If you’ve seen real estate deals struggle over the past couple of years, you might assume the problem was the properties.
Bad locations. Bad management. Bad deals.
But in most cases…
the real problem wasn’t the real estate.
It was the debt.
And if you don’t understand that, you could walk into the exact same risk in your next investment.
Because what we just went through wasn’t normal.
And it exposed something that most investors don’t spend enough time thinking about.
THE ILLUSION OF A “GOOD DEAL”
Let’s start with something I think a lot of investors miss… the illusion of a “good deal.”
A lot of deals that got into trouble recently actually looked really good on paper.
They were in strong markets.
They were solid properties.
They were run by experienced operators.
So what happened?
Now personally, I’ve always spent a lot of time thinking about structure, not just the upside of a deal.
But what this last cycle really highlighted…
is just how much the structure drives the outcome.
The issue is that most investors focus on the deal.
They focus on the returns.
They focus on the upside.
But they don’t spend enough time looking at the structure.
And more specifically, the debt.
Because the debt determines your risk, your timeline, and what happens when things don’t go as planned.
WHAT ACTUALLY BROKE
Now let’s talk about what actually broke.
And it’s important to say this the right way.
Because this wasn’t just about people being reckless.
There were definitely some deals that were aggressively underwritten.
But there were also a lot of thoughtful, experienced operators who were being conservative.
The challenge was that interest rates didn’t just go up…
they went up faster, and further, than most people expected.
And that created pressure across the board.
First, floating rate debt.
Loans that started at three or four percent suddenly jumped to seven, eight percent, sometimes even higher.
And to be fair, many of these deals did plan for rate increases.
But they didn’t plan for how quickly it would happen, or how high it would go.
And that combination is what caused real stress.
Second, loan maturity risk.
Most loans are five years, seven years, maybe ten.
Which means there’s an expiration date.
And when that date comes, you have to refinance or sell.
But what happens if rates are high, lenders pull back, and values drop at the same time?
Now you’re not making a decision.
You’re being forced into one.
And again, this isn’t because people didn’t think about this risk.
It’s because when multiple things move against you at the same time, timing becomes much harder to manage.
THE REAL LESSON
So what’s the real lesson here?
There’s a big difference between choosing to sell and being forced to sell.
Between refinancing because it’s strategic and refinancing because you have no choice.
And in the last cycle, a lot of investors lost that control.
Not because the real estate failed, but because the structure didn’t hold up under pressure.
So now the question becomes…
how do you structure deals differently?
WHAT MAKES HUD LOANS DIFFERENT
This is where HUD loans come in.
A HUD loan is a type of government-backed financing designed for long-term multifamily housing.
And what makes it powerful is not just one feature.
It’s how all the features work together.
Because each one is designed to reduce pressure and increase stability over time.
FIXED RATE — ELIMINATING RATE RISK
Let’s start with fixed rate.
With a HUD loan, your interest rate doesn’t change when rates go up.
Now to be clear, choosing floating rate isn’t inherently wrong.
In many cases, it offers lower initial costs and more flexibility.
But it also comes with exposure.
And when rates move as quickly as they did recently, that exposure became very real.
With a fixed rate, that risk is removed.
FULLY AMORTIZING — BUILDING STRENGTH OVER TIME
Next is fully amortizing.
With HUD loans, you’re paying down principal every single month.
So over time, your loan balance is decreasing.
Even if the market fluctuates, your position is improving.
That creates a stronger, more stable investment the longer you hold.
LONG-TERM DURATION — REMOVING THE CLOCK
Now let’s talk about duration.
HUD loans can go out 30 to 35 years.
Most loans are five to ten years.
Now that doesn’t mean shorter-term debt is bad.
It just means it comes with a different set of trade-offs.
And one of those trade-offs is timing pressure.
Because no matter what’s happening in the market, you eventually have to act.
HUD removes that pressure.
It gives you the ability to hold longer, wait for better conditions, and make decisions strategically instead of reactively.
ASSUMABILITY — BUILT-IN FLEXIBILITY
Another feature that doesn’t get talked about enough is assumability.
HUD loans are often assumable.
That means if you decide to sell, a future buyer can take over your loan.
And if you locked in a strong interest rate, that becomes a real advantage.
It can make your deal more attractive and potentially improve your exit.
THE TRADE-OFF
Now, if HUD loans are so great – why doesn’t everyone use them?
Well, there is a trade-off.
HUD loans take time.
If you’re getting a new HUD loan, it can take nine months to a year.
That’s why they’re not used in every deal.
No seller is going to sit around for an entire year waiting for their sale to close.
But if you’re able to assume an existing HUD loan, that timeline can shrink to just a few months.
And that’s where things get really interesting.
Because now you’re combining speed with long-term stability.
THE BIGGER SHIFT IN THINKING
Let me zoom out for a second.
One of the biggest takeaways from the last cycle…
isn’t that structure suddenly became important.
It’s that its importance became very real.
Because even when you’re being thoughtful…
even when you’re underwriting conservatively…
you’re still operating in an uncertain environment.
There’s no way to predict exactly where rates will go…
or how quickly things will change.
And what this past cycle showed very clearly is that:
when conditions move faster than expected,
structure is what determines how much flexibility you have.
So for me, it’s not that the focus on structure is new.
It’s that I’m even more intentional about it now.
Looking closely at how much pressure the debt creates…
how much flexibility there is on timing…
and how the deal holds up if things don’t go as planned.
Because at the end of the day…
we can’t control the market.
But we can control how a deal is built.
And the right structure gives you stability…
flexibility…
and optionality.
The ability to act…
instead of being forced to act.