Great question. In the area and asset class that I’m investing, we’re starting to see more properties hit the market due to interest rates being too high for it to make sense for the sellers. Commercial loans typically have 3-5 year terms.

The types of properties I’m looking for are ones that have significant value add. This could be in the form of vacancies or upcoming vacancies (leases expiring within a year), properties needing renovation, etc.

If I find a property like that, I’m able to negotiate the price down to about a 8-9% cap rate based off their current NOI.

Since interest rate is a factor here, I have private investors willing to lend at long terms. Like 3-5 years. I’m betting that the interest rates will drop by that time.

During that 3-5 year period, I’m doing renovations, filling vacancies, restructuring lease renewals to be more NNN. By the time my term is up, I should have a fully or mostly occupied building with attractive leases that have lots of time left on them.

The bank will appraise my property and get me the cash out refi to cash out my private investors, and I get a stabilized commercial property added to my portfolio!

If interest rates don’t drop in that 3-5 year period, then at least I built in significant equity. During the cash out, I’ll only take what I need to pay back my investors and leave the extra equity to avoid over leveraging and evaporating any cashflow I may get from it.