Guest Post by Arun Ghosh for Hutfin.com
I'm about to save you from making the biggest mistake most commercial real estate investors make.
They focus on the rate instead of the deal.
Here's the truth: I've made more money on "expensive" loans at 8% than most people make on "cheap" loans at 4%. And I'm going to show you exactly how to do the same thing.
But first, let me give you the real picture of what commercial loan rates actually look like right now.
Bank Portfolio Loans: 7.5% - 9.5% CMBS (Commercial Mortgage-Backed Securities): 7.0% - 8.5%
Life Insurance Companies: 6.8% - 8.2% SBA 504 Loans: 6.5% - 7.5% Bridge/Hard Money: 9% - 15%
Now, before you have a heart attack looking at these numbers compared to the 2-3% rates from 2020-2021, let me explain why this might be the best thing that ever happened to your portfolio.
Reason #1: Competition Elimination
When rates were at 3%, every dentist and day trader thought they were real estate moguls. Now? Only serious operators with real deals are in the game. Less competition means better deals.
Reason #2: Seller Motivation Increases
Sellers who were holding out for 2021 prices are getting realistic. When your carrying costs double, you suddenly become very motivated to make a deal. Their urgency is your opportunity.
Reason #3: True Cash Flow Focus
Cheap money made people lazy. They bought properties that "worked" only because money was free. Now you HAVE to find properties that actually cash flow. This forces better investment discipline.
Type #1: Bank Portfolio Loans Rate: 7.5-9.5% | Term: 5-25 years
These are your bread and butter. Local and regional banks keep these loans on their books, so they can be flexible on terms. Perfect for your first few deals or when you need speed.
Pro Tip: Build relationships with 3-5 community banks. When you're their guy, they'll stretch for you on rates and terms.
Type #2: CMBS Loans Rate: 7.0-8.5% | Term: 7-10 years
The Costco of commercial lending - standardized but efficient. Great for stabilized properties over $5 million. Less personal touch, but often the best rates for qualifying deals.
The Catch: These have prepayment penalties that will make you cry. Plan to hold for the full term.
Type #3: Life Insurance Company Loans Rate: 6.8-8.2% | Term: 10-30 years
The premium option. These guys have the lowest rates and longest terms, but they're pickier than a food critic at a gas station hot dog stand.
The Secret: They love long-term holds on trophy assets. If you're buying and holding prime real estate, start here.
Type #4: SBA 504 Loans Rate: 6.5-7.5% | Term: 10-25 years
The government's gift to small business owners. 10% down, below-market rates, but you have to occupy 51% of the building.
The Hack: Buy a building for your business, then expand into the unused space. Best of both worlds.
Here's where most people screw up: They call 20 banks asking for rates like they're shopping for car insurance.
This is backwards.
Smart investors find the RIGHT deal first, then structure the optimal financing. The property determines the loan, not the other way around.
I once paid 9.5% on a deal that everyone said was "too expensive." That property generated a 23% IRR because the fundamentals were incredible. Meanwhile, my buddy got a "great" 6% rate on a property that lost money every month.
Guess who's wealthier today?
Point #1: Know Your Numbers Before You Shop
Walk into every lender meeting with:
Prepared borrowers get better rates. Period.
Point #2: Play the Relationship Game
Rates are negotiable, especially if you're bringing multiple deals. My best rates come from banks where I've done 5+ transactions. They know I close and pay on time.
Point #3: Structure Wins Over Rate
Sometimes a slightly higher rate with better terms beats a lower rate with restrictions. I'll take 8% with no prepayment penalty over 7.5% with a 3% penalty any day.
Point #4: Timing Is Everything
End of quarter, end of year - lenders have quotas to hit. I've saved 0.25-0.50% just by timing my applications strategically.
Point #5: Use Competition Strategically
Get term sheets from 2-3 lenders, then negotiate. But don't be that guy who wastes everyone's time shopping for 0.125% savings.
Everyone asks me: "When will rates come down?"
Wrong question.
The right question is: "How can I make money at current rates?"
Because here's the thing - by the time rates drop significantly, property prices will have adjusted upward. You're not saving money, you're just paying more for the same return.
I use what I call the "Blended Approach":
This gives me options for any deal type and keeps me from being dependent on any single lender source.
Great investors make money in any rate environment. Average investors make excuses.
Yes, 8% costs more than 4%. But if you're buying right and managing well, 8% money can still generate 15-20% returns.
The question isn't what rates are today. The question is whether you're skilled enough to profit regardless of rates.
Stop waiting for perfect conditions. Start building wealth with current conditions.
The best investors I know aren't sitting around complaining about rates - they're out there buying properties that work at 8%, 9%, even 10%.
Because they understand what most people don't: The rate is just one variable in the wealth equation. And it's not even the most important one.
Arun Ghosh has closed over $300 million in commercial real estate transactions across multiple rate cycles. His rate optimization strategies have helped clients save millions in financing costs while maximizing investment returns.