Pending Interest Rate Cuts and Property Investment Impact

financial aspects and asset protection Dec 05, 2023
Pending Interest Rate Cuts and Property Investment Impact


Canadians from coast to coast to coast are breathing collective sighs of relief as promising monetary news finally appears on the wire. Leading economists now predict that the Bank of Canada will freeze the overnight interest rate for at least six months. This follows twelve nail-biting months of rapid interest rate hikes that have hit Canadian pocketbooks everywhere.

The good news doesn’t end there. Beginning in April, experts also predict that the bank will begin cutting those interest rates once again. Currently frozen at a value of 5.0%, the overnight rate is forecast to drop to 4.0% by the end of 2024.


There’s also a sense of relief for Canadian real estate investors. Let’s dive into why.


What the BoC deliberation notes say


The Bank of Canada’s most recent policy rate announcement occurred on October 25 where they maintained the 5.0% overnight rate that has been frozen since July 12. More recently, on November 8, the bank released their deliberation notes that describe back-room discussions amongst policymakers that ultimately led to the October 25 decision.

According to the deliberation notes, the bank’s governing council is split over the direction of future interest rate updates. Some members of the council advocated for further rate hikes immediately as part of an ongoing effort to combat inflation. Others insisted that the current 5.0% interest rate is sufficient to bring down inflation, provided the rate is maintained for a long enough period of time.

Patience persevered and the bank ultimately left the rate frozen in place. While they insist there’s still potential to increase rates once again — especially if inflationary data remains stubbornly high — interest rates are forecast to remain frozen for the time being.


Impact of higher interest rates on property investment


The Bank of Canada’s interest rate decisions have a direct effect on property investment. As interest rates rise, banks incur higher costs to lend money for capital projects, including real estate property investment.


Higher borrowing costs cascade downward, directly impacting:

  • The cost of financing
  • Posted mortgage rates
  • Property investment expenses
  • Property investment appraisals


The bottom line is that the central bank’s interest rate decisions impact real estate investors and their property investment goals. Unfortunately, monetary policy is beyond the control of any property investment expert. As an investor, you can only adapt to decisions that have been implemented by the central bank.


Benefit of lower interest rates on property investment


Speculation that interest rates will start to decline in the spring is welcome news for real estate investors. While there are some benefits to property investment during times of high interest rate costs, there are substantially greater benefits for investors in low-rate environments.
Here are some of the biggest ways you can benefit as the Bank of Canada cuts policy rates.


More affordable financing options


Most property investors will require capital from financial institutions to purchase select properties. Securing capital is one of the biggest hurdles for any investor, but lower interest rates create more feasible options to secure financing.

Banks are more flexible with their terms, and you’ll pay less money on any mortgage you incur to purchase the property. As a result, your profit margins improve and you’ll start generating cumulative cash flow faster and easier.


Sustainable capitalization rates


One of the biggest contributors to a property’s assessed value is the capitalization rate (or cap rates) attached to the building. Cap rates measure the delta between income generated from the property and the assessed value of the land.

When interest rates rise, so too does the cap rate. That’s because more of your property income is eaten up by interest payments on your loan. Therefore, lower interest rates allow you to retain more income as net profit, thereby reducing your cap rate and increasing your property value.


Lower rates create a seller’s market


Suppose you’ve had a property for some time, and you’ve decided the time has come to sell it to a new investor. However, in high interest rate environments, more people — including investors — are concerned about affordability. As a result, you may be ready to sell, but that doesn’t mean other people are ready to buy.

As interest rates come down, financing becomes more attainable for everyone. There’s greater demand for property investment, creating the ideal conditions to sell your property for a substantial profit. If you’re on the fence about keeping a property, hold on a little longer until rates begin to climb down again. That’s when the conditions are ripe for a sale.



Interest rates also affect commercial property investment


Here at WealthGenius, we champion the strategy of multifamily real estate investing. Multifamily property investments are more lucrative options for investors because:

  • They minimize risk to your investment returns
  • They provide steady streams of cash flow from monthly rent payments
  • Financing for multifamily buildings is easier to secure than for single properties
  • Inspections on large buildings are more efficient and more likely to pass
  • You can hire property managers to oversee the day to day of the buildings


Multifamily investing typically encompasses residential properties, but the same strategy applies to commercial property investment. Like multifamily residential buildings, commercial property owners lease space to tenants who then run their businesses on the property. As the owner, you collect steady streams of monthly rental income and take care of the building.

In the commercial real estate space, there’s greater balance between the advantages and disadvantages of both high and low interest rates. However, the fundamental benefits of low interest rates on commercial property investment values remain the same as in the residential space.

Lower interest rates mean access to more lucrative financing, and they help trigger greater demand from other investors. Property speculation helps drive up assessed property values, and investor access to more financing means commercial property owners have flexibility should the time come to sell a building.



Shake off interest rate distress with knowledge and power


The Bank of Canada dictates monetary decisions that impact property investment returns. Try as you might, there is nothing that you can do as an investor to influence those decisions.

But that doesn’t mean there aren’t things you can’t control. Two of the most important attributes of a successful property investment expert are a winning mindset and a desire to acquire new knowledge. Incentivizing investors to embrace these attributes is the cornerstone of our real estate education community at WealthGenius.


By becoming a member of our thriving community, you will learn about the transformative power of possessing:

  • A positive mindset that aspires to achieve investment excellence
  • The drive to learn and apply knowledge that will help grow your business
  • Motivation to keep going from a community of like-minded investors
  • Intuitive nature to adapt when monetary conditions change in the market


Your success is our success, and we want to help you transform your investment dreams into your way of life. That journey towards property investment greatness begins by joining the ultimate real estate education platform and learning from experts who can accelerate your personal real estate IQ!



Keep in Touch

Subscribe to our newsletter to receive real estate investing education, investing news, tips and information on upcoming events.

We won't send spam. Unsubscribe at any time.