Archives 2023

Real Estate Development Loans You Don’t Want To Miss

Several individuals want to get involved in real estate investing but are reluctant to take the leap. These people are ready to leave their nine-to-five job to pursue a life of financial freedom. Still, they are unaware of the sources to finance a real estate business. Many assume if they don’t have capital of their own, it is impossible to get started. However, this rationale is false.

There are a variety of ways to finance a real estate business without using your own money. Not only are there real estate development loans, but there are plenty of private lenders out there willing to take a risk on your business. If you desperately desire to leave your day job so that you can prosper as an entrepreneur, consider property development loans.

What Are Real Estate Development Loans?

Real estate development loans are capital advancements issued to borrowers who need funds to break ground on a project, build, and hold the finished product through the leasing stage. Investors typically rely on real estate development financing to do one of two things: buy raw land to eventually build on or tear down an existing building, only to build a new one.

4 Types Of Real Estate Development Loans

The most popular types of real estate development loans include, but are not limited to:

  1. Acquisition Loans
  2. Development Loans
  3. Acquisition And Development Loans
  4. Construction Loans

Acquisition Loans

As their names suggest, acquisition loans are specifically used to finance the purchase of undeveloped land. Acquisition loans will often be used to buy land with no intentions of developing on it. While common, acquisition loans provide little room for action and must typically be accompanied by subsequent loans to develop the land further. Of the real estate development loans made available to investors, this offers the least amount of freedom.

Development Loans

If borrowers want to develop the land they recently acquired, they may need a loan to move forward with any plans. Development loans are traditionally borrowed to do just that. Borrowers will take out development loans to make improvements on the land. Leveling, building roads, and running water lines may all be accomplished by taking out a development loan. On top of that, development loans are necessary to turn raw land into a building site.

Acquisition And Development Loans

Sometimes borrowers want to both acquire raw land and develop it at the same time. Fortunately, there’s a loan for that: acquisition and development loans. As their names suggest, these loans enable borrowers to buy raw land and turn it into a building site. OF the real estate development loans made available, this one is the most versatile.

Construction Loans

Construction loans — not surprisingly — are used to finance the building or renovation of a respective real estate project. According to Links Financial, “it differs from other loans in that the developer receives the money in monthly draws as development progresses rather than in one lump sum at the beginning of the project. Monthly loan payments increase as you draw out more money.”

What Is The Capital Stack?

The capital stack is the various layers of financing used to make up a project. In the real estate industry, it’s common, if not expected, to rely on more than one source of funding when acquiring a deal. Each loan makes up the resulting capital stack, with high priority funding sources on top and more senior debt on the bottom. In financing, the capital stack is made up of senior debt, mezzanine debt, preferred equity, and common equity. 

The bottom of the capital stack, or senior debt, is typically the highest priority but lowest risk debt. These are typically loans that are secured by the property. At the top, is common equity which is considered the lowest priority or highest risk debt. These loans are only repaid when the rest of the capital stack has been repaid. Essentially, this concept is used to prioritize the different financing methods that go into a real estate deal. 

11 Real Estate Funding Sources

There are several sources to finance a real estate business, but the most popular of them all are listed below:

  1. Traditional Loans: Traditional loans are those you would receive from a bank or an institutionalized lender. Their interest rates are relatively low in an attempt to remain competitive. However, their lengths are typically long, and their underwriting is extensive. Most traditional loans last anywhere from 15 years to 30 or more and come with an interest rate somewhere in the neighborhood of four percent.
  2. Private Lenders: Private lenders can be anyone with access to capital and a willingness to invest it. In other words, private lenders can be anyone from a close friend to someone you met at a networking event. As their names suggest, private lenders are not institutionalized or licensed to lend money but rather do so to make their money back with interest. Private lender terms are typically easier to meet, and the duration in which they are willing to lend will be much shorter, but at the cost of an interest rate around 12 to 15 percent.
  3. Venture Capitalists: Venture capitalists are high-net-worth individuals or corporations who tend to invest in startups that have shown potential. Venture capitalists are often willing to lend far more than a traditional small-business loan, but their selective nature can be harder to receive approval.
  4. Angel investors: Angel investors are usually well-off individuals who provide funding for new business ventures, typically in exchange for convertible debt or ownership equity. Angel investors have developed a reputation for taking more risk, but it’s important to note the money from an angel investor isn’t technically a loan. The money represents the acquisition of part of the business.
  5. Small business administration loans: Small business administration loans are issued by the government in a variety of packages. Small business loans offer many options, but they can be tedious to apply for and are not quick to receive.
  6. Real estate crowdfunding: Real estate crowdfunding is a process that involves pooling together funds from multiple sources and people. Crowdsourcing can offer recipients flexible terms and is growing in popularity.
  7. Microloans: Microloans offer small business owners to $50,000, though most people tend to take much less than that. Due to their size, small business loans are typically easier to obtain than a traditional loan, but there’s a chance the loan doesn’t cover all of your needs.
  8. Hard money lenders: Hard money lenders are not institutionalized, but they may be licensed to lend money. Their loan terms are typically short and leveraged with the asset in question. Hard money loans come with a high interest rate, often around 12 percent, but they can give borrowers access to capital fast.
  9. Home equity loans and lines of credit: Home equity loans and lines of credit, or HELOCs as they are known, represent a type of revolving credit—not unlike a credit card. Home equity loans, however, use the equity in your home as collateral.
  10. Money partners: Money partners are just that: individuals who you may partner up with because of their access to funding. If you don’t have access to capital, it may be in your best interest to partner with someone who does; they would be known as a money partner.
  11. Commercial loans: Commercial loans allow investors to purchase commercial properties. Not unlike traditional loans, commercial loans carry long durations. To minimize the risk of default, commercial loans tend to offer low interest rates. As a result, it may be harder to receive approval for a commercial loan.

Getting started in real estate investing is not as hard as you may think. If you’ve chosen your focus – i.e., single-family homes, apartments, commercial real estate, etc. – and your preferred exit strategy – i.e., flipping, buy and hold, or wholesaling – all that is left is finding the capital to fund your first deal.  The importance of understanding real estate financing should not be overlooked because financing is what can help you turn your strategies into realities. Several lending sources are made available to those who are willing to put in the work, which is why “I don’t know how to finance a real estate business” is no longer an excuse to avoid investing.

Alternatives For Small Business

Small businesses looking for financing methods have more than a few options to choose from. If you own a growing company and need to keep reinvesting returns, check out the following alternatives: 

  • Private Placement: A private placement is essentially a real estate syndication, but the business would take the role of project sponsor. In this arrangement, an unregistered securities offering is made directly to investors. The goal is to bring more equity to the current project.
  • Build-to-Suit: Build-to-suit is exactly what it sounds like. A commercial project is designed and built for the end user, it is then managed by an investor who manages the financing. In return, the operating business agrees to sign a long-term lease. While the business does not officially own the property in a build-to-suit arrangement, they do get long-term access to a custom build space.
  • Sale-Leaseback: A third option to consider is a sale-leaseback. In this arrangement, a property is sold to an investor and the business leases it back. Similar to a build-to-suit arrangement, the business will not own the property in the end. However, the money earned from the sale can then be funneled into a new development project.

6 Tips For Getting Property Development Loans

Acquiring money for property development may prove difficult for first-timers. Because the crash rate for property development is high, only experienced developers obtain loans easily. Follow these suggestions to help you overcome to difficulties of gaining real estate development loans:

  1. Acquire Credibility: You should try to gain the experience needed to be trusted with a real estate development loan. This can be done by working for an established property developer, and in turn, they can give you this credibility.
  2. Find A Partner: Partners can be useful if you already have some of the funds to begin with. If you find a developer to partner with, they will be able to co-finance with you.
  3. Develop An Attractive Plan: Acquiring property development financing can be gained easier by creating an attractive project plan. Developers who are just starting usually look into small residential projects consisting of one or two homes. Property development loans can take up to months to obtain. In some cases, the property you want may be off the market by the time you receive a loan. Try to identify several different properties you may be interested in. Zoning limitations, access easements, utility easements, and other special conditions are all things you should research when developing a plan.
  4. Do Your Research: Potential lenders will be more likely to offer you a real estate development loan when you provide an extensive amount of information about your project. Research the local property market to establish accurate sales prices and prepare any building cost estimates, including materials, labor, overhead, and profit.
  5. Practice Your Pitch: Finally after all your planning is complete, begin rehearsing your pitch. Take all the information you’ve gathered and express it confidently, concisely, and convincingly. Be prepared to answer any questions about costs and the property itself. The more information you can provide them on the spot, the more your lenders will be willing to give you a property development loan.
  6. Keep Costs Low: When it comes to property development loans, you want to keep all costs for the project low. The lower your costs, the higher your profits. If you can keep your development costs low, you benefit both yourself and any potential equity investors. You will also want to keep costs low if you are getting a property development loan from a bank. It is proven easier to secure funding for lower costs projects. When banks provide debt, they reference two numbers: the percentage of your total projected cost and the percentage of total projected value once the project is completed. As the repayment of this debt is very difficult during the development process, you will want to keep initial costs low. If anything goes wrong, banks will be unforgiving.

Best Real Estate Development Loans

When looking for the right real estate funding sources, it is important to weigh the costs, qualification requirements, speed of approval, and more. Aspiring investors should be careful to examine any variables involved in receiving real estate development loans to ensure they choose the best financing option for the situation at hand. The following list of real estate development loans is a great place to start:

  • US Bank: Loans provided through US Bank are a great option as they can allow investors to borrow up to 80 percent of the property value. Their loans can come with variable or fixed interest rates, and repayment terms can be up to 25 years.
  • Wells Fargo: Wells Fargo is one of the biggest real estate funding sources in the country. Investors may find they can be granted funds as quickly as four to six weeks when working with Wells Fargo. Additionally, they are less focused on borrowers’ credit when compared to other financing sources.
  • JP Morgan Chase: JP Morgan Chase provides real estate loans to several real estate investors each year, focusing on property types ranging from multi-family to mixed-use. One of the biggest benefits of working with this loan provider is the streamlined application and qualification process.
  • Liberty SBF: This lender is a great option for investors looking to borrow up to 90 percent of the property value. Their flexible loans will typically be made up of three portions, coming from a mix of traditional lenders, development companies, and your own down payment.
  • SmartBiz: SmartBiz works to match investors and loan providers based on the borrowers specific needs. Their loans are most attractive for investors seeking financing quickly, though the qualifications can be higher when compared to other loan providers.

4 Stages Of Real Estate Development

There are 4 stages of real estate development when looking at a standard development process. The first stage is choosing the right site and purchasing the land that you will be using for your development. The next step is to start planning your development as well as securing the permits and licenses required to build on the land. The third step is to start the development and construction of the project. The final step is to finish construction and start operating the development as you had planned. 

Funding For Real Estate Investing: Which Will You Choose?

To find financing for real estate development, you must start by reviewing your strengths.  The above options are almost always available, but you must understand what you’re getting yourself into before pursuing a particular strategy.

Regardless of what financing option or development loan you go after, all lenders will want to hear certain things. Be straightforward as you lay down the numbers and tell them what they can expect. Lenders will want to know your timeline, your expected profit, the loan amount required, when they can expect to see a return, and how involved you want them to be.

While it is important to appear confident in any meeting with a potential lender, it is most important to be transparent and gracious. Remember, the lender is helping you. Of course, they will benefit so long as the deal pans out the way you hope it to, but they are still taking a risk. Be ready to share your portfolio and answer any question a lender throws your way.

Summary

Financing a real estate deal is a very involved process. In fact, there are several real estate development loans designed to help buyers in every situation. If, for nothing else, everyone’s needs are different, and the loan options made available to borrowers suggest as much. As a result, borrowers need to shop around and confirm they are borrowing the right loan.

Lots More Price Declines Are Coming’: Moody’s Chief Economist Sounds Alarm On Commercial Real Estate, Warns That Loan Defaults Are ‘Sure To Increase’

Real estate investing has gained popularity in recent years — perhaps because the asset is a well-known hedge against inflation. But according to Moody’s Analytics, it’s not all sunshine and rainbows.

Data from Moody’s Analytics reported by Bloomberg revealed that commercial real estate prices in the U.S. fell in the first quarter of 2023, marking the first decline since 2011.

Courthouse records of transactions analyzed by Moody’s showed a drop of less than 1% in the commercial real estate market during the quarter. Multifamily residences and office buildings were the key sectors driving this decline, according to the report.

And this could be just the beginning. Moody’s Analytics Chief Economist Mark Zandi warned that “lots more price declines are coming.”

Don’t miss:

Delinquencies And Defaults

Zandi explained the reasoning behind his bearish outlook on Twitter.

The economist pointed out that demand for commercial real estate is weak because of more people working remotely and shopping online. A substantial number of multifamily units are under construction. Meanwhile, it’s challenging to obtain credit for refinancing and purchasing properties.

As a result, Zandi said commercial real estate prices are “expected to be off 10% peak-to-trough by mid-decade.”

And borrowers will likely face difficulties in meeting payment obligations.

“CRE loan delinquencies and defaults are sure to increase, causing agita for the banking system,” Zandi said in a tweet.

Zandi also mentioned that rising delinquencies and defaults “shouldn’t be the catalyst for a revival of the banking crisis” because property owners have built up “ample equity” as a result of the substantial price gains during the pandemic.

Office Vs. Housing

Zandi isn’t the only expert to sound the alarm.

During an interview with former Fox News personality Tucker Carlson, Tesla Inc. CEO Elon Musk issued a bleak warning regarding commercial real estate.

“We really haven’t seen the commercial real estate shoe drop. That’s more like an anvil, not a shoe,” Musk said. “So the stuff we’ve seen thus far actually hasn’t even — it’s only slightly real estate portfolio degradation. But that will become a very serious thing later this year, in my view.”

He argued that the work-from-home trend has substantially reduced the use of office buildings around the world. And that does not bode well for the segment.

“Almost all cities at this point have record vacancies of commercial real estate,” Musk said.

Billionaire investor Stanley Druckenmiller also highlighted the challenges facing office buildings at the 2023 Sohn Investment Conference.

When discussing how the median regional bank has 43% of its loans in commercial real estate, Druckenmiller pointed out that “around 40% of that is in office.”

And because of the Great Resignation and more people working from home, he said, “We have a higher vacancy rate than we had in 2008.”

But it’s a different story for housing.

“Housing has obviously gone down dramatically given the 500 basis-point increase in interest rates,” Druckenmiller said.

“But unlike [2007 and 2008], we actually have a structural shortage in single-family homes going into this. So if things got bad enough, I could actually see housing — which is about the last thing you would think of intuitively — could be a big beneficiary on the way out.”

The reality is, elevated home prices and high mortgage rates mean owning a home is less feasible. And when people can’t afford to buy a home, renting becomes the only option. This creates a stable rental income stream for landlords.

The best part? It’s easy for retail investors to invest in housing — and you don’t actually need to buy a house to do it. There are publicly traded real estate investment trusts that own income-producing properties and pay dividends to shareholders. And if you don’t like the stock market’s volatility, there are crowdfunding platforms that allow retail investors to invest directly in residential real estate with as little as $100 through the private market.

Read next:

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This article ‘Lots More Price Declines Are Coming’: Moody’s Chief Economist Sounds Alarm On Commercial Real Estate, Warns That Loan Defaults Are ‘Sure To Increase’ originally appeared on Benzinga.com

HUD Grants Nearly $9-Million to Jericho Project to House Unsheltered New Yorkers

Jericho Project was awarded $8,906,646 by the U.S. Department of Housing and Urban Development (HUD) as part of a nationwide effort to address street homelessness among unsheltered people in cities and rural communities. Jericho is a nationally-acclaimed nonprofit that for 40 years has combatted the root causes of homelessness and improved the lives of thousands of New Yorkers annually with supportive housing and the vital services to sustain it.

Jericho will serve 90 unsheltered homeless participants per year over a three-year grant period. This is part of the total $60-million that HUD distributed in funding to the New York City Continuum of Care (CoC) for the Unsheltered Homeless Initiative. Overseen by the Department of Homeless Services, the funds were applied for by the Department of Social Services. 

“As a longstanding advocate for permanent supportive housing, Jericho is thrilled to be able to move unsheltered New Yorkers into stable housing and provide ongoing counseling to support them. We applaud HUD and our local Continuum of Care for their leadership in helping some of our most vulnerable neighbors in their time of need,” said Tori Lyon, CEO of Jericho Project.

Jericho will execute the program using its Rapid Rehousing Program, which helps speed individuals and families into affordable apartments through Jericho’s network of landlords who are sympathetic with the plight of homelessness. In addition to helping secure the housing, Jericho provides tenants with ongoing counseling in managing finances and maintaining housing stability to ensure a good experience for both the tenants and the landlords.

The program will provide Temporary Financial assistance (TFA) and HUD is providing long-term vouchers for each participant at the conclusion of the TFA period to ensure long-term housing stability. 

To facilitate this program, Jericho will hire 15 staff members to provide intensive case management services, clinical therapy, housing, and other supportive services. The project is slated to begin July 15th.

Jericho has a positive track record in Rapid Rehousing. In 2022, it served 450 veteran families, moving 170 into permanent housing, and moved 91 other households into permanent housing, on average in less than 30 days.

Overall, Jericho currently provides more than 600 units of housing in the Bronx and Harlem in eight residential buildings which are upgraded for sustainability. With 24/7 staff and onsite counselors, the residences are designed to cultivate a community of camaraderie and wellness. 

Jericho also enables families to achieve stable, safe housing in apartments throughout the city, including 80 studio and one-bedroom units for adults and 35 one-, two-, and three-bedroom apartments for families. 

About Jericho Project: Jericho Project empowers individuals and families experiencing homelessness or housing insecurity by providing housing and person-centered services to address social inequities. For 40 years, Jericho has provided supportive housing and counseling services to thousands of individuals experiencing chronic homelessness, mental illness and substance abuse. 

Jericho Project employs rigorous fiscal discipline and works with valued public-private partnerships and a foundation of dedicated donors, to advance its mission. Jericho’s housing and extended services cost $18,000 per person annually, compared to $50,000 for a single adult shelter, $74,000 for a room in a family shelter, $115,000 for a city jail cell and $1000+ per day for a hospital bed.

http://www.prweb.com/releases/hud_grants_nearly_9_million_to_jericho_project_to_house_unsheltered_new_yorkers/prweb19355708.htm

TRENDS

Spring’s Housing Market Is About To Reach a Peak With ‘Outsized Impact’ Buyers Really Need Right Now

As strange as the housing market has gotten lately, certain seasonal rhythms still prevail. And despite being somewhat dampened by stubbornly high home prices, roller-coaster mortgage rates, and an unpredictable economy, the spring homebuying season is about to reach an apex that’s well worth taking advantage of.

“We’re moving into the period of the year when the number of newly listed homes tends to peak—usually in May or June,” notes Danielle Hale, chief economist for Realtor.com®, in her weekly analysis.

Granted, this seasonal pinnacle might not seem all that noticeable, since the number of new sellers listings their homes is still lower than it was at this time last year. For the week ending May 6, 16% fewer new homeowners listed their homes for sale. Still, this annual decline has been steadily shrinking week by week.

Even though there is still a gap, it’s smaller than what was typical in most of March and April,” explains Hale.

And although new listings are down from last year, total inventory (of both new and old listings) is up 31% for the week ending May 6. In other words, there are plenty of homes for sale, although buyers might need to give stale listings a second look. This portends a potential boost to the overall housing market and offers hope to both buyers and sellers.

In short, the housing inventory is “evolving,” according to Hale. “While further moderation is needed, this is a welcome improvement that comes as new listings near their seasonal high point. Improvement now could have an outsized impact.”

We’ll break down what this all means for both homebuyers and sellers in our latest installment of “How’s the Housing Market This Week?

The latest mortgage rates and home prices

What’s not so rosy? High mortgage rates are generally holding steady. The interest rate on a 30-year fixed-rate mortgage averaged 6.35% in the week ending May 11, according to Freddie Mac. That’s a bit lower than last week’s 6.39%, but still high enough to make many buyers uncomfortable.

Further compounding buyers’ problems is that housing prices are still inching upward.

The national median list price came in at $430,000 in April, up from $424,000 in March. But for the week ending May 6, home prices grew at a rate of just 2.4% compared with last year. That’s its slowest growth rate since May 2020, when the COVID-19 pandemic was raging across the country.

While tapering home prices is a glimmer of positivity for homebuyers, it’s not enough to really temper their bottom lines quite yet.

“For potential first-time homebuyers, this means that affordability will continue to be a top concern,” explains Hale. “For potential sellers, this means equity is still relatively high.”

What the spring market’s peak means for home sellers

While sellers are understandably thrilled by higher home values, they might have to drop prices soon, since many homes have been sluggishly stuck on the market with no takers.

Home sales have slowed for the past 40 weeks, with homes spending an average of 16 days longer on the market for the week ending May 6 compared with the same week one year ago.

And home sellers might struggle as more properties hit the market in the coming weeks.

“As market competitiveness wanes, sellers may become more flexible,” says Hale. However, the “degree of slowing observed depends on your local market. For example, homes are spending a little over a week longer on the market compared to a year ago in the Midwest and Northeast, where we know housing markets have fared better as affordability keeps demand high.”

Yet in the South and West, homes spent two more weeks on the market for the week ending May 6 compared with a year ago.

The key takeaway here is that while it’s important to understand national context, what really matters are the trends in your local market,” says Hale.

How to Build Passive Income Streams as a Real Estate Investor

Real estate investing has become increasingly popular in recent years. One of the reasons for this is the ability to generate passive income. Passive income streams are a great way to create long-term wealth with minimum effort and involvement.

As someone who has invested in real estate for passive income, I can attest to the benefits of this investment strategy. I remember purchasing my first rental property and feeling both excited and nervous about the prospect of being a landlord. However, as time went on, I found that the passive income generated from my rental property allowed me to achieve financial stability and freedom. I was able to use the rental income to pay off the mortgage on the property and generate a steady stream of passive income each month. It was a great feeling to see my investment grow over time and know that I was securing my financial future.

In this article, we’ll explore how you can build passive income streams as a real estate investor.

Understanding Passive Income

Before we dive into the different ways you can generate passive income as a real estate investor, it’s important to understand what passive income is. Passive income is money that you earn without actively working for it. In other words, it’s income that you earn passively with minimal effort and involvement.

Strategies To Generate Passive Income

  1. Rental Properties

Rental properties can provide a steady stream of passive income through rent payments from tenants. To generate passive income from rental properties, investors should aim to purchase properties with positive cash flow, meaning the rent income exceeds the expenses associated with the property. Additionally, investors can hire a property manager to handle day-to-day operations, freeing up their time and allowing for truly passive income.

  1. Real Estate Investment Trusts (REITs)

REITs are a passive investment option that allows investors to purchase shares in a company that owns and manages a portfolio of income-producing real estate properties. The income generated from these properties is then distributed to shareholders in the form of dividends. To earn passive income through REITs, investors can purchase shares through a broker or online investment platform.

  1. Crowdfunding

Crowdfunding platforms allow investors to pool their money with others to invest in real estate projects, typically with lower investment minimums than traditional real estate investments. Investors can earn passive income through crowdfunding by receiving a portion of the income generated by the property, such as rental income or profits from a property sale.

  1. House Hacking

House hacking involves living in a property and renting out a portion of it to generate passive income. This strategy can be particularly effective for those looking to purchase their own home, as the rental income can offset the cost of the mortgage. To earn passive income through house hacking, investors should ensure the rental income exceeds the expenses associated with the property.

  1. Short-Term Rentals

Short-term rentals such as Airbnb can be a lucrative way to generate passive income, particularly for those with properties in desirable locations. To earn passive income through short-term rentals, investors should ensure their rental rates are competitive, provide excellent customer service, and maintain a well-appointed and well-maintained property.

  1. Flipping Houses

Flipping houses involves buying a property, fixing it up, and selling it for a profit. While flipping houses requires more work than some other strategies, it can still generate passive income if investors hire a team to handle the renovations and sale. To earn passive income through flipping houses, investors should aim to purchase properties with high potential resale value and minimize their time spent on the renovation and sale process.

  1. Commercial Real Estate

Commercial real estate investments can provide passive income through leasing the property to tenants. To earn passive income through commercial real estate, investors should aim to purchase properties with desirable locations and solid tenant bases and hire a property management company to handle day-to-day operations.

  1. Private Lending

Private lending involves lending money to other real estate investors for their projects. To earn passive income through private lending, investors should ensure the borrower has a solid track record, and the loan is secured by the property, and agree on a competitive interest rate and repayment terms.

  1. Real Estate Notes

Real estate notes involve purchasing the debt on a property and earning passive income through interest payments. To earn passive income through real estate notes, investors should ensure the borrower has a solid track record, the property has a desirable location, and agree on a competitive interest rate and repayment terms.

How to Choose the Right Passive Income Stream

Now that you have an understanding of the different ways you can generate passive income as a real estate investor, it’s important to choose the right passive income stream for you. Here are a few factors to consider:

  1. Time Commitment

When choosing a passive income stream in real estate, it’s essential to consider the amount of time you’re willing to commit to it. Rental properties and flipping houses require a significant amount of time commitment, as they involve managing tenants, maintenance, and renovations. On the other hand, REITs and real estate notes require very little time commitment, as they involve investing in a company or debt instrument. Consider your lifestyle and how much time you have available to devote to your passive income stream.

  1. Upfront Investment 

Another factor to consider when choosing a passive income stream in real estate is the upfront investment required. Rental properties and flipping houses require a significant upfront investment in the form of a down payment and renovations. On the other hand, REITs and crowdfunding require a much smaller upfront investment. Consider your financial situation and how much money you’re willing to invest upfront.

  1. Risk Tolerance 

It’s important to consider your risk tolerance when choosing a passive income stream in real estate. Rental properties and flipping houses come with a higher level of risk as they are directly tied to the real estate market and require a significant amount of investment. REITs and real estate notes, on the other hand, come with a lower level of risk as they offer a more diversified portfolio. Consider your risk tolerance and willingness to take on more significant risks for potentially higher returns.

  1. Personal Goals

Finally, consider your personal goals when choosing a passive income stream in real estate. Do you want to generate a lot of passive income quickly, or are you willing to take a slower approach? Do you want to be hands-on with your passive income stream, or would you prefer a more hands-off approach? Consider your goals and how your chosen passive income stream can help you achieve them. For example, if you’re looking to generate a lot of passive income (relatively) quickly, flipping houses may be a better option than REITs, which offer more stable returns over time.

Summary

Building passive income streams as a real estate investor can be a great way to create long-term wealth. Whether you choose to invest in rental properties, REITs, crowdfunding, house hacking, short-term rentals, flipping houses, commercial real estate, private lending, or real estate notes, there are many ways to generate passive income as a real estate investor. Consider your personal goals, risk tolerance, and time commitment when choosing a passive income stream, and remember to educate yourself, diversify your portfolio, build a strong team, and be patient.

As I experienced, and while risky, building up passive income streams can be exceptionally rewarding in the long run allowing you to enhance your lifestyle and provide you with financial freedom and flexibility. 

If you find yourself ready to invest in your passive income dreams, you’ll likely need some funding to turn those dreams into a reality. Well, the good news is you are already in the right place! Our team at REI News specializes in finding the most trusted and affordable lenders for real estate investors. Discover your financing optionsby speaking to us today!

Mortgage Rates Just Fell Again—but the News Gets Even Better

Mortgage rates inched slightly lower this week, marking the fifth straight week of declines.

For the week ending April 13, 30-year fixed-rate mortgages averaged 6.27%, down from 6.28% in the prior week, Freddie Mac announced on Thursday. That’s still substantially higher than a year ago, though, when they averaged 5%.

But that might change over the coming months, thanks to a government report out Wednesday showing that overall inflation had dropped a bit in March.

“Calmer inflation means lower mortgage rates, eventually,” Lawrence Yun, chief economist for the National Association of Realtors®, said in a release responding to the inflation report.

Furthermore, he predicts the news will get even better in the coming months: “Mortgage rates slipping down to under 6% looks very likely toward the year’s end.”

We’ll explore what this all means for buyers and sellers in this installment of “How’s the Housing Market This Week?

Can lower mortgage rates save the housing market?

Yes, real estate listing prices are still gaining. For the week ending April 8, they were 3.2% higher than a year earlier. But those gains are getting smaller and smaller, week by week, and Realtor.com economists have previously forecast an outright price decline by the summer.

“These modest declines mean a bit of relief for home shoppers relative to the end of 2022,” notes Danielle Hale, Realtor.com® chief economist, in her weekly analysis.

But with both prices and rates still elevated, there’s no way around it: “Affordability continues to be a challenge,” Hale says.

Some buyers are so deflated by this news, many have simply decided to throw in the towel for now. A recent survey from U.S. News & World Report found that two-thirds of homebuyers are holding off on house hunting until mortgage rates drop.

As for how low they need to go to get buyers moving, 28% said they will resume home shopping once rates drop below 6%; 30% plan to wait until they go below 5.5%; and an optimistic 26% say they’ll abstain until rates fall below 5%. However, experts say this is not likely to happen in 2023, so these homebuyers might be waiting a very long time.

How mortgage rates are affecting home sellers

It’s not just homebuyers who are waiting for mortgage rates to drop.

“Homeowners appear to be well aware of the change in conditions, and a greater number are choosing to sit on the sidelines rather than list their home for sale,” observes Hale.

For the week ending April 8, the number of newly listed homes was down by 32% versus the same time last year, although the spring holidays might have skewed some of that activity.

“Nevertheless, the number of newly listed homes remains a weak spot in the 2023 housing market,” Hale adds.

Any homeowners who are on the fence about whether or not to list might want to hustle: Realtor.com economists have determined that this coming week, April 16–22, is the best time to list a home for sale in 2023. Still, many might have decided to wait this year out.

The homes that are on the market continue to linger longer. In the most recent week, they were on the market for 19 days longer, on average, than a year ago. And the longer these listings sit, the larger inventory grows overall, with the total number of active listings (new and old) up 44% compared with a year earlier.

Clearly, the housing market needs some help to get unstuck. Whether mortgage rates will drop enough to get things rolling remains to be seen.

10 U.S. Metro where rent is the lowest

U.S. renters looking to catch a break on rent might be in luck, according to data from Realtor.com.

Out of the 50 major markets across the country, 10 metro areas are offering median rents under $1,300. Most of those discounts can be seen in the Midwest, South, or Northeast while the Western region features none of the lowest-cost metro areas.

Here are the least expensive markets, according to Realtor.com:

1. Oklahoma City, Okla. – $982

2. Louisville, Kentucky. – $1,167

3. Birmingham, Alabama – $1,178

4. Rochester, N.Y. – $1,235

5. Columbus, Ohio – $1,242

6. Indianapolis, Indiana – $1,266

7. Memphis, Tennessee – $1,274

8. St. Louis, Mississippi – $1,279

9. Cleveland, Ohio – $1,290

10. Kansas City, Mo./Kan. – $1,298

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Oklahoma City is the only metro where rent is below $1,000 a month, the report found, with the median monthly rent coming in at $982.

“With high rents across the country, places that offer relative affordability tend to be in high demand, which means more competition and that these lower prices might not last,’ said Realtor.com chief economist Danielle Hale, in a press release.

“Many of these metros have fewer available rental homes than previous months, and fewer apartments to choose from means prices are likely to go up,” Hale added.

The report noted markets including Indianapolis, Birmingham, Columbus, Kansas City, Cleveland, and Rochester all saw year-over-year rents rise at a faster pace in January as renters responded to these low prices.

Low cost rental markets are also seeing vacancies come in, with the average rental vacancy rate hitting 7.6% across the 10 lowest-cost metros during the fourth quarter. This compares to a vacancy rate of 9.7% in the same quarter five years ago.

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A “For Rent” sign is displayed in front of an apartment building in Arlington, Virginia, U.S., June 20, 2021. REUTERS/Will Dunham

Nationally, however, rents continued to cool rising just 2.9% over last year in January, the smallest increase in 22 months.

A report from RealPage published earlier this month showed retention among renters has dropped this year as more supply hits the market and renewals slow.

“Unlike in 2021 and 2022, renters facing lease renewals are seeing more attractively priced alternatives,” RealPage chief economist Ryan Parsons wrote in the report. “That encourages relocations.”

US Homeowners lost $2.3 trillion since June

U.S. homeowners have lost $2.3 trillion since June, according to a new report from the real-estate brokerage Redfin. The total value of U.S. homes was $45.3 trillion at the end of 2022, down 4.9% from a record high of $47.7 trillion in June. That figure signifies the largest June-to-December percentage decline since 2008.

The report comes amid increased mortgage rates as the Fed tries to curb inflation. The 30-year fixed mortgage rate sat at 6.36% in December, about twice what it was at the start of 2022. Though rates fell in early February, they’ve since risen back to December levels to the dismay of buyers.

Consequently, Americans find themselves more reluctant to buy homes and prices have dropped. The median U.S. home sale price was $383,249 in January, which was up just 1.5% from the previous year, according to the report.

Redfin highlighted the Bay Area, noting that the region had seen the biggest drop in real-estate value compared to other parts of the country. For instance, the total value of San Francisco homes fell 6.7% in December, to $517.5 billion, a $37.3 billion decline year over year.

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“Three of my listings recently went under contract after sitting on the market for more than a month,” said Ali Mafi, a Redfin real estate agent in San Francisco featured in the note. “They all had a few showings here and there in the fall, but no buyer wanted to pull the trigger. And then suddenly in the new year, we had 10 or 15 people touring each property.”

Meanwhile, the report pointed out, the Florida housing market has remained robust, with the largest increase in real-estate value compared to other parts of the country. The total value of homes in Miami rose 19.7% year over year ($77 billion) to $468.5 billion in December.

“Florida’s housing market is being sustained by folks moving in from the North and as of recently, the West Coast,” said Elena Fleck, Florida real estate agent featured in the report. “People are pouring in from New Jersey and New York, in large part because Florida has relatively affordable homes and no income tax. They can get a lot more bang for their buck here.”

The report noted that U.S. cities are doing much worse than U.S. suburbs. While the value of urban homes increased 2.5% to $10.8 trillion year over year, the value of suburban properties jumped 6.4% year over year, to $25.4 trillion, in December.

While some experts see “armageddon” in the real estate market more broadly, others believe the most challenging time for the market has passed, pointing to data that the market is showing signs of recovery. For instance, confidence among single-family home builders in January rose for the first time in over a year, according to the National Association of Home Builders/Wells Fargo. Also, pending home sales increased 2.5% in December, marking the end of a six-month decline. 

“The housing market has shed some of its value, but most homeowners will still reap big rewards from the pandemic housing boom. The total value of U.S. homes remains roughly $13 trillion higher than it was in February 2020, the month before the coronavirus was declared a pandemic,” said Redfin Economics Research Lead Chen Zhao in the report.

“Unfortunately, a lot of people were left behind. Many Americans couldn’t afford to buy homes even when mortgage rates hit rock bottom in 2021, which means they missed out on a significant wealth building opportunity,” Zhao added.

Homes for Less Than $200K?! Yes, They Do Exist—and Here Are the Cities Where You Can Find the Most

With high inflation, high home prices, high mortgage interest rates, and high just about everything, affordability remains Concern No. 1 for home shoppers on a budget. Nothing else even comes close—especially for first-time homebuyers or those without trust funds or wealthy benefactors.

More and more Americans have begun to see the dream of homeownership as a fast-fading mirage.

That’s where the Realtor.com® data team can help! It turns out there are still plenty of affordable homes on the market—if you know where to look. In several parts of the country, there are hundreds, even thousands, of homes for sale for less than $200,000.

Yes, you read that correctly.

A price point of $200,000, with a 10% down payment, would generally keep the monthly payment below $1,200, before mortgage insurance, HOA fees, or property taxes. (This calculation considers current mortgage rates hovering around 6% for 30-year fixed-rate loans.)

So, where are these ultra-affordable homes? For starters, look to the middle of the country. It’s traditionally affordable cities such as Indianapolis, St. Louis, and Detroit that dominate the list. Only one of the metros on the list, Baltimore, is on a coast.

Some of these markets have been very affordable because they’ve been challenged with stagnant—or negative—population growth, and without vibrant job markets. Others are markets that are on the ascent, but are still relatively affordable. And a few are in between.

Take Detroit. The city hollowed out after manufacturing jobs dwindled. That drove down real estate prices, which then attracted a new set of incoming residents who want to take advantage of how affordable it is.

Charles Ryan, an associate broker and Realtor® at Keller Williams in Detroit, says he’s seen a lot of newcomers in the past decade.

“People who were never even from the city have turned their eyes to Detroit,” he says.”They want to open a new business, purchase homes, rehab homes. In the last eight or nine years, the city has just been thriving.”

In Cleveland, people are moving back after leaving years ago, says Lindsay Kronk, a real estate agent at Howard Hanna there.

“It’s the boomerang effect, where they grew up, then left, and now they’re coming back,” she says. “People are coming for jobs, generally. There’s strong job growth here now.”

To find where homes priced below $200,000 are still available, Realtor.com scrutinized listing data for the 100 largest metros. We looked at the metros with the most home listings priced at $200,000 or less as well as the percentage of such homes. Then those two metrics were averaged together to come up with our rankings. We limited the rankings to one metro per state for geographic diversity. (Metros include the main city and surrounding towns, suburbs, and smaller urban areas.)

Looking for a true real estate bargain? Keep reading.

1. Detroit, MI

Number of listings priced below $200,000: 3,926
Percentage of listings priced below $200,000: 39%

The Motor City has the most homes for sale priced below $200,000, with almost 4,000. And almost half of those are priced below $100,000.

Detroit also has the smallest homes of any city on the list, with the metro’s overall median home size just below 1,500 square feet.

But buying in Detroit at a lower price point can be tricky, according to Tom Nanes, a Realtor with Community Choice Realty Associates, in Detroit.

The prices are kept low, he says, because the city’s center is a patchwork of housing in a wide variety of stages of livability.

In some cases, “it’s cost-prohibitive to update some of these homes. There are still houses with knob and tube wiring. You can’t update that. You have to do a full replacement on the electric at that point,” he says. “So, you could spend $50,000 without getting halfway through what the home needs.”

Even if buyers find a suitable home at a price they want, it might be surrounded by homes that will eventually be razed, he explains. “Until those abandoned homes have been cleaned up or leveled, the prices aren’t going to be climbing like the suburbs.”

So the opportunities are there for people who can work with Detroit’s aging home stock, whether it’s first-time homebuyers who don’t mind putting in some work on a fixer-upper or investors looking to upgrade a home to sell or rent out.

For $83,000, someone can pick up this 95-year-old, 1,500-square-foot, four-bedroom, brick home in the Yorkshire Woods neighborhood of Detroit.

2. Pittsburgh, PA

Number of listings priced below $200,000: 2,026
Percentage of listings priced below $200,000: 32%

Almost 1 in every 3 homes for sale in the Steel City is less than $200,000. Pittsburgh has undergone a significant renewal in recent years, and those efforts combined with lower prices have made the area attractive to both buyers and investors.

During the COVID-19 pandemic, home flippers bought up properties in neighborhoods such as LawrencevilleEast Liberty, and Garfield, leading to rising prices in these communities.

Like Detroit, Pittsburgh has relatively small homes, at just above 1,500 square feet for the median listing. And Pittsburgh has the most median days spent on the market of any metro on the list, at about 2.5 months.

Right now, $200,000 will get a two-bedroom home with an unfinished basement about 10 minutes north of downtown Pittsburgh. Or buyers can find a three-bedroom Cape Codder with an updated kitchen, hardwood floors, and a fenced yard in the Brookline neighborhood to the south of downtown.

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Watch: How Much Do You Need To Save To Buy a $300,000 Home?

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3. Cleveland, OH

Number of listings priced below $200,000: 1,598
Percentage of listings priced below $200,000: 31%

Cleveland not only comes in at No. 3 on our list, it also has the lowest overall median listing price right now, at $189,000. (It also has some of the cheapest mansions in the nation for those seeking lots of space.)

No matter where you look in the Cleveland area, there are options for buyers in this price range, says David Sharkey, the president and broker of Progressive Urban Real Estate.

“You get out to the outskirts, and you can find some really affordable stuff,” Sharkey says of larger single-family homes on the city’s periphery. “Then you come into the city, into the inner suburbs, and you can still find homes under $200,000. Those might need renovations or updating, but people are doing it.”

Sharkey says he sees lots of reinvestment in Cleveland’s homes by homeowners who buy at a low price and then renovate to their taste. One of his listings in Brooklyn, OH, an inner suburb about 10 minutes south of downtown Cleveland, has been completely rehabbed with quartz countertops, refinished cabinets, and a waterproof basement.

This gutted three-bedroom home in the Ohio City neighborhood is listed for $190,000 and advertised as an opportunity to renovate the home for a significant profit. (Similar properties that have been renovated are selling for $400,000 or more.) For a more turnkey home, this four-bedroom house with hardwood floors in the Brookside neighborhood is listed for $160,000.

4. St. Louis, MO

Number of listings priced below $200,000: 1,622
Percentage of listings priced below $200,000: 22%

St. Louis, the Gateway to the West, has more than 1,600 homes for sale priced below $200,000.

The area has been known for affordable real estate for a long time, but also for its crime and racial tensions. Ferguson, a city on the northwestern edge of the St. Louis area, became one of the catalysts of the Black Lives Matter movement, after the 2014 shooting of Michael Brown.

The area’s troubles are part of the reason why real estate remains more affordable here than in other Midwestern cities.

For less than $100,000, home shoppers can get a three-bedroom townhome in the North Riverfront neighborhood, about 15 minutes north of downtown and within walking distance of the Mississippi River.

5. Baltimore, MD

Number of listings priced below $200,000: 1,202
Percentage of listings priced below $200,000: 17%

Baltimore has more than 1,200 homes priced below $200,000, but it also has the highest median listing price among the cities we ranked, at $319,000 in January.

The story of Baltimore’s housing is best summarized as “always on the verge of a comeback,” says Richard Clinch, director of Jacob France Institute at the University of Baltimore.

Baltimore has pricier neighborhoods with wealthier residents just blocks away from more economically depressed communities.

Clinch is optimistic about the city’s future with new jobs and industries moving in. And the Maglev, a proposed high-speed train to connect Baltimore to Washington, DC, should make the area more desirable.

For just under $200,000, home shoppers can get a renovated, 1,500-square-foot, three-bedroom townhome in the Highlandtown neighborhood, 15 mins east of downtown and Baltimore’s Inner Harbor. It features hardwood floors and stainless-steel appliances.

6. Birmingham, AL

Number of listings priced below $200,000: 873
Percentage of listings priced below $200,000: 20%

Alabama’s capital city, which became known as the “Pittsburgh of the South” due to its industrial industries in the early part of the 20th century, has nearly 900 homes listed for less than $200,000.

Demand for homes faltered in the 1960s as many white residents left the city during the civil rights movement. That left more homes than there were buyers for. And while the city has rebounded in recent years, buyers can still find deals.

The metro has the second-longest time on the market of any city on the list, with the median listing notching more than two months. A home shopper in Birmingham can score a three-bedroom homewith new flooring and paint in the College Hills neighborhood, 2 miles west of downtown, for $185,000.

7. Chicago, IL

Number of listings priced below $200,000: 3,662
Percentage of listings priced below $200,000: 15%

Chicago is the biggest metro on the list, and it’s the second most expensive, with a median listing price of $315,000. Due to its sheer size, it also has the second most homes under $200,000, at more than 3,600.

Those cheap homes might be a boon to cash-strapped buyers in the city who have been facing some of the highest spikes in rental prices in the nation. Rents shot up 17.5% year over year in December, according to the most recent Realtor.com data. With median rent at just under $2,000 a month, financially savvy residents might want to see if it would be cheaper to become homeowners if they can afford a down payment and closing costs.

This three-bedroom, brick walkup with hardwood flooring, a full basement, a detached garage, and a yard in the Pullman neighborhood on the South Side is going for $180,000.

8. Memphis, TN

Number of listings priced below $200,000: 711
Percentage of listings priced below $200,000: 17%

Memphis buyers will save the most money becoming homeowners rather than remaining renters. They will also find the largest homes of any of the metros on this list. Plus, they can get a deal: About 1 in 6 sellers in the metro reduced their list price since they put their properties on the market.

Diane Malkin, an affiliate broker at Marx Bensdorf Realtors in Memphis, says the past few years have been hot for investors. The population has grown and home prices have risen fast, enticing those with the means to fix up the older homes in Memphis.

As the market has cooled, shoppers have become pickier about finding the right opportunities in the city. But they’re still buying.

“A lot of what I’m seeing, working with investors, they’re looking for some of those targeted ZIP codes that are still on the up and up,” she says. “It’s a lot of rehab.”

For $185,000, buyers can get get a studio condo in downtown Memphis, within walking distance of the Mississippi River. It comes with granite counters, a walk-in shower, and a rooftop grill with views of the river and city. Or they can get a fully renovated three-bedroom home in the Uptown neighborhood, 5 minutes north of downtown

9. Indianapolis, IN

Number of listings priced below $200,000: 879
Percentage of listings priced below $200,000: 15%

Indianapolis, known as the “Crossroads of America” and home to the Indy 500, is one of the most affordable metros in the nation. It has almost 900 homes listed for under $200,000.

Like Memphis, Indianapolis offers some of the larger homes of the metros on the list and about 1 in 6 sellers has also reduced prices.

This 2,100-square-foot, three-bedroom condo is available for $170,000 in the Farhill Woods neighborhood in the southern suburbs.

10. Rochester, NY

Number of listings priced below $200,000: 923
Percentage of listings priced below $200,000: 42%

Rochester, which sits on the shores of Lake Ontario, has had one of the hottest real estate markets in the nation for months. That’s due to its ultra-affordability: Almost half of Rochester’s homes are listed below $200,000.

Rochester also stands out for having the lowest percentage of homes with price reductions. So there doesn’t appear to be much room for negotiations on the price. It also has the quickest average time on the market before selling, at about seven weeks.

For $199,000, homebuyers can get a newly renovated three-bedroom, Colonial-style home in a cul-de-sac in the southwestern suburbs. Or for just $149,000, they can find a three-bedroom home, built in 1992, advertised as having a chicken raising variance—a nice way to blunt the fast-rising egg prices in the U.S.