Can you make deals work when rates are high?

Question

I am not promoting being careless and buying whatever for the sake of buying it.

Having said that, I just helped an investor purchase a property, and he financed it. Yeah, you could use interest rates as an excuse, but it's a value-add opportunity.

The upside more than makes up for the interest rate.

It really boils down to your ability to evaluate deals. If you can evaluate deals and take into account the nuances and the potential exit strategies, then it's all good.

Rates are like point of sale violations in Cleveland. They separate the spectators from the real investors.

Anyone can buy when rates are low, when money is cheap. The question is: Can you make deals work when rates are high?

For new investors without experience, you're not going to be able to flush this out by watching YT and reading posts. You need to align yourself with a seasoned investor, someone who has experience, who bought when interest rates were high like they are right now and still had success.

Figure out what they did. If they're still in the game, something must have worked.

Ryan Thomson · Answer

Yes, deals can still work in high rate environments. It's just harder and the margin for error is thinner.

A few things that actually move the needle:

**Buy at the right basis.** If you're buying at a discount to market and can force appreciation through value-add, the rate hurts less. The math works when you're not paying retail for a property that needs work.

**Assumable mortgages change the calculus entirely.** A $400K home with a 2.75% FHA or VA loan has a payment around $1,650/mo. The same home financed at 6.8% is $2,625/mo. That's nearly $1,000/month difference, and it directly impacts what a buyer will pay you when you sell. I'm in Colorado Springs and do these full-time. Every FHA and VA loan is assumable by law, and there are billions of dollars in low-rate loans sitting in the MLS right now.

**The selling costs math matters more now.** When your equity spread is tighter, 5-6% in commissions and 2-3% in closing costs hits differently. Factor that into your exit number before you buy, not after.

**Cash flow deals still exist, but you have to look harder.** Midterm rentals and furnished units tend to cash flow better than long-term at current rates. The gross rent is higher and the expenses on furnished are often covered by the tenant.

The investors I see struggling right now are the ones running 2021 underwriting on 2024 acquisitions. The ones doing fine bought at a bigger discount or assumed a low-rate loan.

DM me if you want to look at assumable inventory in Colorado.

Ashish Acharya · Answer

Gladimir, I agree that higher rates don’t automatically make a deal unworkable. The bigger question is whether the property has enough margin and a clear plan for creating value.

With a value-add deal, I’d look at the full picture rather than just the rate. Purchase price, rehab, financing costs, holding period, stabilized income, exit value, and the amount of equity you’ll have tied up all need to work together.

I also think the exit strategy should be part of the underwriting from day one. If the plan is to renovate and refinance, you need to know what happens if the appraisal comes in lower or the refinance rate is higher than expected. If the plan is to sell, selling costs and taxes need to be included.

A high rate can sometimes be overcome by buying at the right basis and creating enough value. But the numbers should prove that before closing rather than relying on the hope that rates improve later. Feel free to DM me, I’d be happy to send over a few resources on evaluating value-add deals and the tax side of the strategy.

Stacy Raskin · Answer

There are many investors making money with the current interest rates. There are investors who use DSCR loans and because DSCR loans will allow for a higher percentage of seller credits compared to conventional loans, that is one way that investors have the opportunity to make even more cash flow. There are lending options to help structure the loan with seller credits that can positively impact the rate and closing costs. Also, in many markets there is less competition from other buyers allowing more negotiation and a better deal to be had for the buyer.

Can you make deals work when rates are high?

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