Anyone Else Changing How They Price Deals Now That Rates Are High?

[Michael P McKeown]

I’ve been running numbers on distressed properties lately, and it feels like high interest rates are forcing everyone to get way more dialed in on how they underwrite. A lot of investors are still pricing deals the old way, but the holding costs and rehab timelines hit way harder now.

What I’m noticing is that the real difference-maker isn’t always the price you lock the house up at—it’s how fast you can get in and out of the project. If your rehab drags or permitting slows you down, the carrying costs eat your spread quick. But if you can keep the project tight and predictable, you can actually pay a little more and still beat out other buyers.

Funny enough, the heavier fixers with clear scopes of work are making more sense to me than the “easy” cosmetic flips. At least with the big rehabs, you know exactly what you’re touching and how long it’ll take. The simple flips are the ones where timelines stretch because everyone and their cousin thinks they’re a bargain hunter.

Curious if anyone else is shifting their underwriting because of rates, or if sellers in your market have finally started adjusting to reality.

[Chris Seveney]

Quote from @Michael P McKeown:

I’ve been running numbers on distressed properties lately, and it feels like high interest rates are forcing everyone to get way more dialed in on how they underwrite. A lot of investors are still pricing deals the old way, but the holding costs and rehab timelines hit way harder now.

What I’m noticing is that the real difference-maker isn’t always the price you lock the house up at—it’s how fast you can get in and out of the project. If your rehab drags or permitting slows you down, the carrying costs eat your spread quick. But if you can keep the project tight and predictable, you can actually pay a little more and still beat out other buyers.

Funny enough, the heavier fixers with clear scopes of work are making more sense to me than the “easy” cosmetic flips. At least with the big rehabs, you know exactly what you’re touching and how long it’ll take. The simple flips are the ones where timelines stretch because everyone and their cousin thinks they’re a bargain hunter.

Curious if anyone else is shifting their underwriting because of rates, or if sellers in your market have finally started adjusting to reality.

 Time has always been a much bigger factor. But I want to point at that interest rates are not high, they are at the norm which is why us old folks say real estate is a difficult business. People could have been in a coma the past five years and made $ in real estate, that is no longer the case and like any business you need to manage it properly and understand financials, risk and where things are headed. Many fly blind because they take some guru course and think they can become an expert. Think of every profession out there, what profession can you become very knowledgable in after doing it for a weekend or even doing a full cycle transaction once.