Tough week as the 10-year yield jumped up significantly. I pasted the graph below depicting the last 5 years; and it is clear that we broke upwards through the trend-line. I read a lot of articles on this; and it was not obvious as to why we saw such an upward spike.
However, it seems like this is a warning of higher interest rates to come. Much of what I read seemed to indicate that the economy is still doing great, inflation is under control, and that there is no reason for the FED to not allow future rate hikes.
From a real estate perspective, it appears that all of this will lead to higher mortgages and ultimately put a brake on valuations. In addition, we have not been through all of the new tax law changes. Once all of these things hit, I believe we will know a lot more of the effect on states like California.
For now, I continue to stress to my commercial clients and partners the need to be conservative in their need for leverage. No one knows if or when we will have a pullback. I prefer that clients leave themselves a cushion with respect to their net operating income. That way, if the income component has a reduction, then the client still has the ability to make payments and hold onto their properties.
Many have not been through rising interest rate markets; and no two markets are alike. However, just be smart with your clients. Real estate, historically, is a great long-term investment. As I have stated in the past, the flippers are most at risk in markets like these. So, buyer beware…
56 Units for Sale in Los Banos:
One of my brokers has a listing in Los Banos. If you would like to know more, then please give me a call.
Cap Rate: 5.25
Investments Opportunities for Purchase with Strong Cash Flow:
Back on the January 15th update, I wrote about “Creating Residential Listings Using Commercial Opportunities.” Each week, I am presenting some of those investment opportunities to better educate all on what is actually available. Note that these are all Single Tenant Net Leased properties that have listed in about the last 10 days. In addition, I assumed a 5.50% loan with 50% down. This is just a small sample of what is actually available.
If you assume investors in the Bay Area are getting a cash flow of 3.5%, then you can see the potential improvement with these properties above. This approach is great for the investors desiring increased cash flow, an opportunity to get out of daily property management, and/or taking the challenges of rent control off the table. Should you wish to discuss any of these or others, then give me a call.
That’s it for this week. As always, feel free to give me a call with any of your strategic financing needs.
Articles of Interest:
Forbes reported “Triple Net Lease Owners: Don’t Lose Out To This Common Problem.”
MPA reported “10 cities where the tech sector is critical to the economy, CRE.”
See the table below for approximate interest rates.
|Apartments||4.645% – 5.280%||3 to 10 year (30 yr amortization)|
|Commercial||4.965% – 5.580%||3 to 10 year (25 yr amortization)|
|SBA Lending||Call for Options||Call for Options|