Buy the Building or Buy Bonds?

Why the 10-year matters to every investment deal

The 10-year Treasury is the closest thing to a risk-free return over a typical hold period. Every income property you look at is competing with it, and the question I get from investors most is simple: why take on tenants, roofs and leverage when I can clip a coupon from the government?

Lenders price off it

Many commercial loans are quoted as a spread over the 10-year or a related benchmark. When the 10-year moves, loan rates follow, and so does how much a property can borrow.

Cap rates follow, with a lag

The gap between a cap rate and the 10-year is the premium investors demand for illiquidity, management and tenant risk. When that spread gets thin, prices tend to adjust. When it's wide, real estate looks relatively cheap.

What each side gives you

Real estate offers rent growth, leverage, depreciation and control of the asset. Treasuries offer liquidity, no management and interest that's exempt from state income tax. The right answer depends on your goals, timeline and tax picture, which is why the calculator below runs both.