Episode Summary:
In this Real Investor Radio bonus content episode, hosts Craig Fuhr, Jack BeVier, and Fred Lewis delve into the current real estate market landscape and its implications for investors. They highlight the impact of the rising five-year treasury rate on the cost of capital for investors looking to add rental properties, discussing challenges stemming from high property prices and dwindling rent growth.
The conversation also covers banks’ responses to changing deposit bases and regulatory considerations, leading to loan repricing. Private lenders’ rates are explored in connection with bank rates and securitization pricing. The hosts also touch on the correlation between the 10-year treasury rate and consumer mortgage rates, affecting both buyer affordability and sellers’ decisions. The episode emphasizes the need for patience and operational stability in the evolving real estate market.
Overview of the Bonus Episode
In this episode, Craig Fuhr, Jack BeVier, and Fred Lewis explore how the cost of capital impacts real estate. They delve into rising interest rates, changing loan terms, and how these trends challenge investors.
Rising Treasury Rates and Investor Impact
Jack highlights the surge in five-year treasury rates above 4.4%, marking a 15-year high. As a result, the cost of capital for DSCR loans and rental property financing reaches unprecedented levels. Rent stagnation and stable property prices further strain investors’ ability to leverage effectively.
Shifting Loan Pricing Models
Fred explains how banks face repricing challenges due to higher funding costs. For instance, SOFR Plus rates have climbed to 5.3%, with loan spreads exceeding 400 basis points. Consequently, loans now approach 9-10% interest rates, reshaping investor expectations.
Private Lending and Cost of Capital Challenges
Jack discusses how private lenders mirror bank rate increases due to their reliance on similar funding mechanisms. Not only are rates rising, but securitization markets also set a new floor for private lending costs. This shift makes 11% APR a baseline for private lenders.
Deposit Requirements Add Pressure
Fred notes that banks enforce stricter deposit requirements, now often 10-15% or more. This policy further increases the cost of capital for investors. Comparatively, private lenders offer fewer deposit demands but at higher rates.
Implications for Real Estate Investors
Jack and Craig emphasize the challenges for flippers and buyers under contract. Rising mortgage rates reduce affordability, creating urgency for rate-locked buyers. Similarly, sellers delay listing properties, worsening inventory constraints.
