Podcast Summary
Preparing for Opportunities in Real Estate Market Starting Mid-2023: Listeners encouraged to prepare for increased opportunities in real estate market starting mid-2023, with less competition and potential pricing decreases. Read Paul Moore's article for more info and use DealMachine for lead generation.
The speakers on this episode of the Bigger Pockets Podcast believe that the real estate market will offer opportunities that have been unavailable for the past 5-7 years, starting around mid-2023. They encourage listeners who have struggled to enter the market due to lack of deals to prepare for this window of opportunity. Additionally, there will be less competition due to market shifts and potential pricing decreases. The speakers suggest reading an article by Paul Moore on the Bigger Pockets blog for more background information. They also emphasize that despite the potential risks and market changes discussed, this should be an exciting time for those looking to start or scale their real estate business. Finally, they mention DealMachine as a valuable resource for accessing high-quality, reliable lead information for off-market deals.
Maximize opportunities and mitigate losses with DealMachine and Rent to Retirement: Investors can streamline lead generation with DealMachine and access no or low down payment opportunities through Rent to Retirement, helping navigate the current market with higher interest rates.
DealMachine and Rent to Retirement offer valuable solutions for investors looking to streamline lead generation and access no or low money down investment opportunities. DealMachine provides unlimited access to contact information and phone numbers, while Rent to Retirement offers new construction turnkey rental properties with low down payment options or even no money down. The current market presents a challenge with interest rates being higher than cap rates, leading to negative leverage for investors. It's crucial to stay informed and utilize resources like DealMachine and Rent to Retirement to maximize opportunities and mitigate potential losses. Sign up for DealMachine at dealmachine.com/bp and explore Rent to Retirement at rentretirement.com or text REI to 33777.
Understanding Net Operating Income in Real Estate Investing: NOI is crucial for real estate investors as it represents the income available to pay debt after accounting for operating expenses. High interest rates may lead to increased cap rates and more realistic pricing, requiring investors to focus on increasing NOI or lowering expenses for acceptable returns.
Net operating income (NOI) plays a crucial role in real estate investing. NOI is calculated by subtracting operating expenses from gross revenue, leaving the amount available to pay debt. If NOI is less than the debt, it creates a problem. Solutions include lower interest rates, increased NOI through higher rent or decreased expenses, or lower property prices. Predictions suggest interest rates may stay high, leading to increased cap rates and more realistic pricing for buyers and sellers. Investors may need to be patient for acceptable returns, especially for value-add properties.
Market downturn for property sellers: Despite financial stress, mid-2023 offers opportunities to acquire desirable properties at affordable prices due to shifting debt markets and decreased competition.
The current economic climate is causing financial stress for property sellers due to increased mortgage payments and uncertainty in the market. This is leading to a decrease in property sales volume as sellers hold out for previous sale prices. The distress in the market is primarily financial rather than operational, and as an investor, it's crucial to evaluate why a property is distressed before considering an acquisition. The upcoming mid-2023 period is expected to bring a surge in opportunities to acquire desirable properties at obtainable prices due to the shifting debt markets and decreasing competition. Additionally, established investors who made the right decisions during this time will likely reap significant rewards in the future. Overall, this market downturn presents a unique opportunity for new and established investors to build a strong foundation for their business.
Changes in Real Estate Market in 2023: Expect market pause, motivated sellers, decreased competition, uncertain pricing, and a shift towards balanced negotiations in 2023.
The real estate market is expected to experience some changes in 2023 due to the Fed's interest rate hikes and the resulting economic uncertainty. This could lead to a pause in market activity as buyers and sellers try to understand the new rules and adjust their strategies. Motivated sellers may enter the market due to financial difficulties, and competition is likely to decrease. While pricing is expected to drop from the peak, the exact amount is uncertain. Some experts believe it could be as much as 30%, but others are more cautious. Regardless, the key for investors is to focus on buying properties in great locations that cash flow well, with the goal of looking like geniuses in the long term. The conversation between buyers and sellers is expected to become more balanced, with less pressure on buyers to make an offer right away with no contingencies. Overall, the market is expected to shift from a seller's market to a more balanced one, with more give and take between buyers and sellers.
Earnest Money Deposits: The Risk of Going Non-Refundable: Buyers must consider the risks of non-refundable earnest money deposits, including potential issues during due diligence and challenges securing loans, to make informed decisions in real estate transactions.
The concept of a non-refundable earnest money deposit, also known as "hard money," can pose a significant risk for real estate buyers, particularly in larger transactions. This means that a certain percentage or even all of the deposit, which is given to show serious intent to buy, may be non-refundable the moment the contract is signed. However, buyers need time to conduct due diligence, or thorough inspections and investigations, to ensure they're getting what they've been told. The non-refundable nature of earnest money deposits can leave buyers vulnerable if unexpected issues arise, such as structural damage or misrepresented information. With rising interest rates, buyers may also face challenges securing loans, potentially leading to lower offers and a decline in property prices for some sellers. It's crucial for buyers to be aware of these risks and consider their options carefully.
Long-term real estate investments on the rise: Investors should consider holding properties for 5-10 years for significant returns, as market conditions make short-term profits difficult. Financing is becoming more restricted, requiring more equity. Maintain relationships with brokers and be prepared to act quickly.
The real estate market is shifting towards longer-term investments, moving away from the popular 2 to 3 year buy-fix-flip model. The market conditions are making it difficult to make significant profits in a short time frame. Instead, investors should consider holding properties for 5, 7, or even 10 years, as these assets are likely to increase in value significantly over the long term. Additionally, the availability of financing is becoming more restricted, meaning investors will need to raise more equity to fund their deals. It's essential to maintain relationships with brokers and be prepared to act quickly when the right opportunity arises. Waiting on the sidelines for prices to drop may result in missing out on potential deals. The hard money deposit discussion refers to nonrefundable deposits that become the seller's property if the buyer decides not to go through with the deal. It's important to remember that these deposits are held in escrow and can only be released with both parties' permission. Overall, the market is moving towards more reasonable expectations for buyers, sellers, and investors.
Staying Ahead of the Game in Real Estate: Focus on building relationships with brokers and investors, streamline systems, evaluate new buying strategies, and be prepared to make creative offers during downtimes.
Now is not the time to wait on the sidelines for the market to crash before making moves in real estate. Instead, focus on building and deepening relationships with brokers and investors through regular communication. Maintaining these relationships ensures that when a great deal comes along, you have a pool of investors ready to hop in. Additionally, use this downtime to streamline systems, build your team, and evaluate new ways to buy and finance properties, such as cash purchases or seller financing. Longer hold times can also lead to great deals. Remember, there's no such thing as a bad market, just bad strategies. So, think creatively and be prepared to make offers that may be lower than the asking price, but remember that deals can still be made.
Diversify beyond multifamily properties: Explore Flex Industrial, hotels, unanchored retail, and self-storage for a well-rounded portfolio, spreading risk and securing multiple revenue streams
Successful real estate investors diversify their portfolio across different asset classes, not just multifamily properties. Investors can explore opportunities in Flex Industrial, hotels, unanchored retail, and even self-storage. Diversification not only benefits investors but also the investors' portfolios, as it spreads risk and offers various revenue streams. For instance, self-storage can complement multifamily investments, creating cross-pollination and additional income. Real estate investing doesn't have to be limited to one asset class. By considering different opportunities, investors can secure their financial future and capitalize on various market conditions. Additionally, investors can simplify their real estate investing process by working with companies like Integra Development Group or using specialized insurance providers like NREIG to manage their investments more efficiently.
Managing existing investments and seeking new acquisitions: Successful investors prioritize optimizing current portfolios while expanding teams, markets, and seeking new opportunities. Performance metrics, KPIs, EOS implementation, and continuous training are essential for effective asset management.
Successful real estate investors, whether focusing on Wall Street or Main Street, should always prioritize managing and optimizing their existing investments, in addition to seeking new acquisitions. Matt and Andrew, two real estate investors, discussed their goals for 2023, which included expanding their teams, markets, and improving their current portfolios. They emphasized the importance of focusing on performance metrics and KPIs for existing assets, as well as setting goals at any time of the year. EOS implementation and continuous training were also mentioned as crucial elements for effective asset management. Overall, the conversation highlighted the importance of maintaining a well-performing portfolio while actively seeking new opportunities.
Setting and achieving real estate goals with Brandon Turner's 90-day intention journal: Assess property class by considering median income, year of construction, and relative rent levels for effective business strategy alignment
You don't need to wait for specific milestones like New Year's or Groundhog Day to set and work towards your goals. Instead, you can use resources like Brandon Turner's 90-day intention journal to help you achieve your objectives. When it comes to real estate investing, particularly multifamily, assessing property class from out of state is crucial. To do this, consider factors such as median income, year of construction, and relative rent levels. Higher median income and newer construction suggest A or B class properties, while lower median income and older properties may indicate C or D class. Remember, the specific cutoff for each class can vary depending on the location. Overall, taking the time to research and understand the property class and neighborhood will help you align your business strategy effectively.
Understanding Rental Property Classes: Determining a rental property's class involves considering factors like rent price, age, amenities, and neighborhood. Class C properties have lower rents and fewer amenities, while Class A or B properties offer high-end amenities and desirable locations.
Determining the class of a rental property involves considering various factors such as rent price, age of the property, amenities, and neighborhood. For instance, lower rent prices and older properties with fewer amenities are likely to be Class C properties. Neighborhoods with new retail and high-end amenities suggest a B or A classification. However, it's essential to remember that property classification is a spectrum and not an exact science. To make an informed decision, consider consulting other property managers, lenders, and visiting the market in person. Ultimately, the type of investment strategy you choose depends on your risk tolerance and business plan. Some investors may prefer underperforming D class properties for potential conversions, while others may opt for more stable Class A or B properties with less risk and lower returns.
Investing in tertiary markets without local presence: Challenges and solutions: Partnering with local experts or companies and assessing current management can help mitigate risks when investing in tertiary markets without a local presence.
Investing in smaller, tertiary markets without a local presence comes with unique challenges. These markets may offer attractive deals on paper due to lower prices, but managing and maintaining the properties can be difficult. Good asset management is crucial, and finding reliable management, contractors, vendors, and staff can be challenging. To mitigate these risks, consider partnering with a local expert or company that already has a presence in the market. This can turn a weakness into a tactical advantage. Additionally, assessing how the current owner is managing the property and learning from well-run properties in the area can help. Ultimately, investing in a market first, where you have access to essential resources and a local workforce, is a safer approach.
Control and diversification in a market: Consider multiple properties in a market for greater control, better labor access, and the ability to shape the market. Start with friends and family, but expand your network to continue growing.
When investing in real estate markets, it's essential to consider the market as a whole rather than just individual deals. Investing in multiple properties in a market allows for greater control, better labor access, and the ability to shape the market. If an investor cannot see themselves doing at least 10 deals in a market, they may want to reconsider investing there. Additionally, raising money from friends and family can be a successful starting point, but eventually, investors may need to expand their network to continue growing. Most successful real estate investors started with friends and family as their initial investors.
Start with loved ones, expand through referrals: Begin investing with trusted loved ones, ask for referrals to expand investor base, and leverage that foundation to attract new investors
Real estate investors should start by raising capital from friends and family due to their existing trust and relationship. However, it's essential to treat them as investors, giving them the same rights and benefits as any other investor. After expanding beyond friends and family, ask for referrals to continue growing your investor base. Starting with a strong foundation of trusted investors makes it easier to attract new investors who may not know you personally. Additionally, having a solid base of investors can help alleviate potential investors' hesitance to be the first to invest in a new opportunity. So, begin with friends and family, ask for referrals, and use that foundation to expand to new investors. And, as a bonus tip, don't be shy about sharing that your loved ones have invested in your business – it's a testament to your belief in your venture.
Building strong relationships in real estate: Real estate investors prioritize personal connections and see their investments as a means to secure their loved ones' futures. Strong networks and reputations are crucial for both personal and professional growth.
For these real estate investors, their personal connections and responsibilities are deeply intertwined with their professional success. They view their investments not just as financial endeavors, but as a means to secure their loved ones' futures. They also emphasized the importance of maintaining a strong network and reputation, as it not only benefits their personal growth but also their professional one. Matt Cushman shared his pride in being able to contribute to his mother's financial stability through his investments. Danny Zapata highlighted the importance of transparency and accessibility for investors, encouraging them to reach out to him on various platforms. Overall, these investors underscored the significance of building strong relationships and maintaining a strong network in the ever-changing real estate market.
