Elevated 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 elevated rates:
Pro: We sell ranchettes on owner financing, typically at rates exceeding 10%. Historically higher 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: If past buyers (now borrowers) and potential buyers have or take on other debt at higher rates and are not careful, it can squeeze their disposable income. That could lead to fewer qualified buyers and more delinquent borrowers.
Pro: A previously red-hot market, buoyed by low interest rates, attracted a lot of “buy and hold” land investors who had been competing with us as we attempted to buy. In a softer (or simply normalized) market, we can buy with greater ease.
The bottom line
Elevated rates may be a net positive for our business, and we don’t see them impacting our investors.