Lender · Miami, FL · Member since 2026 · 7 posts · 3 votes
Yesterday the Fed raised the federal funds rate by 25 basis points to a target range of 3.75% to 4%. That's the first increase since July 2023, and the dot plot showed most officials expect at least one more before the year is out.
For newer investors, here's the part worth understanding, because short-term and long-term investor financing do not price off the same thing.
Short-term loans (fix and flip, ground-up construction, bridge) are typically 12 to 24 months and float off short-term benchmarks that track the Fed directly. When the Fed moves, those rates move with it, and quickly.
Long-term DSCR rental financing prices off the 10-year Treasury, not the fed funds rate. The 10-year is driven by inflation expectations, government borrowing, and global demand for US debt. The Fed influences it, but doesn't set it.
That distinction usually means one can rise while the other stays flat, but not right now. The 10-year crossed 5% this week for the first time since 2007 and is sitting right around that level. So short-term rates just went up, and long-term rates are at a 19-year high at the same time. There is no side of the market that's currently cheap.
The fix: On anything you haven't bought yet, buy it cheaper, because your basis is the only variable you control when rates are moving against you. On anything already purchased with a maturity date between December and April, move on the refi quickly.
Investor · Pacific Northwest · Member since 2026 · 538 posts · 300 votes
1w
Luis, this is a good breakdown. The part I’d add is that investors now have two different rate clocks working against the same deal at the same time.
Short-duration capital tends to react quickly when the Fed moves. Longer-duration real estate debt is more complicated: lenders may reference Treasuries, swaps, securitization markets, their own cost of capital and credit spreads depending on the product. So I wouldn't reduce every DSCR loan to "10-year Treasury + spread," but your larger point is exactly right: the long end can move independently of the Fed.
That matters because the pressure compounds.
A flipper gets hit through carry. A developer gets hit through construction interest and potentially slower absorption. A rental buyer gets hit through DSCR and proceeds. An existing owner gets hit when a maturity forces the asset back into today’s capital market.
I’d also widen the idea that basis is the only controllable variable. Basis is huge, but structure matters too: leverage, term, fixed vs. floating, extension rights, interest reserves, rate caps, prepayment terms and how much runway exists before a forced refinance.
The dangerous underwriting right now is a deal that only works because somebody assumes the refinance environment will be friendlier in 18 months.
I’d rather see the deal survive today’s debt, today’s exit assumptions and a slower timeline—and let cheaper capital later become upside.
This is exactly the kind of thing our system watches across a deal: not just “what is the rate?” but where rate movement actually changes the operating decision.
Investor · Pacific Northwest · Member since 2026 · 538 posts · 300 votes
1w
Luis, this is a good breakdown. The part I’d add is that investors now have two different rate clocks working against the same deal at the same time.
Short-duration capital tends to react quickly when the Fed moves. Longer-duration real estate debt is more complicated: lenders may reference Treasuries, swaps, securitization markets, their own cost of capital and credit spreads depending on the product. So I wouldn't reduce every DSCR loan to "10-year Treasury + spread," but your larger point is exactly right: the long end can move independently of the Fed.
That matters because the pressure compounds.
A flipper gets hit through carry. A developer gets hit through construction interest and potentially slower absorption. A rental buyer gets hit through DSCR and proceeds. An existing owner gets hit when a maturity forces the asset back into today’s capital market.
I’d also widen the idea that basis is the only controllable variable. Basis is huge, but structure matters too: leverage, term, fixed vs. floating, extension rights, interest reserves, rate caps, prepayment terms and how much runway exists before a forced refinance.
The dangerous underwriting right now is a deal that only works because somebody assumes the refinance environment will be friendlier in 18 months.
I’d rather see the deal survive today’s debt, today’s exit assumptions and a slower timeline—and let cheaper capital later become upside.
This is exactly the kind of thing our system watches across a deal: not just “what is the rate?” but where rate movement actually changes the operating decision.
Coral Springs, FL · Member since 2018 · 464 posts · 89 votes
1w
Luis, good breakdown on the two rate clocks. Michael nailed it too with the structure point.
I'll add the cash buyer's perspective since I'm buying at tax deed auctions in Broward County right now. When both clocks are running against you like this, the pool of financed buyers thins out fast. A lot of guys who were bidding at 7% DSCR are now sitting out because the numbers don't pencil at 5%+ on the long end plus higher short-term carry.
That actually creates opportunity on the buy side if you have cash. I'm seeing less competition at auction than I was six months ago. The sellers who are motivated aren't getting as many offers because the typical buyer can't make the debt work anymore.
The flip side is exit strategy. If you're buying to flip and reselling to a retail buyer, that buyer's mortgage just got more expensive too. So your ARV assumptions need to account for a smaller buyer pool. I'd rather wholesale it to another cash buyer at a smaller assignment fee than hold and hope retail absorbs it at a higher price.
Basis is king right now. If you can't buy it cheap enough to survive today's rates on both ends, skip it.
Rental Property Investor · Lakeland Florida · Member since 2026 · 9 posts · 7 votes
3d
Good post, and the core distinction is right and under-appreciated. I spent about ten years in capital markets, most of it on an FX trading desk at a global bank, so rates are the one part of real estate where I actually have background rather than opinions. A few things I'd add.
Small correction first. The 10-year touched 5% in October 2023 as well, so this wasn't the first time since 2007. The 2007 reference is the last time it sat there for any length of time, which is the more useful framing anyway. The level matters less than the duration. A week above 5% is noise. Two or three quarters above 5% is what actually starts breaking refinances.
Second, and this is the part worth internalizing: the Fed hiked and the long end rallied. Yields have drifted down since the meeting, and the 10-year is sitting just under 5% as I write this. That isn't a contradiction, it's the mechanism working. The front end is policy. The long end is expected policy plus term premium. When a hawkish Fed is believed, expected inflation comes down and the long end can richen on a hike. If you take one thing from the short end versus long end distinction, make it that they can move in opposite directions on the same headline, not just at different speeds.
Third, decompose the move before you forecast it. Most of the rise in the 10-year this year has come from real yields and term premium, meaning issuance, deficits and energy, rather than from inflation breakevens, which have been comparatively flat. That matters for your last point. Breakeven-driven moves unwind when the Fed regains credibility. Term premium doesn't. It unwinds when the supply and demand for duration changes, which is slower and much less predictable. Anyone planning to ride out a high rate and refinance into an eventual pivot should be clear about which component they're betting reverses.
One correction on the DSCR side. DSCR paper doesn't really price off the 10-year, it prices off the securitization bid. Your quote is a benchmark plus a credit spread, the benchmark is frequently the 5-year or the swap curve rather than the 10-year because expected life is well short of ten years once you account for prepayment penalties, and the spread moves on its own. Spreads can widen into a Treasury rally and leave your quote exactly where it was. Practically: ask your lender what spread they're quoting over what benchmark, and track that number rather than the headline yield.
A mechanical point people miss when rates rise. On DSCR the coverage test binds before the payment does. At a higher note rate the same rent supports a smaller loan, so the thing that actually constrains you is the down payment, not the monthly. Re-run your sizing at today's rate before assuming a deal still pencils.
On your fix, agree on basis. That's the variable you control. On the refinance, I'd only add that speed and term are two separate decisions. Locking thirty years at a nineteen-year high is a position whether or not you think of it that way. Worth asking your lender about an extension on the existing note, a shorter fixed period, or a buydown before assuming the fastest refinance is the right one.
Rates move daily, so check the tape rather than taking my levels as current.