May News Update
Can you believe that it is already May? We cannot either. In April, Yarusi Holdings had a ton of stuff that went on. We have expanded our team, worked on current holdings, been guests on podcasts, hosted amazing speakers on our podcast, and so much more. We are super excited to see where May brings us.
More to come soon!
P.S. keep your eye out for a new website coming soon!
We’ve been working at a rapid pace at The AVE, our 20-unit motel conversion to short-term rental property located in Nashville, TN. We’ve had our crew on-site daily to renovate the units. This includes demo, painting, adding in LVP flooring, and windows, and installing new light fixtures. We’ve overcome challenges with plumbing and repiping and adding electrical to all of the units.
In our bathrooms we have put in new light fixtures, flooring, resurfaced as well as new toilets and bath sets. We have been working hard on transforming the property as we are quickly approaching our live date. Our next step is to start furnishing the property, adding modern signage, and completing the gym and business center in the commercial space located on-site.
Understanding Interest-Rate Caps
If you choose to use a floating rate on your multifamily loan interest rate, it is important to understand what an interest rate cap is. Floating rate loans, also known as adjustable-rate, are rates that fluctuate throughout the life of the loan. An interest rate cap is basically an insurance policy where the borrower pays a premium to a third party so that if an event should occur where the floating rate index increases above the rate, the third party will cover the difference. The agreed-upon interest rate will be based on the SOFR (Secured Overnight Financing Rate)
Interest rate caps are typically purchased upfront with single one-time premium payment to a cap rate seller and can be terminated by the buyer at no cost. They are typically used as a hedge by borrowers on shorter-term debt that allow flexibility for a refinance or sale. It essentially provides a ceiling or cap on the borrower's mortgage loan interest payments. Floating rate lenders commonly require an interest rate cap purchase as a condition for closing a loan.
There are three variables that determine the cost of an interest rate cap:
You can calculate here:
If interest rates should increase above the agreed-upon “strike price,” the borrower pays the interest amount and receives a payment from the rate cap seller in an amount equal to the interest rate index payable for such period. For example, you will be paid out if you have a $50M loan with a 3-year term and a 3% strike cap if SOFR exceeds 3% over the next 3 years.
In conclusion, it is key to understand how interest rate protections are used to hedge risk against uncertainty when using a floating rate loan and how the borrower is able to benefit from the advantages of purchasing an interest rate cap.
Real Estate News
Will rising interest rates help or hurt the multifamily sector? Find more HERE on how the fed rate hike will impact the multifamily real estate market.
“Investor interest has skyrocketed in the SFR/BFR space, especially among institutional investors. There have been $50 billion investor and capital transactions in the space since 2020” Find out more HERE on how SFR and BTR models are entering the investment space.
Read CBRE’s analysis of the U.S. 2022 Commercial Market Outlook HERE.
Our 3-day live event on June 2-4 is quickly approaching. Register now to join the conversation on how to build your multifamily team from property managers, lenders, and brokers, a deep dive into underwriting, and the economic outlook on the multifamily market.
CLICK HERE TO GET A SPOT AT MULTIFAMILY LIVE.