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Updated over 8 years ago on . Most recent reply

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438
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Marc C.
  • Buy-and-Hold Rental Investor
  • Santa Fe, NM
352
Votes |
438
Posts

Interest Rates: For every .5% rise, prices need to fall 3%?

Marc C.
  • Buy-and-Hold Rental Investor
  • Santa Fe, NM
Posted

So, according to http://www.crefcoa.com/apartment-rates-main.html, apartment loan rates are up about .5% under D. Trump. Around 4.88% for what I'm looking for, up from 4.39%.  

What should that do to YOUR calculations, as far as overall rate of return? Here's an example: On a deal I'm underwriting, it takes about 1.1 percentage points off the average 5-year Cash on Cash return for the property (constant purchase price). From 11.4% to 10.3%. 

Here's where it gets interesting: If I want to preserve the 11.4% cash flow, all I have to do is get the seller to accept a 3% lower selling price than I'd originally bargained for. (That also keeps my investors' target IRR about 20% over a 5-year hold...my goal is for each investor to double his/her investment in that period.)

So, you can see what higher rates are going to do to prices: For every half-point increase in rates, we'll need to see a 3% drop in purchase price. (Says my spreadsheet. What does YOURS say?) 

If you're in contract on a deal you got under contract before Nov. 8, are you going to try to "retrade" the purchase price by 3% to account for the rise in rates? If the Seller voted for Mr. Trump, then I think he/she should share in the pain!

Most Popular Reply

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229
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Matt B.
  • Investor
  • Bethlehem, PA
122
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229
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Matt B.
  • Investor
  • Bethlehem, PA
Replied

how are interest rates up under trump? He's not the president until next year. If rates are going up now, it's under Obamas presidency. 

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