Off On the Wrong Foot?

Off on the Wrong Foot?
By: Nicholas A. Dunlap, CPM

The first full business day of the new year and there is already talk of interest rates being raised. Ben Bernanke wasted no time in announcing at a meeting with the American Economic Association that he would be vigilant in assuring that recent experiences will not be repeated and that the fed should remain open to using higher interest rates to avert or pop asset bubbles if other methods do not work.

Investors had welcomed positive leverage in 2009 for the first time in recent years as a result of record low interest rates, decreasing property values and elevated income levels, resulted in capitalization rates higher than the interest rate on the money borrowed from banks. If interest rates are increased, market values will need to further decrease and income will need to stay relatively the same in order to achieve positive leverage.

With the talk of potential rate increases, now could be the time to re-finance and have cash available for potential acquisitions. Should rates increase dramatically, an all-cash acquisition could be the easiest and safest bet for investors.