{"id":1037,"date":"2007-02-12T07:15:42","date_gmt":"2007-02-12T14:15:42","guid":{"rendered":"http:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/?p=1037"},"modified":"2007-02-12T07:18:07","modified_gmt":"2007-02-12T14:18:07","slug":"interest-rates-and-the-small-investor","status":"publish","type":"post","link":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/1037\/interest-rates-and-the-small-investor\/","title":{"rendered":"Why Small Investors Should NOT Stress About Interest Rates"},"content":{"rendered":"

Interest rates and the small investor, is there really an effect? Beyond the obvious cost of borrowing, I have wondered if the small investor really notices a change in the Fed Funds rate<\/a><\/u><\/strong>. While I am not going to make the same mistake of asking you all to humor me<\/a><\/u><\/strong>, I am going to try to show that the small investor is less sensitive to smaller changes in rates. I am also starting with the assumption that smaller investors tend to invest in markets with higher cap rates.<\/p>\n

First, let’s get some things clear so we are starting from the same page. If we consider the value of commercial real estate, we can approximate it with a simple formula, Net Operating Income (NOI) divided by the cap rate. Additionally, let’s assume that the cap rate acts as a proxy for investor demand. This makes sense because NOI is simply based the rents collected, while cap rate is the return investors will accept for those rents. In markets with very low cap rates, investors are willing to pay more for rents now because they expect a higher rate of future rent growth than lower cap rate properties and\/or they expect lower volatility in those rents or they expect even lower cap rates in the future (appreciation).<\/p>\n

Next, let’s think about investing. Most investors try to leverage their properties as much as possible. Banks understand this, so they enforce strict standards. Typically investors can get 80% Loan to Value terms, as long as Debt Service Coverage Ratios (DSCR) comes in at 1.2. The DSCR is simply NOI\/Debt Payments. In markets with lower cap rates, this becomes more important because the higher value creates higher debt payments. This situation creates a cap rate floor for smaller investors, who have less financing options. Investors who focus on $1 Million and under properties do not have the same access to financing because their loans are not as profitable and harder to move in the securitization<\/a><\/u><\/strong> market.<\/p>\n

Then, we have to analyze the effect of a 1% change in interest rates on loan terms. Looking at a $500,000 loan with Read more<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Interest rates and the small investor, is there really an effect? Beyond the obvious cost of borrowing, I have wondered if the small investor really notices a change in the Fed Funds rate. While I am not going to make the same mistake of asking you all to humor me, I am going to try […]<\/p>\n","protected":false},"author":16,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_crdt_document":"","jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[3,2,8,5],"tags":[],"class_list":{"0":"post-1037","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"hentry","6":"category-blogging","7":"category-general","8":"category-investment","9":"category-real-estate","11":"no-featured-image"},"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"jetpack-related-posts":[{"id":1127,"url":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/1127\/real-estate-investment-theories-that-can-actually-help-you-make-money\/","url_meta":{"origin":1037,"position":0},"title":"Real Estate Investment Theories that can Actually Help You Make Money","author":"Cooksquared","date":"March 9, 2007","format":false,"excerpt":"Some of you may have noticed a drop in my postings over the last two weeks. The driver behind this has been mid terms. For those of you who don't remember what that was like when you were in school, imagine doing all of the work you do in a\u2026","rel":"","context":"In "Blogging"","block_context":{"text":"Blogging","link":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/category\/blogging\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":971,"url":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/971\/the-savvy-investor-watchouts-for-new-market-investing\/","url_meta":{"origin":1037,"position":1},"title":"The Savvy Investor: Watchouts for New Market Investing","author":"Cooksquared","date":"January 30, 2007","format":false,"excerpt":"You may have noticed my absence Thursday and Friday, while I was in sunny Greensboro, North Carolina (sunny as oppose to Ithaca, NY). While the trip was a short four days, I met tons of contacts and had a very interesting introduction to the market. There are so many things\u2026","rel":"","context":"In "Blogging"","block_context":{"text":"Blogging","link":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/category\/blogging\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":1065,"url":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/1065\/key-questions-to-ask-your-realtor-before-you-buy-a-commercial-property\/","url_meta":{"origin":1037,"position":2},"title":"Key Questions to Ask Your Realtor Before you Buy a Commercial Property","author":"Cooksquared","date":"February 23, 2007","format":false,"excerpt":"Cooksquared Enterprises is very close to taking its first humble step back into investing after a two year hiatus. After a disappointing stint in Greensboro, we have settled on 32 units in Winston Salem, which is about an hour away. Over the past two weeks I have been going back\u2026","rel":"","context":"In "Blogging"","block_context":{"text":"Blogging","link":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/category\/blogging\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":1560,"url":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/1560\/can-an-8-billion-private-equity-fund-affect-a-1-million-commercial-investor-it-certainly-can\/","url_meta":{"origin":1037,"position":3},"title":"Can an $8 Billion Private Equity Fund Affect a $1 Million Commercial Investor? It Certainly Can…","author":"Cooksquared","date":"June 21, 2007","format":false,"excerpt":"Addressing several people's concerns about the state of private equity and the possible assertion that private equity could be the next fallout candidate, I thought I would look into this situation a bit more. For those of you who think that this discussion will be outside of the scope of\u2026","rel":"","context":"In "Blogging"","block_context":{"text":"Blogging","link":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/category\/blogging\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":924,"url":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/924\/the-right-time-to-buy-an-investor-perspective\/","url_meta":{"origin":1037,"position":4},"title":"The Right Time to Buy: An Investor Perspective","author":"Cooksquared","date":"January 22, 2007","format":false,"excerpt":"As we considered when to restart Cook Squared Enterprises, one question we had to ask ourselves was if it was the right time to buy. With interest rates creeping up and home values creeping down, is now the time to make a large purchase? Additionally, in my spare time I\u2026","rel":"","context":"In "Blog Carnivals"","block_context":{"text":"Blog Carnivals","link":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/category\/blog-carnivals\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":9803,"url":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/9803\/real-estate-investors-its-time-to-come-out-of-hibernation\/","url_meta":{"origin":1037,"position":5},"title":"Real Estate Investors: Its Time to Come Out of Hibernation","author":"Cooksquared","date":"September 19, 2009","format":false,"excerpt":"Is it time to start investing in real estate again? \u00a0 First positive sign, I am writing again.\u00a0 While I write that half-jokingly, there really has not been a lot to write about for the past six months.\u00a0 My previous advice was to take shelter and start researching the markets.\u00a0\u2026","rel":"","context":"In "Investment"","block_context":{"text":"Investment","link":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/category\/investment\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]}],"_links":{"self":[{"href":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-json\/wp\/v2\/posts\/1037","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-json\/wp\/v2\/users\/16"}],"replies":[{"embeddable":true,"href":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-json\/wp\/v2\/comments?post=1037"}],"version-history":[{"count":0,"href":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-json\/wp\/v2\/posts\/1037\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-json\/wp\/v2\/media?parent=1037"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-json\/wp\/v2\/categories?post=1037"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-json\/wp\/v2\/tags?post=1037"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}