Can't pull the trigger because of interest rates??

Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes

3y

For the members who don't feel that rates matter, please post real deals that help illustrate how they work when the interest rate is at or above the cap rate (or yield, return on cost, unlevered return...whatever you want to call it). All we hear on the forums is about the opportunity in this market with very few real deals being discussed. It's a constant barrage of advertisements and does not help with investing. Cash buyers are having success. There was a recent post from a member on a NNN deal that was a higher cap rate asset class...purchased with only 50% leverage...using a lower rate heloc (6%)...with an interest only payment...that worked. I have a big acquisition in processes; so, I am a buyer but am also interested in how others are getting it done.

Same here Mike. To make matters worse I want a newer building in a quality neighborhood, so I am looking at under 6 caps. With current rates that's a break even in the pro forma and we all know what that means. I basically have to look at portfolio performance instead of this as a stand alone deal. Ask me in 10 years if it was a good decision.

0 Reply

John M.

Investor · Fairfax, VA · Member since 2015 · 1k+ posts · 800 votes

3y

Some deals might break even on paper initially, but does that matter if you are a value add investor and are making improvements that increases rents and the value of the property? Others use all interest loans to save on their monthly. Even know they are not paying down equity, in 10 years they may trade that into a higher value deal due to the rent increases/changing demand.(commercial example). Others will use seller financing at more attractive rates and yet others will just put more money down to make it cash flow. Either way don't wait for interest rates to fall, make the offers that make sense to you in today's market place (not yesterday's). You won't regret it 10 years from now, but you will regret it by sitting on the sidelines like the masses.

0 Reply

Nick Robinson

Rental Property Investor · Murrieta, CA · Member since 2020 · 338 posts · 343 votes

3y

@Jackson Risse
Interest rates especially long-term rates are determined by the market not the FED. Look at yield curve LDT are in a downtrend the more they raise FED funds rate. This is telling you the market wants safe and liquid assets and they will pay a premium for it. I agree with a prior post the trade was to buy TLT under $95 and continually keep reinvesting waiting for the hammer to fall.

What is going to hit the hardest is when everyone realizes this was not inflation, creation of more currency units, it was consumer price increases. Look at CPI from July to now MoM. Those 5 months annualized is CPI at 2.472%. People will point to M1 or M2 which is a terrible metric for the amount of money in the system. If 80%+ of dollars are created outside the US in the Euro$ system and the commercial banks are not creating money, then what the gov./Fed does is irrelevant. Look at Z-1 data for a proxy for how much money is created.

There is a recency biased that the FED will just keep pumping the market up and can inflate it just by cutting rates. Look at history. Historically when the FED cuts rates we see the worst part of the recession after. In terms of waiting for rates look to Milton Freidman's Interest rate fallacy. Low rates do not mean easy money. Think about after GFC rates were low but no one was lending.

Look at commodities, specifically lumber has fallen dramatically. This has never been a good sign for housing to see this rate of change. With NAR projecting -5% appreciation and saying the "strong" labor market will keep us from falling further to me means you need to look around. If you look at every measure of economic data, we are in a bad place. The only labor data that's good is the gov. job data which is not raw numbers its run through logarithms taking into account birth/death rates etc. HH survey which is raw data is a better metric to use when there is a transition in the economy. We are only 1M jobs, using inflated gov #s, more than Feb 2020 and to get back to the same growth trend, which never recovered from '08, we should have 4.8-6m more jobs than FEB 2020.

Long story short there is more downward pressure on the housing market than upward pressure. This is based on PROBABILITIES not CERTANITES. No one knows how far or long the prices will go down. If a deal CF's and you are ok with the current returns, do not project big rent growth near term, buy the property b/c no matter what happens over the next 1-2 years the property will be worth more in 10+years, probably more in 5+. My thoughts I have CF assets w/ reserves and took my free cash and bought UST. For my investments multifamily (5+ units) I know syndicators ran liberal #s bit off more than they could chew. When those bridge loans end and they need to refinance that's when I plan on making my moves. My 2¢

1 Reply

Account Closed

Real Estate Agent · Arlington · Member since 2016 · 162 posts · 100 votes

3y

Average current 30yr mortgage rate: 6.5%
Latest CPI (Nov 22): 7.1%
Reality: you're getting a negative real rate of -0.6% on your mortgage 🤯

0 Reply

Tal Tamir

Real Estate Agent · Cleveland, OH · Member since 2019 · 57 posts · 82 votes

3y

Quote from @Jackson Risse:

I keep on hearing from investors that "I'm waiting for interest rates to go down" or I hear "I need rates to go down for the numbers to make sense". Maybe these investors are saying this because they just got into investing in the past decade where the rates were basically zero or close to it. The past decade of interest rates on a 30 year fix mortgage has never happened before 2008. In the 70s and 80 they were 8, 9, 10, 11, 12, even 18 percent. Now do I think they will continue to reach those levels I don't know I'm not Jerome Powell or the chairman of Chase or BoA. One thing I will say if you are waiting for the interest rates to back down to 2, 3 percent, you might be waiting a long time. All I am saying, is if you are one of those investors that say "I'm waiting for interest rates to go back", you probably need a reality check and do some digging into the history of interest rates. And ask yourself, were we just really lucky in the past decade to be able to lock in a mortgage at 3%. Start to look at the 30 year fixed mortgage rates history graph.

Very well said! We were spoiled over the last handful of years with the basically free money floating around. Going to start seeing some price adjustments on the investment side here soon.

With that being said, we are still helping tons of investors successfully buy and sell in the Cleveland market and seems to be the same story in the Midwest as a whole. The cash flow and affordability make it possible to still do deals! All about finding the right opportunities and putting the right team in place.

1 Reply

Can't pull the trigger because of interest rates??

Can't pull the trigger because of interest rates??

Most Popular Reply

30 Replies