By:Dennis Norman
Today,as expected,the Board of Governors of the Federal Reserve System slashed the discount rate (the interest rate the Federal Reserve charges on loans to commercial banks) from 1.25% to 1/2%. This action will lower the prime rate charged by most banks to around 3.25% which will be the lowest prime rate has been since the mid 1950′s. In the 50+ years since prime rate was last this low it his 10% in 1973 rose to 12% by 1974,15.75% in late 1979 (when I got into the real estate business) then topped out at a whopping 20.50% in early 1981 and spent most of the year at that rate.
This is good news for real estate investors…as most real estate loans,particularly short-term ones for “flipping”property,are based on prime rate and usually float with prime,therefore bringing your cost of money down. Prices have dropped,in some parts of the country to significant lows,interest rates are at record lows,sure seems like now is the time to buy. The economy as a whole is still on very shaky ground so the prudent investor will exercise extreme caution…don’t forget no matter how “good”the deal is when you buy the property if you can’t resell it (preferably for more than you paid for it) or rent it to a qualified,employed,tenant,then it’s not going to be anything to you but a cash drain.
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