Why I Stress Test Deals at Worse-Than-Market Rates

Because survival matters more than optimism

Most investors underwrite deals to today’s rate environment.

I don’t.

If a deal only works at current rates, it’s not resilient—it’s fragile.
And fragile deals don’t fail immediately. They fail later, when there’s no flexibility left.

Stress testing is not pessimism.
It’s responsibility.

Let me show you why—using a real deal I reviewed that looked solid on the surface.

The Comfort Trap: “It Works at Today’s Rate”

Here’s the pattern I see constantly:

• Deal pencils at current DSCR rates

• Cash flow is thin but positive

• Lender says yes

• Buyer feels “safe”

But underwriting to today assumes:

• Rates won’t move

• Insurance won’t spike

• Taxes won’t reset

• Refinancing will be easy

That’s not underwriting.
That’s anchoring.

Markets don’t care what your spreadsheet assumed.

Case Study: 108 Piney Mountain Rd – Greenville, SC (18-Lot MHP)

This deal is a perfect example of why stress testing matters.

The Snapshot (At Market Rates)

• Asset: 18-lot mobile home park (100% tenant-owned homes)

• Purchase Price: $1,080,000

• Gross Rent: ~$101,600/year

• NOI: ~$71,600/year

At moderate interest rates (7–8%), this deal looks fine.

But that’s not the environment we were actually in.

Stress Test Reality: 10.75% Rates

When we ran lender-quoted terms:

• Senior Loan: $756,000 (70% LTV)

• Interest Rate: 10.75%

• Annual Debt Service: ~$63,400

• DSCR: ~1.13×

On paper, it almost works.

In reality?

• It fails most lender minimums

• Leaves no margin for error

• Breaks the moment expenses move or vacancy appears

The deal didn’t become “bad.”
The assumptions were exposed.

Why I Always Underwrite Worse-Than-Market

I don’t ask:

“Does this work today?”

I ask:

• Does this work 200 bps higher?

• Does it survive insurance resets?

• Can it absorb vacancy without deferrals?

• Will a future lender still like it?

If the answer is no, the deal isn’t broken—
the structure is.

Stress Testing Reveals the Truth About Risk

Stress testing does three critical things:

1. It Exposes False Margin

Thin cash flow isn’t discipline—it’s exposure.

2. It Forces Structure Conversations Early

Price, seller carry, IO periods, and leverage all get clearer when the deal is stressed.

3. It Protects You From Refi Fantasy

If the deal only survives after “perfect execution,” you’re underwriting hope.

Hope doesn’t refinance.

The Key Lesson From Piney Mountain

At lower leverage, better terms, or a price reset, Piney Mountain could work.

At stretched leverage and real rates?
It doesn’t.

That’s not pessimism.
That’s honest math.

And honest math is what keeps investors alive long enough to compound.

This Is Exactly How I Review Deals

When I structure or review deals for clients, I don’t optimize for:

• Best-case IRR

• Pretty pro formas

• Lender approval alone

I optimize for:

• Survival

• Flexibility

• Exit optionality

• Refinance realism

If you want your deals stress-tested the same way—before you commit capital—you can see how I work here:
👉 https://chadchoquette.com/how-i-work

And if you want hands-on help structuring or reviewing a deal:
👉 https://chadchoquette.com/deal-structure-services

Because deals don’t fail when times are easy.
They fail when assumptions get tested.

Stress test first.
Sleep better later.