If you have been in real estate for more than a few years, you remember what cheap money felt like. Short-term rates near zero, long-term rates not much higher, and lenders who seemed genuinely eager to put capital to work. That environment shaped a generation of underwriting assumptions, deal structures, and return expectations.
That environment is gone, at least for now. And investors who are still building deals around those assumptions are finding out the hard way.
Here is an honest look at where the financing market sits today and what experienced investors are doing about it.
Rates and Where They Actually Land
Benchmark rates have moved dramatically over the last three years. The Fed has pulled back somewhat from peak levels, but anyone expecting a return to near-zero rates in the near term is likely to be disappointed. Current all-in rates for most investment property loans sit somewhere in the high single digits, depending on the asset type, loan structure, and borrower profile.
For stabilized multi-family with strong occupancy and a seasoned borrower, you might find something in the 6.5 to 7.5 percent range on a fixed-rate conventional loan. Bridge financing for value-add deals often runs higher, sometimes into the 9 to 11 percent range, depending on the lender and the level of execution risk in the deal.
The spread between long-term and short-term rates has also compressed, which matters for investors trying to decide between fixed and floating. Floating rate debt made a lot of sense when you expected rates to fall quickly. That trade has been painful for investors who held through 2023. Most experienced investors right now are favoring fixed-rate debt where possible, or floating with meaningful rate cap protection.
What Lenders Are Looking For
Underwriting standards are tighter than they were two years ago. Lenders that were willing to stretch on proceeds or overlook thin coverage ratios when rates were low have pulled back significantly. Debt service coverage ratios of 1.25x are considered the floor, and many lenders want to see 1.30x or better before they get comfortable.
Loan to value has also come down on most asset types. Sixty to sixty-five percent LTV is common for commercial deals, with residential one-to-four family still getting somewhat higher proceeds depending on the program. Anything perceived as higher risk, office, hospitality, or construction, is being underwritten much more conservatively.
Covenants and reporting requirements have also made a comeback. Cash management accounts, completion guarantees on construction deals, and ongoing financial reporting are back in most term sheets. For newer investors or those who have only operated in a loose underwriting environment, some of this feels like new terrain. For investors who were around before 2010, it just feels like banking.
Where Creative Structures Are Helping
When conventional financing does not get a deal to pencil, investors are finding ways to fill the gap. Seller financing has become far more common in the last 18 months, particularly on deals where the seller has a paid-off or low-leverage property and wants income rather than a lump-sum taxable event.
Seller carryback arrangements, installment sales, and master lease structures are all seeing more activity. For buyers, these structures can lower the required down payment or reduce the dependence on current institutional rates. For sellers, they often produce a better after-tax outcome than a conventional close.
On the commercial side, mezzanine debt and preferred equity are filling gaps left by senior lenders who will not stretch to where a deal needs them to be. These are higher-cost instruments, but they can make transactions work when the senior lender is holding firm on proceeds.
What This Means for Your Next Deal
The deals that work today are not the same deals that worked in 2021. Return expectations need to account for real debt costs. Projections that assume significant rate relief in the next 12 to 18 months are speculative. And deals that require aggressive rent growth just to service the debt are fragile.
The investors doing well right now are focused on cash flow at current rates, not projected cash flow at hoped-for rates. They are also more creative about capital structure and willing to explore seller financing and other non-institutional options when those structures produce a better risk-adjusted outcome.
If you have deal-specific financing questions or want to connect with lenders and brokers in the Colorado RE•CON network, reach out at info@coloradorecon.com.
