Ramen Retirement: Impact of rising interest rates on real estate
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Ramen Retirement: Impact of Rising Interest Rates
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Property AssumptionsHold Property Price Constant
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Property price$100,000Interest rate4.0%4.5%5.0%5.5%6.0%6.5%
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NOI %7.0%Mortgage payment$4,337$4,604$4,879$5,160$5,449$5,743
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NOI $$7,000Interest payment$3,000$3,375$3,750$4,125$4,500$4,875
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Financing AssumptionsPrincipal payment$1,337$1,229$1,129$1,035$949$868
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LTV75.0%Principal as % of pmt30.8%26.7%23.1%20.1%17.4%15.1%
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Debt$75,000Cash on cash (CoC)$2,663$2,396$2,121$1,840$1,551$1,257
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Equity$25,000Profit$4,000$3,625$3,250$2,875$2,500$2,125
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CoC %10.7%9.6%8.5%7.4%6.2%5.0%
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Profit %16.0%14.5%13.0%11.5%10.0%8.5%
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Change in CoC %NA-1.07%-1.10%-1.13%-1.15%-1.18%
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Change in Profit %NA-1.50%-1.50%-1.50%-1.50%-1.50%
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Hold Cash on Cash Return Constant
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Property price$100,000$96,330$92,830$89,470$86,300$83,280
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Change in price $NA-$3,670-$3,500-$3,360-$3,170-$3,020
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Change in price %NA-3.7%-3.6%-3.6%-3.5%-3.5%
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Debt$75,000$72,248$69,623$67,103$64,725$62,460
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Equity$25,000$24,083$23,208$22,368$21,575$20,820
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Interest rate4.0%4.5%5.0%5.5%6.0%6.5%
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PMT$4,337$4,435$4,529$4,617$4,702$4,783
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Interest payment$3,000$3,251$3,481$3,691$3,884$4,060
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Principal payment$1,337$1,184$1,048$926$819$723
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Property NOI $$7,000$7,000$7,000$7,000$7,000$7,000
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Actual CoC $$2,663$2,565$2,471$2,383$2,298$2,217
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Actual CoC %10.65%10.65%10.65%10.65%10.65%10.65%
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Target CoC %10.65%10.65%10.65%10.65%10.65%10.65%
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Actual Profit $$4,000$3,749$3,519$3,309$3,117$2,940
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Actual Profit %16.00%15.57%15.16%14.80%14.44%14.12%
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Increase Cash on Cash Return With Interest Rates
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Property price$100,000$94,700$89,850$85,400$81,300$77,510
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Change in price $NA-$5,300-$4,850-$4,450-$4,100-$3,790
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Change in price %NA-5.3%-5.1%-5.0%-4.8%-4.7%
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Debt$75,000$71,025$67,388$64,050$60,975$58,133
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Equity$25,000$23,675$22,463$21,350$20,325$19,378
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Interest rate4.0%4.5%5.0%5.5%6.0%6.5%
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PMT$4,337$4,360$4,384$4,407$4,430$4,452
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Interest payment$3,000$3,196$3,369$3,523$3,659$3,779
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Principal payment$1,337$1,164$1,014$884$771$673
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Property NOI $$7,000$7,000$7,000$7,000$7,000$7,000
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Actual CoC $$2,663$2,640$2,616$2,593$2,570$2,548
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Actual CoC %10.65%11.15%11.65%12.15%12.65%13.15%
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Target CoC %10.65%11.15%11.65%12.15%12.65%13.15%
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Actual Profit $$4,000$3,804$3,631$3,477$3,342$3,221
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Actual Profit %16.00%16.07%16.16%16.29%16.44%16.62%
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Increase Property Prices with 1% Rise in Interest Rates
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Property price$100,000$105,000$110,250$115,763$121,551$127,628
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Change in price $NA$5,000$5,250$5,513$5,788$6,078
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Change in price %NA5.0%5.0%5.0%5.0%5.0%
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Debt$75,000$78,750$82,688$86,822$91,163$95,721
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Equity$25,000$26,250$27,563$28,941$30,388$31,907
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Interest rate5.0%5.0%5.0%5.0%5.0%5.0%
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PMT$4,879$5,123$5,379$5,648$5,930$6,227
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Interest payment$3,750$3,938$4,134$4,341$4,558$4,786
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Principal payment$1,129$1,185$1,245$1,307$1,372$1,441
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Property NOI $$7,000$7,000$7,000$7,000$7,000$7,000
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Actual CoC $$2,121$1,877$1,621$1,352$1,070$773
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Actual CoC %8.48%7.15%5.88%4.67%3.52%2.42%
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Target CoC %10.65%10.65%10.65%10.65%10.65%10.65%
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Actual Profit $$3,250$3,063$2,866$2,659$2,442$2,214
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Actual Profit %13.00%11.67%10.40%9.19%8.04%6.94%
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