Key Takeaways
- Interest rate risk manifests as repricing risk (variable rate adjustments), refinancing risk (maturity in high-rate environments), and valuation risk (cap rate expansion).
- Target portfolio structure: 70%+ fixed-rate debt, no more than 25% of debt maturing in a single year, LTV below 70%.
- Rate caps on variable loans cost 0.5–2% of loan amount but limit maximum rate exposure.
- Monitor the 10-year Treasury, Fed Funds rate, and yield curve shape monthly to inform financing decisions.
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Test Your Knowledge
1.What is the primary interest rate risk for real estate investors with variable-rate debt?
2.What is an interest rate cap in the context of hedging?
3.What financing strategy provides the strongest protection against interest rate risk?