Welcome to the 5 Minute Prime Podcast. Quick actionable tips to master personal finance and real estate investing. In just five minutes a day, we'll help you build wealth and achieve financial freedom. Hey Prime Investors, Martin Maxwell here. Welcome back to the 5-Minute Prime Podcast. It's Sunday night, you're under contract on a rental. Closing set for July 31st. And Wednesday, two days before you sign, the Federal Reserve announces its rate decision. Your lock is ticking. Your phone's open to one question. Lock now or float and hope? Here's the thing. It's the wrong question. And it's wrong for a reason nobody tells you at the closing table. Lock or float sounds like a bet on the Fed. It isn't, because the Fed doesn't set your mortgage rate. We've made this case before. 30-year money rides the bond market, not the Fed funds rate the Fed votes on. Whatever Wall Street expects Wednesday is already sitting in today's number. So the cut you're waiting for, if it lands, your rate barely blinks. The market already spent it. Rates can even go up on a cut if the Fed sounds worried in the press conference. The decision isn't the risk. The surprise is. So the real question is quieter, and it's yours. When do you actually close and where does that land against the Fed's calendar? Get that right, and you stop guessing which way the wind blows Wednesday. You start choosing a lever. I call it the close date rule. Three levers. Let me walk them. Lever one, the lock itself. It freezes your rate for a window. 30, 45, 60 days. 45 is usually the free baseline. 60 costs about an eighth of a point. Call it 500 bucks on a $400,000 loan. The move people blow? Match the lock to your real close date. Don't buy 90 days of protection for a 30-day close. That's a guaranteed cost against a maybe. But leave a cushion. Closings slip, and when yours does, you pay an extension fee to hold the rate. Lever two, the float down, the one everybody assumes they have. It lets you grab a lower rate if the market drops while you're locked. Keep the ceiling, keep the upside. But the clean version lives on owner-occupied loans. On investment paper, it's lender by lender. Plenty don't offer it at all. And where they do, it costs you up front and only fires if rates drop a quarter point or more. So don't assume it. Ask your lender by name before Wednesday, and assume the answer is no until somebody says yes. Lever three is the counter for when the rate just won't come to you. The seller-funded buy down. Your seller gives a concession, and instead of knocking it off the price, you point it at the rate. The one idea to keep a concession is usually worth more aimed at your rate than taken off your price. Two strings though. The size, on an investment loan, that concession is capped at 2% of the price. Owner occupants get more room, you don't. And the flavor? You get exactly one, the permanent buy down. The two one the builders advertise, not allowed on a rental. Then the trap. A buy down is prepaid interest on this note. So the clock that counts is not how long you keep the property. It's how long you keep this loan. Refinance a year in, and the rate you bought disappears with the loan you bought it on. If your plan is to refi the moment rates drop, you'll never hold it long enough. Aim the concession at the rate when you'll keep the loan. Take the cash when you won't. Both paths on the blog Tuesday. So you stop betting on the Fed and you match a lever to where your close lands. Closing across the meeting on a deal you actually need, lock. The both way risk isn't worth it, and the cuts already priced, so you're not giving up much upside anyway. If your lender offers a real float down, take the lock and the float down. That's the only floating I do on a needed close. Floating with a net, not floating and praying. And if you already own here, sitting on a rate you locked last year, don't let this rattle you. This isn't about your existing loans. It's about the next one. The move I'd think hard about. Naked floating a needed close, hoping for a cut that's already spent. That's not a strategy. It's a coin flip with your earnest money on the table. The exception is narrow. A genuinely flexible close date, no earnest money exposed. Short of that, lock. Here's the underwriting rule, and it's the whole show. Lock the deal math, not the rate hope. If the deal only works at a rate you're wishing for, it doesn't work. And if you're still stacking cash for the first one, bank that rule now. It never changes. Your turn to use it just hasn't come yet. So here's your challenge. Tonight, before Wednesday. Map your close date against July 29th. Then call your lender and get three answers by name. What's my lock window? Do you offer a float down and what triggers it? And what's the extension fee if I slip? Three questions, ten minutes. Then run the deal at the rate you can actually lock, not the one you're hoping for, through the cash flow calculator on reiiprime.com and put it through the plus five rule. And here's the part I owe you because I've handed you that homework before and I never told you what you'd find. Run a normal, market priced, turnkey rental through the plus five rule right now. And it comes back red. Nearly all of them do. The tenure sits around four and a half. The rule wants your cap rate five points clear of it, nine and a half percent. On a stabilized house at today's asking prices, you will not find it. That's not the rule being broken. That's the rule doing its job. But the true unwelcome thing it's telling you is not the thing you think. Run the deal it's rejecting. $300,000 house, 6% cap. You put 25% down, $75,000, and you borrow the rest at today's investor rate. Call it six and three quarters. The rent covers the mortgage. Barely. What's left at the bottom is about $41 a month. $41. It doesn't bleed, it pays. And that's the part nobody says out loud. It's worse than bleeding because it looks like it's working. $75,000 in to earn $41 a month. That's a cash on cash return of about two-thirds of 1%. Pay cash for the same house, and you'd have earned the cap, 6%. So leverage didn't sink this deal into negative cash flow. It ate your yield, nearly all of it, and it misses on both clocks. The cash clock. Your 6% cap sits under your loan constant, 7.8%, what the debt actually costs once you count the principal. So your cash on cash falls under what plain cash would have paid you. The wealth clock. That same 6% cap sits under your note rate, 6.3 quarters. So even after you credit yourself the principal you're paying down, the equity you keep, year one comes in under 4%, still short of the cap. Both clocks read. And no lock, no float, no extension touches either one, because it was never a rate problem. So don't go hunting for a rate that saves it. There isn't one. Go change one of the two things that actually move. Make the house worth more than you paid for it. Force the income up where the number is yours to make instead of inherit. Or stop shopping for a rate and start shopping for a loan. Because here's what's true right now. Agency money is north of six, and roughly one in five American homeowners is still sitting on a note under 4%, locked in back in 2021. Some of them are sellers. An assumption, a seller carry. That's not a rate you lock, it's a rate you inherit. It comes with a do-on-sale clause you look straight at every single time. But when no rate you can get will make the deal, it is the only lever left that doesn't depend on Chair Warsh having a good Wednesday. We break the actual lock expiration decision down as a scenario this week. Go find it. I'm Martin Maxwell. This has been the Five Minute Prime podcast. I'll see you next episode.