High Interest Rates Don’t Kill Good Deals. They Change the Price.
By: Tim Gramling | Co-Founder | Next Legacy Group
It’s easy to look at today’s interest rates and conclude that this is a difficult time for multifamily real estate investing.
Debt is more expensive. Financing costs are higher. And deals that worked several years ago may not work today.
But higher interest rates can also create opportunities.
When borrowing costs rise, buyers cannot afford to pay the same prices and still achieve acceptable returns. Some buyers leave the market altogether. Sellers who need to sell may eventually have to adjust their expectations.
That can create an opportunity to acquire a good multifamily property at a more attractive price.
The Price Matters More Than Ever
The key is not ignoring higher interest rates.
It is pricing them into the deal.
Instead of asking:
“Are rates too high to buy?”
Consider asking:
“At today’s cost of capital, what price makes this investment work?”
That distinction matters.
A disciplined multifamily investment should not require interest rates to fall for the business plan to succeed.
The property should make sense based on reasonable assumptions and the financing available today.
What Higher Interest Rates Can Change
Higher financing costs can affect several parts of a multifamily investment:
Buyer Purchasing Power
Higher borrowing costs can reduce what buyers can afford to pay.
Seller Expectations
Some sellers may eventually need to adjust their pricing expectations as market conditions change.
Acquisition Opportunities
When pricing comes under pressure, investors may have opportunities to acquire quality properties at a more attractive basis.
Investment Underwriting
Today's financing costs need to be included in the analysis rather than assuming rates will decline.
For investors, this makes disciplined underwriting even more important.
A Disciplined Multifamily Investment Strategy
A good investment should work with the financing available today.
Investors should carefully evaluate:
Purchase price
Financing structure
Operating assumptions
Market conditions
Property-level risks
Potential future scenarios
The goal is not to predict exactly where interest rates will go.
The goal is to determine whether the investment makes sense at the price and financing available today.
What If Interest Rates Decline?
There can be another side to the equation.
If a property is acquired at an attractive basis during a higher-rate environment and borrowing costs eventually decline, improved financing conditions could create additional opportunities through refinancing or increased buyer demand.
But that potential upside should be a benefit, not a requirement.
The investment should have a sound foundation before relying on future changes in financing conditions.
The Investor Takeaway
There is no universally “good” or “bad” time to buy multifamily real estate.
There are prices, financing structures, assumptions and risks that either make an investment make sense — or they don't.
Market conditions that make some investors uncomfortable can sometimes create opportunities for investors who are willing to analyze the numbers carefully.
The opportunity isn't buying because rates are high.
It's buying well because higher rates changed the market.
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