High Interest Rates and Real Estate Prices: When a Purchase Is Still Worth It

Is real estate still attractive at all when interest rates are high? This question is on the minds of both private buyers and professional investors.

The answer is: It depends on the property.

Sven Schwarzat, managing director of Schwarzat Capital GmbH, invests in real estate in Leipzig and sees both risks and opportunities, particularly in the current changing market environment.

Interest Rates and Purchase Price Go Hand in Hand

A common mistake is to view real estate prices and financing costs in isolation from one another.

In fact, both factors are directly linked from an economic perspective.

When capital becomes more expensive, an investor with identical rental income can pay less for a property if they want to achieve the same rate of return.

For Sven Schwarzat, therefore, it is not decisive whether real estate is nominally cheaper or more expensive today than it was a few years ago.

What matters is the relationship between the total investment, financing costs, and return.

A low price alone is not enough

A building costing one million euros can be expensive. A property costing three million euros can be a good deal.

The purchase price alone says very little.

Factors such as location, size, condition, existing income, and development potential all play a role.

Schwarzat Capital GmbH therefore evaluates properties in Leipzig based on their economic potential.

For example, a building in need of renovation may be offered at a low price per square meter. However, if substantial investments are required, the apparent price advantage is quickly offset.

Development potential can offset higher interest rates

Properties whose current use falls significantly short of their potential can be of interest.

These may include vacant spaces, apartments in need of renovation, or properties with unfavorable floor plans.

If significant improvements can be achieved through investment, value is created not solely through a general price increase in the real estate market.

"When it comes to a property, we want to be able to influence as much as possible why it will be in a better position after development than it was before," says Sven Schwarzat.

For Schwarzat Capital GmbH, this philosophy is an important part of its project development in Leipzig.

The rent must be realistic

However, development potential must not be confused with wishful thinking.

A calculation can look excellent on paper if unrealistically high future rents are assumed.

Professional real estate investors should therefore examine as closely as possible what income is actually achievable at the specific location.

Sven Schwarzat generally considers conservative assumptions to be more sensible than a calculation that only works in an optimal scenario.

This is especially true when financing costs are high.

The smaller the gap between income and operating costs, the less room there is for error.

Time is money when interest rates are high

Another factor is the project duration.

For leveraged real estate investments, interest accrues throughout the entire development period.

If a renovation takes twelve months instead of six, additional financing costs may arise while the property may not yet be generating full revenue.

For Schwarzat Capital GmbH, the feasibility of a project therefore also plays a role.

A theoretically high profit margin is less attractive if it takes many years to realize and involves significant uncertainties.

When Is a Purchase Worthwhile?

Sven Schwarzat does not specify a blanket return threshold above which real estate automatically becomes attractive.

Individual projects vary too widely.

A multi-family residence intended to be held long-term must be evaluated differently than a property that is to be extensively developed and subsequently resold.

In principle, however, there must be a sufficient gap between the total investment and the realistic return or realistic value.

Risks must also be factored in.

High interest rates create new opportunities

A challenging financing environment can reduce competition for real estate.

Buyers whose business models rely exclusively on extremely low interest rates may no longer be in the market.

This can create new purchasing opportunities.

For Sven Schwarzat, therefore, the absolute level of interest rates is not the decisive factor.

The key question is: At what price can a property be purchased, and what economic value can be derived from it?

For Schwarzat Capital GmbH, Leipzig therefore remains an attractive market even in a high-interest-rate environment.

Good real estate projects do not disappear when interest rates rise. However, the requirements for purchasing and cost calculations become significantly more stringent.

Schwarzat Capital GmbH
Herr Sven Schwarzat
Ernst-Thaelmann-Strasse 18
06686 Luetzen
Deutschland
fon ..: 034444909876
web ..: http://www.schwarzat-capital.de
email : info@schwarzat-capital.de

About the Author: Sven Schwarzat is the managing director of Schwarzat Capital GmbH, based in Luetzen. Through this company and in his private capacity, he owns numerous properties, carries out construction projects, and rents out his apartments. His focus is on Leipzig and the surrounding area. His expertise and experience make him a reliable advisor on general real estate questions and, specifically, on the Leipzig real estate market.

About Schwarzat Capital GmbH: Schwarzat Capital GmbH, headquartered in Luetzen, is a leading company in the field of real estate investment and development. The company specializes in the acquisition, renovation, and leasing of residential properties in Leipzig.

This release was published on openPR.