Can we talk about interest rates and market predictions? Buying first building and unsure what the future will look like.
What do you think the market will be like over the next year?

About to buy my first building. My lender has not locked in my rate yet but says it’s going to be 5.15. This building is for my business and only my business. It’s right at the top of my budget. I’m getting cold feet. It needs a little bit of work to get up an running. 

Over the next year I’m afraid the local market will drop (I’m in Portland OR) and I will have missed a better opportunity at a much better price. I know, I know this is every investors fear. 

My local market has very few buildings under $1m/3000 sqft. In the 6 months I’ve seriously been looking I’ve only I found one that works for me. 

I’d like to survey you fine folks and see what you think the next year will look like. If I were to wait things out I’d use a storage space to expand my business while I wait for something better to come along.
[{"id": "icbthli", "text": "Hate to be a fear monger but the outlook ain\u2019t pretty for the next 12 months. Unless this business of yours is recession proof I\u2019d halt. I myself have paused any investments for the next 12 months and I\u2019m sitting on cash. Hoping due to rising rates the prices of buildings will come down and I can buy cash.", "replies": [], "depth": 1}, {"id": "icbva7r", "text": "I\u2019m in a different market and focus mainly on large industrial.  I see two competing market forces.   First, the positive force is that demand is much greater than supply which is pushing rental rates up.  Second, the negative force is the combination of out of control costs and rising interest rates. That combo leads to lower yields and higher exit caps which erodes (or destroys) spreads.  It\u2019s not clear yet to me which of these forces will prevail but I\u2019m betting that the negative force will be stronger in the short term.  I\u2019m selling what can be sold and hoarding cash to be ready for opportunities as they arise in the next few years.", "replies": [], "depth": 1}, {"id": "icbwevj", "text": "If it's owner occupied commercial real estate I hate to break bad news but there is no \"rate lock\" like in the residential mortgage market.  Do you have a commitment letter? Not a term sheet or a proposal that had a rate but a document committing to lend you this money on these terms.", "replies": [{"id": "icc7l8s", "text": "My lender literally said \u201cwe can lock you in by friday the latest\u201d.", "replies": [{"id": "iccho02", "text": "Rate locks exist in CRE. Not as common as in resi, but if your lender says their locking, that\u2019s not unusual. Just make sure you get some sort of written confirmation. Also, rate locks usually require a refundable rate lock fee of 1%-2% of the loan amount.", "replies": [{"id": "iccueo2", "text": "What's the notional and how long is the rate locked for? If he can't answer that (or quickly find it in the documentation you should have) he doesn't have a rate lock.\n\nCan his loan officer get the (bank I'm assuming) to honor 5.15%... possibly. But \"lock you in by Friday\" could mean anything from that's when the appraisal is back or that's when it goes to credit committee for approval.", "replies": [{"id": "icd6k9c", "text": "I wish I was more educated in this process because I don\u2019t know what some of the terms you use mean. As I understand it we will have a fixed rate 5.15% loan 10/20. I am under the impression that interest rate will never change. I don\u2019t have that document you speak of. I assume that will come tomorrow-friday.", "replies": [{"id": "icd6yqr", "text": "Those are the terms (rate, term, and amortization).\n\nWhat have you signed that has those terms disclosed on it and have you paid any monies yet (appraisal fees, rate lock fees, commitment fee)?", "replies": [{"id": "icehcp1", "text": "Not yet. The rate went up again today. I\u2019m kind of angry.", "replies": [], "depth": 7}], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}, {"id": "iccsvv1", "text": "The Federal Reserve is meeting right now and scuttlebutt is for a 75 bps point hike in prime tomorrow afternoon. \n\nAre you approved for the loan? Do you have a commitment to lend from the institution you are borrowing money from?  If so, that document should have an amount, interest rate, terms of repayment, a description of the security, and any documentation that needs to be executed. It should also have a time frame for you to accept those terms &amp; an additional time that the loan must be closed in.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "icbxtnm", "text": "Have you looked at SBA loans? They can be advantageous if your business is going to occupy the property.", "replies": [{"id": "icc7nov", "text": "Yes. The rates and fees were no where near as nice as what a local lender offered", "replies": [{"id": "iccq7ts", "text": "Worth checking. I've heard sometimes you can do 10% down, which no other lender would do.", "replies": [{"id": "iccu4me", "text": "Yeah 10% down but $10k extra in fees and a much higher rate. No thanks.", "replies": [{"id": "icd3s7x", "text": "Depends on the specifics of the transaction whether it makes sense of course.", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "icc9znh", "text": "In Portland a lot of buildings are going for 300-400/sqft and they need work. \n\nSome suggestions:\n- long term I think it\u2019s still an ok investment. 5.15% is a great long term rate. Make sure it\u2019s not just a 5 year lock. \n- short term, commercial is tough. The next year, especially in certain locations, it won\u2019t be pretty. Very nice buildings in good locations might still sell, but middling or worse buildings will sit IMO. Office space is a bad market (and IMO a poor medium-long term outlook). Retail is still hurting. Large industrial is ok. \n- location and layout and use matters. Would other businesses want this building? How long has it been on the market? \n- since you\u2019re owner occupied, your business will have to support the payments\n- the tax benefits from real estate are huge for your business. So if you need to have an office, it will pay for itself as long as your business stays healthy\n- if you can keep rehab costs low (rehab is expensive and the city can make you do tons of structural/ADA/etc stuff) then it can be a good deal and you can sell it in 3-5 years for break even. \n- why are you buying it? Compare that vs renting\n\nTo me my biggest concern is you saying it\u2019s at the top of your budget. If your business drops, you may not be able to sell it except at a loss. \n\nI just went through this process that you\u2019re doing in a similar area, happy to chat more on it.", "replies": [], "depth": 1}, {"id": "icxtnid", "text": "\"What do you think the market will be like over the next year?\" Anyone claiming to know the answer to this is one of the following: 1) A liar 2) Delusional 3) A billionaire.\n\nRemember April of 2020? Everyone thought the real estate market was going to crash because of the Pandemic and everyone started looking for deals, how did that turn out? \n\nHow about the previous 3 years from  2016 - 2019 when all the talking heads kept claiming a recession was around the corner. \n\nHow about the financial collapse of 2008? With exception of John Mcain, Michael Burry and a few others NO ONE ELSE saw it coming! \n\nMy point is no one knows what the market will look like a year from now, and you should not make your business decisions based on the fear of the unknown. Instead you should take a hard look at the Data and numbers and base your decisions on them.\n\n\"About to buy my first building. My lender has not locked in my rate yet   \nbut says it\u2019s going to be 5.15. This building is for my business and   \nonly my business. It\u2019s right at the top of my budget. I\u2019m getting cold   \nfeet. It needs a little bit of work to get up an running.\"\n\nI can only assume that you have a viable business with strong demand and a solid customer base and that the purchase of the building would enable you to scale. Which would equal more profit, and you building equity and the value of the building appreciating over time. Other than FOMO on a better deal down the line, are there any other downsides?\n\n\"Over the next year I\u2019m afraid the local market will drop (I\u2019m in   \nPortland OR) and I will have missed a better opportunity at a much   \nbetter price. I know, I know this is every investors fear.\"\n\nFear and Greed are probably the two biggest obstacles that every business owner and investor needs to learn to manage properly. #1 Rule of money, is not to lose money. If you can purchase that building now, at a known interest rate and your business will continue to make a healthy profit. Then the fear of missing out on what might happen should not be a factor. \n\nEven if there are significant price drops in your area, there is no guarantee that YOU will be able to secure those deals. \n\nWe also do not know what the interest rates will be at that time. There is the very real possibility that with higher interest rates, the cost to acquire a building comparable to yours in the future, even at a lower price, may end up costing you MORE than what it is now. \n\nThen there is the cost of renting a storage locker while you wait for prices to drop. The money you put into the storage locker will not be building up equity like it would for the building.\n\nI hope that helps.", "replies": [{"id": "icygyri", "text": "Thanks. You have summed up one of the better and more trustworthy voices in my head.", "replies": [], "depth": 2}], "depth": 1}]