The 3 BIGGEST Risks for Real Estate…

In the commercial world, I see three big risks. The first one, folks that are facing a refinance aren’t because of DSCRs, aren’t going to be able to refinance out their, their entire original loan. So what are they going to have to do? Either they’re not going to refinance, they’re going to be forced to fire sale, or they’re going to have to go to their investors and basically say, Hey, capital call, I need more cash because I have to bring cash to the table to do this refinance. So that’s number one. Number two is simply that interest rates are higher. So anybody that has a floating rate loan is now paying significant, significantly more than they were paying eight, nine, 10 months ago. That’s going to put pressure on cashflow. That’s going to put pressure on distribution to investors. And it’s also going to kind of alert the banks that these properties might be in trouble. And then number three, we have the fact that these things called rate caps. So a rate cap is essentially an insurance policy that lenders require you to purchase when you get a floating rate loan, they want to make sure that if rates go up too high, that you’re covered by an insurance policy that will cover the extra cost. Well, these insurance policies are getting ridiculously expensive.

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