Assumable debt deals have become a real part of the multifamily market. Loans originated two, three, or four years ago when rates were sitting in the 2% to 4% range. Sellers know this debt is an asset and are listing their properties before too little term is left to make the assumption attractive. This hit close to home for me last fall, when Ridgeview's two Anoka acquisitions were built entirely on the assumption of existing debt.
A 3.5% loan with five years left is genuinely attractive when today's agency debt is sitting north of 6%. The challenge is simple: how much of that financing advantage do you pay for today without overpaying for a benefit that expires?
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Find the baseline valuation
The starting point is to underwrite the property as if the assumable debt doesn't exist. Run your numbers using current market financing: today's rates, today's terms, today's lender requirements, and land on a value you'd pay if this were a standard new-origination loan. This is your baseline. It gives you a clean read on what the real estate itself is worth, completely separate from the financing attached to it.
Skipping this step and jumping straight into underwriting with the assumable loan is a mistake. When you do that, you lose track of which part of your return comes from the asset and which comes from the financing.
The next step is to isolate the value of the assumable debt. Take the annual debt service you'd pay with today's market loan, then calculate the annual debt service on the assumable loan. The difference between those two numbers is your annual savings; what that below-market debt is saving you each year.
Example for a $10M loan:
From there, run a net present value (NPV) calculation across the remaining loan term to determine what that annual savings stream is worth in today's dollars. Use a discount rate close to your target equity return. That NPV figure is your raw loan premium, the theoretical maximum value you'd assign to the assumable debt on top of the property's baseline value.
In this example, at a 7% discount rate, the NPV of those 5 years of savings = $740,500
Apply a reality discount
The NPV number is the ceiling, not the market loan premium. Assumable loans come with friction; assumption fees, lender approval timelines that can stretch months, the risk that the lender declines the assumption entirely, or conditions that change at the last minute. There is also the simple reality that a seller asking for full theoretical value on their loan premium is asking you to pay them now for a benefit you won't fully realize until years down the road. I apply a 30%-40% reality discount to the raw NPV figure before I ever factor it into my pricing.
Back to our example:
Net Present value today: $740,500
After a 40% reality discount:
$445,300 usable loan premium
In this example, I’m crediting $445k toward what I’m willing to pay. This figure accounts for execution risk, time value uncertainty, and the negotiating reality that the seller's premium expectations and ours need to meet somewhere in the middle.
In Conclusion
The takeaway is straightforward: treat the real estate and the financing as two separate assets, value them independently, then bring them back together with a realistic lens. Assumable debt can create real value, but only if you’re disciplined in how you price it. In today’s rate environment, deals with in-place low-rate financing will continue to stand out, and the investors who can quantify that advantage, and avoid overpaying for it, will have an edge in winning and executing those opportunities.
-Ben Michel
Ben Michel is the founder of Ridgeview Property Group, an investment firm specializing in multifamily real estate. Register Here to be notified of available investment opportunities.