Higher interest rates have been top of mind of late, so it’s worth addressing their impact on the land business.
A little background:
We do not borrow from banks for these land deals, so they are not in a position to increase rates on loans we do not have and do not plan to take out.
Instead, we borrow from the fund (that’s you) at a fixed 10%. That rate is already well above going mortgage rates, but it is acceptable to us because the terms are favorable and allow this business model to work.
Pros and cons of higher rates:
Pro: We sell ranchettes on owner financing, typically at rates exceeding 10%. Rising rates (chart) amongst other lenders have had the positive effect of making our rates much more palatable to prospective ranchette buyers, thus helping with sales.
Con: Higher rates are causing consumers to pay more for other purchases that they finance. This could squeeze the disposable income of some of our prospective buyers and therefore hurt sales a bit.
Pro: Higher rates are slowly softening the rural land market. We welcome this shift. A hot market attracted a lot of “buy and hold” land investors with deep pockets who have been competing with us as we attempt to buy. In a softer (or simply normalized) market, we can buy with greater ease and sell with what historically has also been relative ease.
The bottom line
Higher rates may be a net positive for our business, and we don’t see them impacting our investors.