Coke or Pepsi? Stripes or Solids? Apple or Android? Ohhh, the agonizing decisions we humans are forced to make on a daily basis! What if I told you that choosing between a fixed-rate loan and a floating-rate loan could make or break an otherwise successful real estate investment? Given how often this topic arises and how long the deliberation can last, I will guess that most real estate professionals reading this article would agree with the above statement. Below is a primer on the difference between fixed-rate loans and floating-rate loans and the pros and cons of each option.
Fixed-rate loans tend to carry a lower interest rate than their floating-rate counterparts. The general reasoning is that floating-rate loans tend to be secured by riskier assets as they are the main tool for financing “value-add” transitional real estate projects. They also are usually higher in leverage by 5-10...Continue Reading