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Yet, Typical Investment Returns Dip
According to ATTOM Data Solutions first-quarter 2020 U.S. Home Flipping Report, 53,705 single-family homes and condominiums in the United States were flipped in the first quarter. That number represented 7.5 percent of all home sales in the nation during the quarter, up from 6.3 percent in the fourth quarter of 2019 and from 7.3 percent in the first quarter of last year, to the highest level since the second quarter of 2006.
The gross profit on the typical home flip nationwide (the difference between the median sales price and the median paid by investors) also increased in the first quarter of 2020, to $62,300. That was up slightly from $62,000 in the fourth quarter of 2019 and from $60,675 in the first quarter of last year.
But with home prices rising, the typical gross flipping profit of $62,300 translated into only a 36.7 percent return on investment compared to the original acquisition price, down from a 39.5 percent gross flipping ROI in the fourth quarter of 2019 and 40.9 percent a year earlier. The latest profit margin sits at the lowest level for home flipping since the third quarter of 2011.
The first-quarter pattern of investors unable to fully keep pace with soaring home prices revealed a soft spot in the nation's nine-year market boom, just as the major impact of the worldwide Coronavirus began damaging the United States economy. While it remains unclear how hard the housing market will get hit by the pandemic fallout, a drop in prices could further erode investor profits and cloud the future of the home-flipping industry.
"Home flipping has gradually taken up a larger portion of the housing market over the last couple of years. But profits are down and are lower than they've been since the dark days following the Great Recession, which is a sign that investors aren't keeping up with price increases in the broader market," said Todd Teta, chief product officer at ATTOM Data Solutions. "Enter now the Coronavirus pandemic and the prospects for home flipping are notably uncertain, at least in the short term. We should know a lot more in a few months about whether home prices drop and investors get hit hard, or whether they can increase their profit margins."
Home flipping rates up in 87 percent of local markets
Home flips as a portion of all home sales increased from the fourth quarter of 2019 to the first quarter of 2020 in 122 of the 140 metropolitan statistical areas analyzed in the report (87.1 percent). (Metro areas were included if they had at a population of 200,000 or more and at least 50 home flips in the first quarter of 2020.)
The largest quarterly increases in home flipping rates came in Boston, MA (up 80.2 percent); Springfield, MA (up 76 percent); Olympia, WA (up 73 percent); York, PA (up 71.4 percent) and Minneapolis, MN (up 69.3 percent).
Aside from Boston, MA, and Minneapolis, MN, the biggest quarterly flipping-rate increases in 53 metro areas with a population of 1 million or more were in Grand Rapids, MI (up 57.7 percent); Richmond, VA (up 51.3 percent) and Rochester, NY (up 49 percent).
The only decreases in annual flipping rates among MSAs with a population of 1 million or more were in San Antonio, TX (down 12.9 percent); Austin, TX, (down 11.8 percent); Oklahoma City, OK (down 6.1 percent) and Houston TX (down 0.6 percent).
Highest home-flipping rates concentrated in South
Among metro areas with enough data to analyze, 11 of the top 15 home-flipping rates were in the South, led by Memphis, TN (14.5 percent of all sales); Durham, NC (13.6 percent); Phoenix, AZ (12.6 percent); Raleigh, NC (12.5 percent) and Atlanta, GA (12.4 percent).
Typical home flipping returns fall closer to post-Great Recession low points, dropping in 54 percent of markets
Homes flipped in the first quarter of 2020 were sold for a median price of $232,000, with a gross flipping profit of $62,300 above the median purchase price of $169,700. That gross-profit figure was up from $62,000 in the fourth quarter of 2019 and from $60,675 in the first quarter of last year. But with purchase prices on investment properties continuing to rise faster than resale values, the 36.7 percent return on median sales prices versus purchase prices in the first quarter of 2020 was down from 39.5 percent in the fourth of 2019 and 40.9 percent in the first quarter of last year. The latest ROI sits at the lowest point since the third quarter of 2011, when the typical home flip netted a 35.9 percent profit margin.
Profit margins decreased from the first quarter of 2019 to the first quarter of 2020 in 75 of the 140 metro areas with enough data to analyze (53.6 percent). The biggest declines were in Fort Collins, CO (return on investment down 78 percent); Greeley, CO (down 73 percent); Springfield, MO (down 64 percent); Durham, NC (down 62 percent) and Provo, UT (down 50 percent).
Among metro areas with a population of at least 1 million, the biggest declines were in Jacksonville, FL (down 45 percent); Portland, OR (down 41 percent); Raleigh, NC (down 40 percent); Tucson, AZ (down 36 percent) and Minneapolis, MN (down 32 percent).
Metro areas with a population of at least 1 million where returns on investment increased most were Dallas, TX (up 38 percent); San Antonio, TX (up 36 percent); San Diego, CA (up 20 percent); Chicago, IL (up 20 percent) and Oklahoma City, OK (up 18 percent).
Raw profits highest in the West and Northeast, lowest in the South
The highest first-quarter 2020 profits, measured in dollars, were concentrated in the West and Northeast. Among metro areas with enough data to analyze, 13 of the top 15 were in the those regions, led by San Francisco, CA (gross profit of $171,000); San Jose, CA ($165,000); Los Angeles, CA ($145,000); New York, NY ($141,899) and Honolulu, HI ($140,190).
Ten of the lowest 15 profits, in dollars, were spread across southern metro areas, led by Fort Collins, CO ($14,000 profit); Springfield, MO ($20,203); Daphne, AL ($20,650); Raleigh, NC ($21,250) and Durham, NC ($25,000).
Home flips purchased with financing dip while those bought with cash climb
Nationally, the percentage of flipped homes purchased with financing dipped in the first quarter of 2020 to 40.5 percent, from 44 percent in the fourth quarter of 2019 and 46.4 percent in the first quarter of 2019, to the lowest point since the fourth quarter of 2016. Meanwhile, 59.5 percent of homes flipped in the first quarter of 2020 were bought with all-cash, up from 56 percent in the prior quarter and 53.6 percent a year earlier.
Average time to flip nationwide is 174 days
Home flippers who sold homes in the first quarter of 2020 took an average of 174 days to complete a flip, up from an average of 169 in the fourth quarter of 2019 but down from 180 days in the first quarter of last year.
Percent of flipped homes sold to FHA buyers increases
Of the 53,705 U.S. homes flipped in the first quarter of 2020, 15.3 percent were sold to buyers using a loan backed by the Federal Housing Administration (FHA), up from 14.6 percent in the prior quarter and from 13.5 percent in the same period a year ago.
Among the 140 metro areas with a population of at least 200,000 and at least 50 home flips in the first quarter of 2020, those with the highest percentage of home flips sold to FHA buyers -- typically first-time homebuyers -- were Stockton, CA (44 percent); Visalia, CA (37.5 percent); Springfield, MA (37.1 percent); El Paso, TX (33.3 percent) and Modesto, CA (31.6 percent).
More than 100 counties had home flipping rates of at least 10 percent
Among 639 counties with at least 10 home flips in the first quarter of 2020, there were 113 counties whose home flipping rate was at least 10 percent of all home sales. The top five were Marion County, IL, outside of St. Louis, MO, (28.6 percent home flipping rate); Hampton City/County, VA, in the Virginia Beach metro area (27.3 percent); Macon County, TN , in the Nashville metro area (17.9 percent); Smith County, TN, in the Nashville metro area (16.4 percent) and Paulding County, GA, in the Atlanta metro area (16.4 percent).
Twenty-nine zip codes had home flipping rates of at least 25 percent
Among 1,560 U.S. zip codes with at least 10 or more home flips in the first quarter of 2020, there were 29 zip codes where flips accounted for at least 25 percent of all home sales last year. The top five were 38109 in Shelby County (Memphis), TN (36 percent); 43203 in Franklin County (Columbus), OH (35.7 percent); 90044 in Los Angeles County, CA (35.2 percent); 90222 in Los Angeles County, CA (34.9 percent) and 38680 in DeSoto County, MS (south of Memphis, TN) (32.4 percent).
When people think of crowdfunding, the first word that jumps to mind is Kickstarter. But crowdfunding is not limited to supporting the next card game or independent film. Crowdfunding is becoming a viable way to be part of massive projects that would otherwise be out of reach for individual investors.
A prime example? Real estate.
The real estate crowdfunding industry is projected to be valued at more than $300 billion by 2025. One of the driving forces behind this growth has been the low barrier to entry, and the ability for investors to enter larger real estate deals with smaller capital amounts. Compare this to five years ago, where crowdfunding was still an early concept that raised eyebrows, and it’s clear the where the trajectory is headed. The global crowdfunding industry has gone from $880 million in 2010 to $34.4 billion.
That’s serious growth.
However, a Bloomberg article noted risks associated with crowdfunding in the real estate industry. It concluded that after evaluating over 100 different real estate crowdfunding platforms, only a handful were considered credible, trustworthy, or even effective.
This is all the result of Congress passing the Jumpstart Our Business Startups Act (JOBS Act) in 2012, allowing startups and small businesses to openly market private investments to the public.
In real estate, especially, this has allowed companies like Origin Investments, a private equity real estate company, to raise more than $130 million for a fund — its third fund, to be exact. To date, this is the largest fund raised by a single U.S. real estate crowdfunding platform, ranking it alongside the backing that tends to launch hot tech startups into the limelight.
YOU MAY ALSO LIKEPart of the reason why Origin, particularly, has succeeded in its fundraising efforts has been the performance of its two earlier funds. Both are ranked in the top quartile of Preqin-ranked funds and are projected to generate more than 25% annualized net returns.
How’s that for ROI?
Co-principals Michael Episcope and David Scherer clearly see the potential for crowdfunding in real estate, as do the investors they have gotten on board. In fact, their expertise in asset management is what allowed them to raise $10 million in the first week of opening their third fund.
Again, what makes this so enticing is the fact that real estate is an asset class most individual investors cannot take part in, simply because of the liquidity needed to participate. Funds like Origin see these as willing but underserviced consumers who, if given the right platform, would be interesting in investing sizeable amounts of capital.
Because of the JOBS act, the real estate market has seen various benefits. For one, individual investors looking for vehicles for their investments can now choose from a larger pool of real estate deals. Second, large real estate deals can actually move from conversation to execution more quickly, since crowdfunding can attract more accredited investors, more quickly and effectively (as shown by Origin’s ability to raise $10 million in a single week).
Furthermore, investors now have access to big ticket, high-quality commercial real estate properties, allowing them to take advantage of these much larger investment vehicles.
In 2013, Harvard Business Review made mention that the JOBS Act was the catalyst needed in order to democratize commercial real estate investing and open new doors of opportunity.
It’s safe to say those doors have been opened and opportunity is flowing through.
July 27, 2020, 5:22 pm
Crowdfunded Real EstateNow, more than ever, it’s important to be familiar with the ins and outs of real estate crowdfunding. This strategy of raising million-dollar stakes in thousand-dollar contributions can be risky for both the investor and property manager, but the payoff may be too big to ignore.
Many people have seen the applications of crowdfunding in some capacity, as people take to social media to fund things like medical bills or purchases for the less fortunate. It was only a matter of time before its applications in real estate were realized.
In general, there is a high barrier of entry to real estate investment. Traditionally, most projects seeking investors required million dollar commitments in order to buy a stake in the projects. Smaller projects like home flipping did not have the opportunity to raise funds from investors, and investors only willing to commit thousands of dollars did not have the opportunity to choose their own projects.
US News States, that previous to the creation of crowdfunding platforms, Real Estate Investment Trusts (REITS) provided some outlet to small investors. However, managers treat them more like mutual funds. Investors cannot choose their own projects. In real estate, one of the main draws of investment is the tangible effects that their money can have.
Enter crowdfunding. Up until 2012, the definition of accredited investors was too rigorous for crowdfunding to work. In 2015, the JOBS act was modified so that anyone can invest in crowdfunded real estate, according to Forbes. Now, investors can both choose their project and hedge their bets with smaller investments.
Progress in Crowdfunding Real EstateIronically, although crowdfunding gives exclusive access to smaller projects, more and more large-scale real estate deals are crowdfunding. In Portland, Oregon, the Fair-Haired Dumbbell development was funded in part by crowdsourcing, according to the New York Times. It is consists of two towers which have skybridges between them, is 60,000 square feet, and has a funky exterior design.
The project raised just over US $1 million on the CrowdStreet platform. Investors were expecting 8 percent annual return for the first five years and additional interest following that. And although this might be the most visible (and visually striking) success of the platform’s funding power, it is by no means the only success.
CrowdStreet reported this year that it has 99,000 investors on its platform, according to Crowdfund Insider. This number is up 135% from March 31st, 2017. There are also more than 195 sponsors on the platform, a figure that increased 96% in the last twelve months. In other words, although the platform has been around for a while, it has experienced explosive growth only recently.
What Does the Future Hold for Crowdfunding?Given the amount of growth seen over the last year, the future seems bright for real estate crowdfunding platforms. Although CrowdStreet focuses on commercial real estate, there are platforms for virtually every niche.
Furthermore, the global market is expanding as a whole. Real estate crowdfunding is taking off in Germany. People are now more likely to use crowdfunding as they have seen evidence of its success. Colombian investor Rodrigo Nino built a skyscraper with a similar platform. As a whole, the market has gone from a US $8.80 million to a US $35 billion dollar industry. By 2025, estimates predict the market to be worth more than $300 billion.
Even more, new technologies have the potential to increase the practicality and widespread use of crowdfunding in real estate. The combination of cryptocurrency coin offerings and this type of funding is referred to as tokenization. Tokenization is in its early stages, but it’s worth keeping an eye on in the future. If the rapid growth of real estate crowdfunding is any indication, tokenized real estate could be seeing explosive growth soon.
Crowdfunding Offers Opportunities for CRE Owners and Investors
By Max Sharkansky | September.October.18
While real estate is one of the most traditional and palpable forms of investing, new digital platforms are transforming how some owners and investors are sourcing capital for their assets and funds.
Despite many still viewing crowdfunding in real estate as the newest fad, a report from the Cambridge Centre of Alternative Finance shows that real estate crowdfunding across the Americas grew by 250 percent in 2015 to a volume of $483.77 million -- up from $138.15 million the previous year -- with similar yearly rates of growth over a three-year period.
Title III of the Jumpstart Our Business Startups Act, or JOBS Act, passed in 2015, opened up crowdfunding to an even wider range of investors. In the time since, increasing numbers of owners and investment firms have begun to view and utilize this as a valid -- and deeply valuable -- means of sourcing capital.
Capitalizing on CrowdfundingBelow are the top three ways that real estate owners and investors can take advantage of crowdfunding and current trends in the sector.
1. Target investors across a wider range. Crowdfunding in commercial real estate has opened up a market that traditionally has had high barriers of entry to a wider constituency with regard to minimum investment required, geography, and accreditation status.
Rather than requiring minimum equity commitments upward of six figures, investors can buy in with as little as $1,000 in some cases.
Some platforms provide the opportunity for unaccredited investors to build and diversify their portfolios, or create a streamlined process for foreign investors to have a stake in U.S. real estate with fewer hoops to jump through.
Further, as millennials and potential investors of all ages move toward taking advantage of a more mobile, instant, and on-demand lifestyle, online crowdfunding is a way to cast a wider net and attract those who might not have the time or diligence for traditional real estate investing.
2. Utilize access to multiple platforms. Several investment models are available across dozens of platforms within the commercial real estate crowdfunding space.
When considering online crowdfunding to supplement equity or even establish an electronic real estate investment trust or fund, it is important to understand that not all of these platforms are created equal; in fact, due to their differences, they can be leveraged alongside each other.
For example, Trion Properties of Los Angeles has used both RealCrowd and CrowdStreet to source equity and investors for its first fund. While investors can participate in more than one platform, this allowed Trion Properties to reach those who are experienced and comfortable with each respective website.
Additionally, while the two platforms have similarities since they were both chosen carefully to fit the company's needs, differences between them include minimum investment and investment terms.
A wide range of options is available, depending on what platform is used, often specializing in certain types of investment. Some of the available options include direct investment in equity, debt investments, eREITS, and funds.
3. Leverage upfront savings for potential investors. While it is far too early to determine to what degree these digital investment platforms will cut out the traditional middleman, in many cases online crowdfunding creates a more direct method of real estate investment and can lead to immediate savings in upfront fees for investors.
In turn, this means that commercial real estate owners, developers, and investment firms can utilize this absence of fees as an incentive for their potential investors, and might ultimately see them investing more than they would have otherwise.
One example is an eREIT -- the online, crowdfunded version of a REIT -- which on many platforms is available to invest in with no fees or a low single-digit percentage. On the other hand, traditional, non-traded public REITs require that investors pay fees of up to 15 percent.
Crowdfunding the Future Commercial real estate crowdfunding is an exciting prospect, as it brings more potential investors to the playing field and mitigates risk. That said, it is still a relatively new, and in many ways fragmented, sector that can be intimidating to navigate.
The benefits of crowdfunding can far outweigh any risk or discomfort due to the unfamiliarity or relative newness of the process. When considering or approaching crowdfunding for the first time, it is critical that owners, developers, and investment firms perform extensive research into the platforms available to ensure that they will reach the right potential investors for their needs.
The Fundamental Difference Between Single-Family And Commercial Real Estate Investing
Ian Formigle CommunityVoice
Forbes Real Estate CouncilCommunityVoice
When it comes to real estate investing in single-family residences (SFRs) versus commercial real estate (CRE), there is a common misperception of grouping the two into the single broader category of "real estate investing." Grouping in this manner assumes that both types of real estate provide similar exposure to the third largest asset class (excluding cash). While more experienced investors may understand that these two categories of real estate, in fact, differ greatly from an investment thesis perspective, they often struggle to articulate the core, underlying difference that differentiates them. Let's break down the value components of SFRs versus CRE and explore the single fundamental difference that is a unique and primary driver of value for CRE.
CRE investing focuses on the acquisition, development, leasing and operation of an array of property types. Property types can include multifamily (also known as apartments), office, retail, industrial, hospitality, senior living, student housing, self-storage and more. SFR investing typically consists of the purchase, leasing and operation of single-unit dwellings.
To understand the value driver that is a key differentiator between SFRs and CRE, it is helpful to first understand the basic value components of each type:
SFR Value Drivers
As you can see in the chart above, the value of SFRs is comprised of three primary components: land value; the value of the structure, or what we refer to in industry terms as “improvements”; and a supply/demand premium (or discount) that reflects submarket dynamics.
To give this last component context, an example of excess demand that creates substantial value would be coastal markets where supply is constrained and demand is stratospheric. In contrast, discounts to the value of the improvements of an SFR can be found in certain midwestern and southern markets where the existing stock or supply of housing exceeds demand.
Much of the future value that is created by investing in SFRs is a function of market-driven appreciation. This appreciation is most commonly reflected through increases in land value and the premium component, although increases in construction costs can increase the value of existing improvements as well. In order to build equity in SFRs, you are mostly banking on appreciation of the land on which the house sits, an increase in demand for your location or a combination of these two.
CRE Value Drivers
CRE shares land, improvements and supply/demand with SFRs as value drivers, but it also has a unique value driver in the form of net operating income. As a reminder, net operating income or NOI is defined as all revenue from a property less all operating expenses. It is important to note that NOI does not contemplate debt service. With this definition in mind, let’s revisit the chart above.
As you can see on the right side of the chart, while land, improvements and supply/demand all factor into the total value of CRE, NOI is the largest single value driver, and it can have a dramatic effect on asset value, particularly in markets with high rents such as Manhattan or San Francisco.
The supply/demand component now also takes on a quantifiable value as capitalization or “cap” rates provide insight into how the market prices affect demand for various asset types. Since cap rates are worthy of their own article, we won’t delve into the details of them here, but generally speaking, an increase in demand for a certain type of real estate leads to a decrease in cap rates (i.e., higher prices at the same NOI levels), while a decrease in demand leads to an increase in cap rates (i.e., lower prices at the same NOI levels). For any asset with positive NOI, cap rates and NOI intertwine to derive total asset value.
The uniqueness of NOI as a value driver makes investing in CRE fundamentally different than SFRs because it provides it with a business model. The fact that the value of a CRE asset has substantial correlation to NOI means that you can make (or lose) money on a property regardless of greater market dynamics.
This is not the case with SFRs. While it is certainly possible for leased SFRs to have NOI, this component drives no value for this type of real estate, as value has no correlation to whether or not the properties are occupied. In fact, the maximum value of an SFR may be its vacant value, since most purchasers are owner-occupiers and a house that is encumbered by a lease is not currently eligible for the new owner to occupy. How many times have you seen an SFR bid above its asking price by a buyer who intends to lease it?
If a CRE operator is able to acquire an asset and increase its NOI, then, all else being equal, the value of that asset has increased. This partially explains why there is always an active transaction market for CRE. A property owner, for example, may have just increased NOI in a given property and see an opportunity to harvest profits. At the same time, a prospective buyer values the newly created NOI and wants to earn a yield. NOI as a value driver of CRE gives control back to the operator and moves away from the betting model.
Posted by Ian Formigle on 5 August 2016
Multifamily real estate is a widely held and strategic commercial real estate asset class. At roughly 25% of the U.S commercial real estate stock, the multifamily sector now accounts for the second-largest share of institutional investors’ real estate holdings, lagging only the office sector. While previously considered a residential asset, multifamily is now firmly cemented as one of the four primary commercial real estate asset classes (the other primary three being office, industrial and retail).
In this article, we provide an overview of the multifamily asset class, discuss demand drivers, highlight changes in use and conclude with a synthesis of these factors to better equip investors with the knowledge to make informed investment decisions.
Asset Class Overview
As an asset class, multifamily spans a wide spectrum of residential properties that technically includes all buildings containing at least two housing units, which are adjacent vertically or horizontally. Multifamily is also characterized by shared physical systems whether it be walls, roofs, heating and cooling, utilities or amenities. While multifamily can include townhouse, condominium and apartment projects, for the purposes of this article, we will focus on apartments since they are most commonly acquired as an investment.
Classification: The industry “grades” multifamily properties as Class A, B or C based on criteria such as age, quality, amenities, rent and location among other factors.
A good way to begin analyzing U.S. multifamily demand drivers is to consider that households are comprised of either owners or renters. According to the U.S. Census Bureau, homeownership, as of March 2016, currently stands at 62.9% (with renters at 37.1%), which is its lowest level in more than 25 years. There are roughly 117.4 million total households:
Demand drivers, for the most part, will 1) increase or decrease the total number of the U.S. households 2) change the percentage breakout of renters vs. owners or 3) both. While there are myriad factors that contribute to multifamily demand, the following comprise the key drivers:
Demographic trends have made their own contribution to the growing popularity of renting. The behavior and choices of different demographics has direct effects on the multifamily trends, and now more than ever. According to a study published by the Joint Center for Housing Studies of Harvard University, the increase of 9 million renter households the U.S. has experienced since 2005 is the largest increase in any 10 year period on record.
The aging of the millennial generation (born 1985–2004) is one key demographic trend that has lifted the number of adults in their 20s, the stage of life when renting is most common. Millennials, as a demographic, are delaying marriage, children and moving to the suburbs to buy a home until later in life. This effect has expanded the year-over-year renter pool nationwide. Millennials also are carrying a higher load of student debt in comparison to previous decades, which makes it more challenging to finance a first-time home purchase.
Millenials are not the only demographic making choices in favor of multifamily. Empty nesters are downsizing and opting for low-maintenance rental townhomes and apartments. In addition, both Millenials and empty nesters have been drawn to the urban renaissance movement that is seeing people move back to city centers to live, work and play. This movement is creating more demand for apartment and condo rentals in and around busy downtown and central business districts.
In combination, these trends have boosted the numbers of renters in all age, income, and household categories. Millennials have pushed up the number of renters under age 30 by nearly 1 million over the past decade, while members of generation X (born 1965–1984) added 3 million to the ranks of renters in their 30s and 40s, even though the population in this age range declined. The largest increase, however, was a 4.3 million jump in the number of renters in their 50s and 60s. This growth reflects the aging of baby-boomer renters (born 1946–1964) as well as declines in homeownership rates among this generation. While households in their 20s make up the single largest share, households aged 40 and over now account for a majority of all renters.
Changes in Multifamily Use
Many of the demographic trends, as mentioned above, have led to a number of shifts in multifamily use as the next generation of multifamily developments aims to provide a modern living experience. The following are highlights of the factors changing where apartments are located and what they look like:
Walkable / Bikeable locations: In conjunction with the urban renaissance, renters now desire their apartment to be located in close proximity to neighborhood grocery stores, cafes, pubs and restaurants. In decades past, it was more common to see a multifamily property tucked away in a secure and private setting but that trend has given way to the walkable, bikeable property.
Transit-oriented developments: As commuting via public transportation has become increasingly popular amongst the renter sect, we are seeing more apartment buildings pop up along transit lines. Transit-oriented properties command higher rents and can expect to maintain higher occupancies all things being equal amongst its competitive set.
Modern amenities: With properties that are increasingly walkable and bikeable, renters now desire a host of modern amenities. According to a 2015 nationwide survey conducted by the NMHC, the following are highlights of what renters desired most:
New Development vs. Existing Product
Due to recent changes in use, the amount of new apartment construction nationwide and the current disparity between the cost to build vs. the cost to acquire, many investors are seeking out opportunities to invest in multifamily development rather than multifamily acquisitions. Some of the key points to consider when weighing development vs. acquisition investment opportunities include:
While multifamily real estate has its own unique complexities and risk factors, from an investment and risk analysis perspective, it is generally regarded as the safest of all commercial real estate asset classes (although I know many industrial operators that would challenge that statement, which we will discuss in an upcoming industrial-specific article). This is predominantly due to higher average occupancies with lower price volatility when compared to other asset classes.
For signs of evidence to support this argument, consider that apartments have a lower cost of capital and wider availability of debt capital. For example, government backed agencies, Fannie Mae and Freddie Mac, will lend on multifamily assets but not on other commercial real estate asset classes. In addition, when looking back at the last recession, generally speaking, multifamily is the asset class that performed the best during the depths of the financial crisis and was the asset class to lead the recovery. There is something to be said for the notion that people still need a place to live no matter the phase of the economic cycle. During recessions, people can lose their homes and be forced into the renter pool,which you as now understand, increases rental demand through a shift in the owner vs. renter household breakout. Once a recovery begins, the shorter lease terms of multifamily allow owners to adjust more quickly to changing market environments.
According to Massolution’s crowdfunding report, money raised by individuals, budding brands and even established companies through crowdfunding platforms exceeded $34.4 Billion in 2015. Analysts even predict that crowdfunding will surpass VC funding this year. These numbers, while staggering, are not surprising given current market trends. What’s more interesting is when we drill down to vertical specific crowdfunding. For example, in the real estate industry businesses are using this not-so-new funding source to disrupt their respective markets to potentially maximize their visibility and profitability.
Real estate is one of the fastest growing markets to take on the concept of crowdfunding and apply it in a new way. Whether you’re participating in the real estate market in an institutional capacity or as a solo investor, you may have been told that real estate is an investment that always appreciates. Those who invested prior to 2008 know, unfortunately, that’s not always the case. However, what is true is that a diversified portfolio should, if possible, potentially contain a real estate play. Why? Some say it’s because land is one of the most precious and scarce resources. But this argument has been falling on deaf ears, particularly amongst millennials who simply don’t feel the same pull to own things as their parents and grandparents. As a result real estate was, and is, a prime market segment poised for change, especially with the growth of real estate crowdfunding.
Here are four emerging trends in real estate crowdfunding to watch this year.
Those considering real estate investing, especially through crowdfunding platforms, could potentially improve their rate of return with tax efficient strategies, more specifically IRA’s. An article on BiggerPockets puts it this way: “the number one financial need in retirement is passive income.” Real estate crowdfunding platforms allow those saving for retirement to invest in real estate right from the golf course, with just a few clicks on their phone or tablet.
Whether you’re taking your first steps into the investment world or you are a more seasoned investor, there is opportunity for growth potential from this modern real estate marketplace. Keep in mind that many of these investments are illiquid and not suitable for all investors. However, the whole purpose of the crowdfunding concept is to provide an entry point and visibility to new brands, networks and investment opportunities that historically would have required insider access. With innovators like the original Crowdfunder creating unique investment networks and continued growth across industry verticals like real estate, the scalability of these opportunities is large.
I write about entrepreneurship as a real estate and tech CEO.
started investing in real estate in the early aughts, and clearly a lot has changed since then. In my infancy as an investor, I was frustrated by the lack of tech available for networking and finding investment-quality properties. On the heels of that was the need to connect so I could secure capital for investments. In my desperation, I tried to use MySpace to find the resources needed to launch my investment career. It’s not hard to imagine how ineffective that little experiment worked out.
Since that time, I’ve seen up markets, down markets, feast or famine in funding, and inventory levels that can make or break the average real estate investor’s deal flow. I’ve also seen institutional buyers enter the single-family residential investment property market. While that alone had a massive impact on the local buyer of investment properties, nothing has changed the face of real estate investing like technology and the ability to move money and properties faster than ever. What I was looking for back then has come to fruition through my company and others as well. Tech and big data have joined forces, and it’s changed the way real estate investors find and fund investment properties.
Tech Solutions For Finding Investment Properties
In the not-too-distant past, it was only larger institutions that had the power of big data to satisfy their appetites for investment properties to turn for profit. Clearly technology had already come to the aid of institutions and the average homebuyer. Institutions have been using tech to buy properties in bulk for years and have had unprecedented access to critical data needed for sound investment decisions. Then there are sites like Zillow, OpenDoor and, more recently, Zillow Instant Offers to serve the typical homebuyer.
But real estate investors as a whole have an entirely different subset of needs in the real estate technology space. Finally, the combination of advancing technologies and big data has handed local real estate investors access to two major components of every real estate deal: properties and funding.
Online tools for locating distressed properties and contacting motivated sellers are available to any wholesaler or flipper with the wherewithal to access them. As it was put in Attom Data's April 2018 Housing News Report, "Data, being what it is today, is able to simplify the job of the investor looking for properties. Using the latest technology and advanced algorithms, smart data filters and overlays, real estate investors can access big data that provides more than names and addresses. Smart tech and big data combined also puts phone numbers, email addresses, social profiles into the hands of investors making direct mail an alternative rather than the norm. With the wealth of data now out there, it’s a fact that the aggregation of the right data for the job can empower progress in any industry."
POST WRITTEN BY
CEO and Founder of ConnectedInvestors.com.
Ask any group of people what drives the real estate market, and it's a given that you’ll get entirely different answers from each. One might say it’s simply price. Another might say it’s foreclosures. Yet another will argue it’s the loan market and the availability of capital. And another would argue it’s all local — what’s happening in Philly doesn’t play in Austin. And while there’s some truth to each argument, the fact remains that in many respects, real estate is no different than any other commodity, and simple economic principles are an overriding factor. It’s micro versus macro economics and basic supply and demand.
It's been said that all real estate is local, and there is a certain truth in that. Think back to that college econ 101 class (and you thought you'd never use that textbook stuff again!). We can look at our local area and micro economics and make generalizations about our market. Those generalizations can and do impact the decisions we make about real estate investing. For example, in my local market of Wilmington, North Carolina, there is a strong college and vacation rental demand, and the city attracts a lot of retirees. New companies are bringing in jobs. Of late, Wilmington has become a hub for tech development, while the film industry has experienced a major downturn. And then there’s the beach.
The point is, Wilmington investors know all of this, as do builders and developers. And we use that information to make decisions about where to buy, what to buy and what to sell. That can be called the microeconomics of investing.
But then there are the macro issues — those things that affect the broader market — and they can't be ignored. Their impact is huge in any market.
There’s still a void for the smaller, residential investor when it come to access to capital for investing, especially for long-term holds. Corelogic reports that while the numbers fluctuate year over year, cash sales account for 25–27% of sales. This is a macro issue. Lenders as a whole still haven’t recognized the value that investors can have in bringing back communities when we invest in homes and neighborhoods. But niche lenders have, and investors are finding the capital to do deals among private and hard money lenders. (Full disclosure: Our company supports a network of private and hard money lenders.)
Outside the investment world, there’s a more subversive factor at play. While first-time homebuying is in an upcycle, still many millennials aren’t taking the plunge. You might think that with government programs, still relatively low interest rates and decent housing stock, the numbers would be better. But millennials are facing huge student loan debt that makes saving for down payments tough. This is a generation that marries later and wants mobility to be able to go where the jobs are. This doesn’t play well for the home seller, but it can and has been a big boon for the rental market.
Then there are still the foreclosures. They are in every community, and their ongoing numbers impact the bigger market, in lending and in the buyer’s mindset as well. There’s still some hangover from the crash, and just about everyone you talk to knows about the house around the corner that’s been empty forever. No one lives there (so you think) and hasn’t for a long time. You assume it’s a foreclosure, but no one is stepping in to move the house from vacant to sold. This is commonly referred to as a zombie foreclosure: The owner left and maybe turned over the keys, but the bank hasn’t taken title or the responsibilities of ownership. As a result, the little things like securing the asset (can you say squatter?), maintaining the property and yard, and paying the taxes and HOA go unresolved. The home sits in limbo, and no one is responsible. This contributes to the foreclosure mess, along with the ongoing foreclosures as loan mod programs can’t fix a homeowner’s problem — too much house and too little money to pay for it.
So, yes, you have to attend to micro and macro issues and become your own real estate economist, able to recognize the issues that affect supply and demand for your product, whether it’s commercial space, land, flipped houses or residential rentals.
Despite what's happening, we can always find ways to make the most of the situations at hand. Where traditional loan sources have dried up, crowdfunding and private money deals are happening daily. Millennials aren’t buying en masse, but they are renting. And that DOA house on the corner? Innovative deal-makers are finding ways to move them into the market. It’s really a matter of knowing what’s going on and finding the best strategy to keep things moving with an eye on both micro and macro issues. It may not be easy, but the payoff can be worth the effort.
So what's going on in your market? Have you overcome some of the micro and macro challenges mentioned here? How did you do it, and what was the outcome? Real estate investors truly are an innovative crowd — whether you’re a seasoned investor with a couple of market cycles under your belt or a new investor with a fresh set of eyes, the opportunities are there when you dig a little deeper than the next person.
POST WRITTEN BY
CEO and Founder of ConnectedInvestors.com.
Advances in technology continue to transform multiple industries. Every aspect of our world has changed dramatically within a short span of time. Airbnb is bigger than the world’s top five hotel brands combined, but doesn’t own any real estate. Uber is said to be the world’s largest taxi company but doesn't own any vehicles. Leading communication channels such as Skype and WhatsApp no longer need traditional telephone infrastructure.
Unsurprisingly, there is also a long line of startups promising to bring automation and "uberize" real estate as well. The arrival of WeWork and Airbnb was just the beginning. But what does this mean for the industry — and more importantly, for investors?
As the pace of change accelerates, it can be challenging to keep up with the latest trends and associated industry buzzwords. The emergence of real estate technology is often referred to as “proptech,” and by joining forces with financial technology (fintech), it is already disrupting the world of real estate.
A new era of trust and transparency is making investing in property more accessible to everyone. For many years, investors have accepted that the world of real estate involves navigating time-consuming and laborious processes, not to mention exorbitant transaction fees. However, new players are removing traditional pain points to create a very different future that should be celebrated rather than feared.
Investors now have a variety of options that are making the market more accessible and creating an era of unprecedented opportunity for everyone. My partners and I started our firm, for one example, to help open up access to real estate investment opportunities. Most of us, if we’re lucky, get to invest in one real estate property at a time — the one we live in. We may dream of more, but the minimum buy-in cost is more than we can afford. In the digital era, that’s an antiquated model of real estate investing, and that sense of injustice served as our inspiration to create a more inclusive marketplace for everyday investors to join the rewarding world of real estate development with a much lower barrier to entry.
With this new wave of real estate startups, innovators are paving the way for online investing and technology to empower investors from all backgrounds to build their own portfolios quickly and at lower costs than ever before. Welcome to the shared economy. Contrary to popular opinion, technology is not creating a divide; it’s actually bringing people together and providing opportunities to those who dare to think differently.
Traditional real estate assets come in many forms, including land, residential homes and various commercial building types. But rather than having a single owner or landlord, new tech-based solutions are ushering in a new era of shared or fractional ownership.
By embracing fintech, real estate crowdfunding companies have democratized real estate investment by enabling more less-experienced investors to participate. The good news is that it has never been easier to invest in real estate and build a portfolio with lower capital requirements. The bad news is that the lower barrier to entry has allowed technology companies to enter the industry without a real estate background. It is critical for investors to perform as much due diligence on the platform they are investing with as the assets they are investing in.
Possibly the most exciting aspect of the fintech revolution is how it is changing customer behavior and increasing expectations at breakneck speed. But there is an increasing realization that this speed of change will never be this slow again.
Fintech makes possible lower-cost solutions that traditional real estate companies are slow to offer. However, tech disruption is nothing new, and many forget that we have been here many times before. In a relatively short time, technology replaced typewriters, fax machines and floppy disks in offices all over the world. Transformative technologies will continue to lower costs, increase operational efficiency and ensure that every industry continues to evolve in the name of progress.
Sitting at the same desk every day of the week is unproductive in an age where collaboration and flexible working are considered the norm. Equally, landlords cannot expect to lock business tenants — who are increasingly looking for flexibility to expand as they grow — into long-term leases.
As fintech and real estate continue to evolve, we can expect the connections between buyers, renters, landlords and property owners to be transformed by blockchain, digital media and technology. More and more creative, alternative models and solutions will continue to appear and force incumbents to adapt to the changing real estate landscape. Who will the big winners be? The answer is a new generation of consumers from all walks of life who will have opportunities to participate in the real estate industry for the first time. Don’t get left behind.
POST WRITTEN BY
Allen Shayanfekr is the CEO and CO-Founder of Sharestates, an online real estate investment platform.
>Home Flipping in US Hits 14-Year High in Q1, Pre-Corona