Experienced Real Estate Professionals: What did CRE investment look like decades ago with interest rates of 10-12%?
I was just thinking about this and find it interesting that buyers are now still challenged when underwriting a property they can finance at 3% or something. So if they are trying to get a cash on cash return of 10%, it's easier to get there with leverage.

But if interest rates were much much higher as they were in the late 70s early 80s, how did that work? Did the only active investors just pay all in cash? Were the high interest rates available at the time factored into the sale prices?

Thanks for your insight!
[{"id": "d3e6902", "text": "I wasn't there, but from what I understand there were 2 main differences:\n\n1. Cap rates were lower to compensate, therefore prices were lower. \n\n2. Many small investors didn't care as much about making a profit. The tax rules before Reagan allowed unlimited passive losses. So lots of professionals were happy to load up on non-cash-flowing real estate to offset high income taxes and gain future appreciation. ", "replies": [{"id": "d3e82gl", "text": "Think you mean cap rates were higher. ", "replies": [{"id": "d3e83vo", "text": "Right that's what I meant. Thanks for the catch. ", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "d3e9afa", "text": "For conventional deals, it was certainly true that sales prices were lower, so that caps were maintained at a higher rate. Keep in mind, however, that, in this era, plain-vanilla checking accounts at banks would pay 5%. So, a favorable cash-on-cash return, for investors seeking income from rent, would need to be north of 10% or so. This is a time when mutual bond fund yields were in the double digits, and real estate was expected to outperform them. \n\nThe principal difference between now and then was in financing. The period you're talking about is before both the financial meltdown of 2008 and the S&amp;L crisis of the late 1980s, so lending practices and government regs were--shall we say--considerably looser. It's in this period when the idea of investing with zero money down took hold among the general public. Even steady-as-she-goes investors preferred to keep their leverage at a low number, like in the ten or twenty percent range.\n\nAlso, the 1980s was when people tried to avoid high interest rates and gin the system through what was known as \"creative financing.\" Can't scrub together a bank loan at a good rate? Well, have the seller loan you the benjamins through a carryback! Or, use a bridge loan or borrow off a credit card--or all three. Many so-called \"creative financing\" deals involved multiple sources of funds in unusual combinations--hence the notion of creativity underlying them. \n\nToday, when government regs are tight, banks are ornery, and property appraisals are (somewhat) accurate rather than lies, it's tough to swing more than a routine, meh deal on the finance end. What's more, as alluded to upthread, Reagan put the kibosh on the amazing tax write-offs investors enjoyed in the eighties.\n\nBut CRE, despite these negatives and a huge downturn in the late aughts, churns on. If you play the game straight, keep your leverage sane, and extend your investment horizon, you probably won't suffer from the radical changes outlined above.  ", "replies": [{"id": "d3e9q7u", "text": "Very interesting, thanks! From a modern standpoint it seems like interest rates that high would be almost the same as no credit being available at all so transaction volume would plummet. Interesting how the market adjusts and moves on.", "replies": [], "depth": 2}], "depth": 1}, {"id": "d3eg57q", "text": "&gt;From a modern standpoint it seems like interest rates that high would be almost the same as no credit being available at all so transaction volume would plummet.\n\nYes--from today's perspective, the high interest/high inflation rates of that time would augur an economic collapse, much in the fashion of Venezuela. \n\nBut to the US, Japan and Europe--as hard as it is to believe today--interest and inflation north of 10% was an adaptable (though hardly preferential) state of affairs.\n\nThe banking system didn't collapse. CRE didn't grind to a halt. However, fear ran through the hearts of many investors when the Reagan administration wiped out many tax advantages.\nI remember seeing a prediction, I believe on the program Wall Street Week, that commercial real estate would never recover. \n\nEventually, investors realized that the problem was temporary and solvable. (Part of the solution, as pundits have pointed out, resulted in concentration of wealth in the 1%.)\n\nLife moved on.", "replies": [], "depth": 1}, {"id": "d3fakhf", "text": "I got started in the early 90's but in residential.  If you got an investor loan anywhere near a 10% rate, you were jumping for joy.  That being said, property was cheaper as well.  Overall it was very different yet not very different (if that makes any sense).\n\nThe 2nd loan I ever got was at 18% and 15 points !!!", "replies": [], "depth": 1}, {"id": "d3j3gj5", "text": "My bosses always talks about how most deals were done based on 10% cap rates because you could do it in your head.  ", "replies": [], "depth": 1}]