Street Smart Success

In the world of Real Estate finance, property owners can end up in arrears on their existing payments. In these cases their debt may be sold off to other lenders. In other cases, borrowers may not be able to obtain conventional financing for various reasons. In either of these cases, borrowers may wind up utilizing specialty lenders who help them solve their problems. Carson Rasmussen, Principal at Fairview Partners, lends money to borrowers who don’t have access to traditional banks. He buys non-performing loans from traditional lenders at a heavy discount and also originates his own loans to borrowers in special needs situations. Carson makes very conservative first lien loans to his borrowers and has generated returns as high as 20% to his investors.

Even with the market changing with respect to debt challenges and interest rate increases, there’s still opportunities in the Value-Add apartment space long-term prosperity. As prices come down 10-15% and possibly even more over the next several months, there will be great opportunities to buy right and generate big value. The demand for rental housing persists, so the prognosis for multifamily buildings in the sunbelt and other growing markets remains viable. Chris Roberts, CEO – Founder of Sterling Rhino Capital, is both acquiring and developing ground-up multifamily that’s generating strong risk-adjusted returns for his investors.

Higher quality assets appreciate more in the long run, especially in supply constrained markets where it’s hard to build and there’s no more developable land. It’s simple, scarcity produces value. Even in recessions, quality construction assets hold their value better lesser assets in worse locations. Lior Rozhansky, Founder of Flora Capital, has pivoted from working class neighborhoods in Boston to multi-family in Class A neighborhoods as a pathway to “indestructible wealth.” It’s easier to manage property in these markets and they appreciate considerably more over time.

There’s no secret we have a housing shortage in this county and the problem will persist as it stays prohibitive to build new housing units for a number of reasons. This is one of the factors that’s contributed to the trend towards converting older motels into garden style apartments. Ross Hubbard, Co-founder of Sage Investment Group, has been acquiring older motels from the 80’s and 90’s and converting them into studio apartments with hotel-like amenity packages for people who sometimes have difficulty affording basic workforce housing. He’s been successful creating partnerships with agencies who subsidize housing for different groups of dispossessed citizens. Ross is repositioning these assets and achieving 90% + occupancy rates and cash-on-cash returns in the mid-teens. He’s helping solve the problem of an affordable housing shortage and also getting big returns for his investors.

The biggest aggregate asset class in the world is the U.S. single family housing market. That’s why the health of this asset class has such a large impact on the broader U.S. economy. Over time, single family homes in most markets have been one of the most predictable, conservative investments you can make. In most ten-year periods of time, home values have almost always gone up in value. Rich Fettke, Co-founder at Real Wealth.com and Author of The Wise Investor, has helped thousands of investors buy single family homes in growing markets all over the country. He finds affordable and growing markets and also identifies property management companies to manage your investment.

As interest rates have risen dramatically, asset prices have declined. The question on everyone’s’ mind is how much more they’ll fall and what’s the best investment strategy to be positioned for capital preservation and growth. One strategy that’s gaining more traction is investing in debt. Debt typically pays a predictable preferred return and is a conservative way to keep pace with inflation and preserve capital to set aside for future equity investments as the market further corrects. Will Powers, CEO/Founder of Urban Gate Capital, has a debt fund that loans money to single family flippers in Nashville and has a growing pool of borrowers and investors.

For investors in single family homes, auctions can be a great place to find deals. When homeowners can’t pay their mortgages, lenders will take back the properties and often put them up for sale at auction where investors can pay 25% less than the estimated value of the home, and sometimes even less. Daren Blomquist, VP of Market economics at Auction.com, discusses the macro state of the market and what to expect in 2023. Auction.com currently puts 3,000-5,000 on their site per month and that amount is likely to increase. Darin anticipates a recession in 2023 and an increase in foreclosed homes and great opportunities for investors.

Real Estate tends to go up over time and most newer investors have never experienced a downturn. There are periods, however, when Real Estate has come down in value and we’re quite possibly heading into a contracting environment currently. Joel Friedland, Principal of BRIT properties, only buys properties with all cash. Most of the challenges he had in 2008-2011 was the result of debt and declining values, and even then, he was not aggressively leveraged. That’s why he currently only does all cash deals. He and his investors are seeking very conservative investments with strong downside hedges. Joel specializes in manufacturer – user industrial properties in Chicago and delivers 8% unleveraged returns for his investors.

The short-term rental space has exploded and turned into a formidable industry. Many successful owners are getting cash-on-cash returns in excess of 20%. At the same time, some markets have gotten over saturated, especially with two-to-three-bedroom dwellings. In the luxury end of the market, by contrast, there’s way less competition and many different uses for the properties like golf buddy outings, high-end bachelorette parties, to multi-generation family reunions and other uses. Lance Pederson, CEO at Parsons Villas, has started a fund to acquire high-end, luxury short-term rentals in Scottsdale/Paradise Valley which will result in great returns for investors.

In the world of multifamily Real Estate, the returns can be lucrative in heavy value-add projects. These opportunities also comprise the highest level of risk. Sometimes, the best opportunities are steady, workforce Class B apartments with high occupancy levels that will be resilient in economic downturns. Camilla Jeffs, Founder and CEO of Steady Steam investments, is a long-time real estate investor and teacher who helps her students find great risk adjusted investments where they can generate passive cash flow and build their net worth. She looks for stabilized assets in growing markets to limit downside exposure.