankers Association. But that’s about double the rate for the same time last year.

Obviously, the faster you repair this property and beautify it, the sooner you will increase its value. And you can increase the daily rate you charge. But I advise you to proceed with caution and only if your rental predictions make sense.

There are other considerations: You may have to take some rooms off the list when they’re about to renovate, but at the end of the day you’ll see more money once it’s done. Put your financial plan through a rigorous risk assessment and take into account all possible scenarios — current demand, expected post-renovation demand growth, and demand drop economic recession may occur.

You will need to have enough financial support to get through all three outcomes. With the help of your accountant and/or financial advisor, make sure you have cash flow, rent projections—including hypothetical rent increases after renovations—to last 12 years. next month, especially if the market is down.

Suppose, I think Inflation is gradually under control According to a federal government report on November 10, 10 year treasury is moving down, and Mortgage rates are falling again, you may be on the verge of an opening in the near term.

“Reducing mortgage rates will improve the purchasing power of potential homebuyers, who have largely been pushed aside because mortgage rates have more than doubled in the past year,” said Joel Kan, vice president. and deputy chief economist for the Mortgage Bankers Association, said earlier. this week.

He added: “Due to falling mortgage rates, both homebuying and refinancing applications increased slightly last week. “However, refinancing activity is still 80 percent below last year’s pace.”

Another option: Carry out renovations during off-peak seasons when traffic may be lower. Obviously guests won’t appreciate honing and drilling, and you don’t want to receive a ton of negative reviews on Airbnb.
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or Yelp.

You also mentioned your willingness to change your business model. If you like it, consider converting some of the rooms into long-term rentals. If you have a good mix of short-term and long-term tenants, you’ll have a safer balance of cash flow.

It looks like you’ve done an amazing job getting through two years of COVID where you can see a dizzying drop in bookings.

Now that the industry is in recovery mode, it’s the right time to make sure you get the most out of your assets. But again, make sure you can afford it, especially if business slows and account for any delays due to labor and/or material shortages. Ask your builder for references from recent clients so you can get more details on the challenges they face.

Most economists are recession prediction in 2023. As with everything in business, there are no guarantees.

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