Thought Experiment: Interest Rates Going Up

by a searcher from Duke University

1 month ago

While like many here I am hopeful that interest rates will go down soon the reality may be "higher for longer". And higher might mean much higher. For this experiment imagine that you found your idea search target (retiring owner, clean financials, an industry you know inside and out, a 5 minute commute,... +whatever makes it ideal for you) but just as you are about to send an LOI the FED doubles the prime rate. So, you would be looking at ~20% on a 7a loan. What do you do? Try to save the deal or walk away? If you try to save it what would be your plan?

0 likes
126 views
13 comments

searcher

I personally don’t see rates going higher..at least not much if they did.. But in that event, I would push for seller finance..or “more” seller finance to make things balance out. And just explain to the seller what happened and tell them we need to get more creative or drop the purchase price a bit. Another route to take would be to bring in an equity partner.. I would be open to that if I really liked the deal, the potential partner, and the equity split was fair..I’d rather not do a deal, or do a smaller deal before taking a minority stake in anything personally…Just my humble opinion/preference.

1 month ago | like reply | 0 likes

lender from University of Missouri - Columbia

I agree rates should not skyrocket as they have done the past few years since COVID. Lenders will stress test the loan and you should as well. It helps to know how much wiggle room you have if rates change.

1 month ago | like reply | 0 likes

More on Searchfunder

Just Closed on My First Deal! Reflections and Takeaways for other Searchers

45,152 transactions are available on Searchfunder (now searchable by keyword)

Now everyone has unlimited IBISWorld access

Family office looking for traditional searchers

Examples of self-funded searcher websites

What are market terms for Seller Notes?

2 Best Ways To Find Motivated Sellers, Off-Market Deals

Sorry, but you are a broker's worst nightmare ... and how to fix it

Searchfunder is an online community and toolkit for searchfunds. Over 80% of those involved in searchfunds maintain a Searchfunder.com account to help them network, problem solve challenges, and keep up with the industry.

We maintain partnerships with database providers that make searching more effective, efficient and affordable along with features that help searchers find deals and investors and vice versa.