Glendale, AZ · Member since 2017 · 1k+ posts · 238 votes
Interest rates are going up. With commercial loans you have to refinance every 5 years or so. What is your strategy for financing if interest rates are high on a commercial loan and you can not afford to refinance the property you own?
You don’t have much of an option. I just refinanced a loan I had a 4.5% to 5.2%. Sucks but it’s the name of the game. On the flip side I had a lot of loans at 6+% that I refinanced under 5
If your property won’t make money with an interest rate bump then it’s not making much money. But the answer is you’d need to sell.
@Mary Jay we try to lock our loans to longer time frames (10-12 years) so we'll have lower balances when it's time to refinance. As you were told above, if you can't get a loan at that point, you'll have to sell.
As for projections, we are in a weird place at the moment where the Trump administration is stepping on the economy gas pedal with incentives and tax reforms while at the same time the Federal Reserve is pushing on the breaks to try and slow down the economy.
While 7-8-9% rates are not impossible, I don't think our economy is in a place right now to support that much rate hikes in the next 12-24 months.
Properly underwriting the debt is one of the most important pieces of the puzzle, after all, the lender is usually bringing most of the cash to the deal.
It seems like most economists I have listened to and read do not believe that the current global debt load can support a dramatic increase in rates, and for that reason the Fed will not stress the current interest environment much further over the near term. The truth is, anyone who believes they know exactly where interest rates are headed are only fooling themselves. After getting a good feel for the current environment, our job as investors is to develop a business plan accordingly, underwrite conservatively and to protect against the downside.
I would first think about your personal comfort with the debt load you put on any given property. There is something to be said for the peace of mind you receive for a lower leveraged deal with plenty of room for error. This is true for both you and your investors if you are planning on raising money. Yes, you will be sacrificing return, but that's a call you have to make based on the return you and your investors expect for the perceived risk being taken on any given deal.
Properly underwriting the debt is one of the most important pieces of the puzzle, after all, the lender is usually bringing most of the cash to the deal.
It seems like most economists I have listened to and read do not believe that the current global debt load can support a dramatic increase in rates, and for that reason the Fed will not stress the current interest environment much further over the near term. The truth is, anyone who believes they know exactly where interest rates are headed are only fooling themselves. After getting a good feel for the current environment, our job as investors is to develop a business plan accordingly, underwrite conservatively and to protect against the downside.
I would first think about your personal comfort with the debt load you put on any given property. There is something to be said for the peace of mind you receive for a lower leveraged deal with plenty of room for error. This is true for both you and your investors if you are planning on raising money. Yes, you will be sacrificing return, but that's a call you have to make based on the return you and your investors expect for the perceived risk being taken on any given deal.
@Mary Jay the consensus is that FEDs might raise the rates 1-2 times next year before it stops. No one can read in the stars, but yes, from what I hear from the financial advisors, it's expected that the big economies will slow down a bit next year,