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As a property developer or home builder, you know that time is money. While you can choose from many construction loan lenders, private or hard money lenders offer significant advantages over a traditional mortgage lender. Here are just some of the advantages of hard money loans:

• Loans close much faster than traditional mortgage loans.
• Programs range from home construction loans to condominium and multi-family construction loans.
• Terms are based on your experience and the project’s prospects for success.
• Loans come with interest-only payments and a balloon payment on completion.
• There are no prepayment penalties.

Interested? Read on…or contact us for details or book an appointment to learn more.

When financing construction projects, whether you are building or renovating, it is important to thoroughly understand your construction loan – its features, how you benefit, what’s required to qualify, and the application process. Financing a construction project is different than financing a home purchase with a standard mortgage loan. Your real estate investment in the lot, construction costs, and activities in each construction phase will affect your profit. Therefore,when choosing a lender for your construction loan, you must know your options and what considerations to weigh to help you select the right one.

At Muevo, we’re committed to educating borrowers about the financing alternatives available for their projects and helping them secure the right hard money loan to meet their unique needs. In this blog, we’ll review the ins and outs of construction loans – how they work, why they can be advantageous, what you’ll need to apply and be approved, and why you should consider a private lender like Us as your financing partner. We’ll also share some potential challenges and how to overcome them as well as several tips to ensure you successfully qualify for our construction loan program.

Understanding Construction Loans

Construction loans are used to finance the building of a range of property types. At Muevo, we offer them for the construction of:

• Condominiums
• Single-family residences
• Two-to-four units
• Multi-family homes
• Townhouses
• Other property types (on a case-by-case basis)

There are several distinct advantages of obtaining a construction loan for these particular projects. First, a construction loan provides the necessary funds to cover embedded costs including labor, materials, permits, and other related expenses. Securing such a large amount of capital upfront for a construction project would be challenging without financing.

Second, a construction loan ensures proper cash flow management via the draw process, which we’ll explain in greater detail later in this blog. Third, these loans make it possible to seize construction opportunities in high-demand areas – which yield higher returns once completed. You also stand to benefit from increased property value and rental income (if you are planning to rent once the project is completed). Finally, financing via a construction loan will help you build equity for your next project.

Qualifying for a Construction Loan

Once you’ve determined that a construction loan is the best way to get your project off the ground and ultimately completed, you must prepare to qualify with a lender.

Before all else, become familiar with the credit score and financial requirements necessary to be approved for the construction loan from your lender. And know that both your personal and business financials will be thoroughly reviewed. As such, your lender will require you to provide related documentation and paperwork for verification purposes. They will make an assessment of your financial situation by also weighing income and debt considerations.

Other important financial requirements to be aware of are the required down payment amount and your loan-to-value ratio. These also factor into whether you can qualify.

In addition, you will need to furnish information about your project and those involved in its construction, such as:

• Contractor credentials
• Property information and proof of lot/land ownership (title deeds, zoning info, property surveys, etc.)
• Insurance coverage
• Any legal contracts with the construction team, architect/engineers, or other parties involved

You may also be asked to provide even more documentation as the information a lender needs can vary by project. At Muevo, we use this property data to properly assess its value and ensure compliance with local regulations.

The Construction Loan Process

When applying and obtaining approval for a construction loan, the process is fairly straight forward.

1. Pre-application phase – Borrower investigates requirements, gathers necessary documentation
2. Loan application and approval – Application and documents are submitted, reviewed, and approved
3. Construction contract and plans review – Lender reviews all required property-related information
4. Loan disbursement and draw schedule determination – Funds are distributed in accordance with outlined draw schedule
5. Inspections and project monitoring – Lender conducts necessary inspections and continually monitors the progress of the project
6. Transition to permanent financing – Draw schedule concludes and regular payment schedule commences

Finding a Private Lender for Construction Loans

When it comes to construction loans, there are some district benefits in working with a private lender. Private lenders offer more flexible terms and loan amounts than traditional lenders.

Their loan application and funding process is much quicker too. Private lenders are also well versed in the local real estate markets in which they operate. In addition, once you have established a partnership with a private lender, there is the potential for additional financing opportunities once your project is successfully completed.

However, to select a private lender that is a good fit for your project, you must consider a number of factors:

• Reputation
• Experience
• Loan terms
• References
• Financial stability

Research and compare private lending companies in your area based on these factors to identify where you can most easily navigate the application and approval process. For example, loan terms can vary considerably. At Muevo, our standard new construction loan terms are as follows:

• Max Loan Amount: $10,000,000
• Max LTC/ARV (Loan to Cost / Loan to After Completed Value):
  – Experienced Investors: The Lesser of 82.5% LTC or 70% ARV.
  – Inexperienced Investors: The Lesser of 65% LTC or 55% ARV.
• Rate: Starting at 10.5%
• Term: 12-24 months
• Payments: Monthly Interest Payments with Balloon at Maturity
• Prepayment penalty: None

Managing Construction Loan Funds

One of the most important steps that must be taken to complete a construction project successfully is to create a detailed budget. This is where the draw process comes in. Rather than receiving a lump sum check, construction loans pay out the loan amount over the course of the project. The installments are called draws, as the lender draws funds from the account. A draw request is necessary to ensure disbursement of the funds.

Many lenders do prorated draws, typically 80% financing/20% equity ratios on every draw. Our loans start once the 20% has been completed. Should you have investors, it is important that they understand the draw process and the difference between money spent and job completed.

In the end, the draw process ensures the proper allocation and use of funds and allows for contingency planning in case there are any unexpected costs.

You have questions. We have answers.

Who are the best hard money lenders in Florida?

Are you looking for private or hard money lenders for your construction loans? Do your research! The best private lenders, whether in Florida or anywhere else, have proven track records that are easily accessible on your County Recorder of Deeds website. Don’t just take their word for it. Ask your lender to show recent transactions they have funded and provide a link to the recorded documents. Beware of companies that advertise as lenders but are just brokers, adding additional fees. As a builder or investor, take your time to research potential lenders and ensure they are legitimate before proceeding. Experience counts. Muevo has brokered over 3,000 loans totaling more than $300 million in the last 10 years. Our loan programs have financed thousands of projects with attractive construction loan rates, reasonable closing costs, and, most crucially, flexible loan terms and speed!

Will the bank or private lender let me be my own general contractor?

Yes, many home builders and contractors utilize construction loans to fund their own construction projects. You will be subject to the same requirements as those developing investment properties using a third-party general contractor. Acting as your own general contractor should not affect your hard money loan as long as you have experience and a history of successfully repaying your construction loans.

Tips for a Successful Construction Loan Experience

Inherent to the construction process are several potential challenges that can impact your financing. These include construction delays and cost overruns, changes in market conditions and interest rates, and unexpected construction issues all of which require contingency plans. To that end, there are several things you can do proactively to mitigate these risks.

First and foremost, be sure you are engaging with professionals, such as seasoned architects and experienced contractors. And do all you can to communicate clearly and constantly with your lender and construction team. Closely monitor the progress of your project and resolve any issues that arise as promptly as possible. Finally, stay organized. One of the best ways you can do that is by maintaining accurate, up-to-date documentation throughout the course of your construction project.

Now that you have a good understanding of how construction loans work, how to qualify, how you benefit, how to select a private lender and how to ensure a smooth experience, you can confidently move forward and secure the financing you need for your construction project. Take the next steps in obtaining a new construction loan with RBI! Click here for more information.

Building a property from the ground up entails substantially more risk than purchasing an existing building that is already generating income. Likewise, financing construction is riskier than lending against existingstructures since development projects don’t generate income to pay loan interest until they are completed. For this reason, most bank-originated construction loans come with additional restrictions to try to manage these risks. For example, when a bank extends a construction loan, borrowers usually don’t get all the cash up front. Instead, construction loans are disbursed gradually as portions of the development are completed and inspected by the lender.

But builders don’t have to borrow from banks. They can also borrow from investors that lend their own cash, and these “debt investors” or “investor lenders” have become more active in construction lending over the last three years.

Investors Overtake Large Banks in Construction Lending

Traditionally, banks of all sizes were the most active construction lenders. However, during the pandemic, national banks meaningfully stepped back from construction lending, while regional banks stayed active. In the five years preceding the pandemic, national banks had the largest market share of construction lending. Now they’re in third place, outpaced by investor lenders and regional banks.

While the market share of construction lending for banks of all sizes still exceeds that of private lenders, investor-driven lending has clearly taken market share from banks over the last two years. Private construction loans are attractive to borrowers since they typically have fewer restrictions than bank construction loans. However, in exchange for the less restrictive debt, borrowers pay meaningfully higher interest rates.

With the potential for additional regulatory scrutiny on the horizon, U.S. banks of all sizes increased their cash balances by approximately $310 billion compared with early March. While some of this cash, approximately $98 billion, is due to borrowing from the Federal Reserve, most of it isn’t. If banks continue to hold onto more cash for risk management and regulatory purposes, there will be less cash available for CRE lending, especially for riskier varieties like construction financing.

Investor lenders may well continue to take share from banks. As they do, financing construction will become costlier.

We have supported local home builders and real estate developers for decades. We’re one of the most reputable construction brokerages in the country. Our staff is experience in all phases of the lending process and provide superior service by putting our loan and market expertise close to customers. Our local staff members know the markets where our customers build their communities.

Services Offered:

Construction Loans

Loans to cover the costs of construction projects before obtaining long-term funding
Loan Amount	$100K – $100M million
Interest Rate	30 Libor +2% and up
Loan Term	12-36 months + Extensions
Amortization	Interest Only
Security	First Mortgage Lien or Deed of Trust
Loan-to-Value	Up to 65% of As-Is Value
Loan-to-Cost	Up to 80% (Mezz to 85%)
Origination/Exit Fees	2-4%
Recourse	Non-Recourse & recourse options available
Borrower/Guarantor	No min. liquidity re’d, asset-based loans only, Previous experience preferred
Location	Inner City Infill & Developed Suburbs Only
Loan Type	Predevelopment to Construction, Acquisition, Refinance
Geographical Focus	Continental US (primary, Secondary, and Tertiary markets)

Land Development Loans

Loans for entitled land, pre-development and for future sale
Loan Amount	$3M- $100M
Interest Rate	30 Libor +2% and up
Loan Term	12-24 months + Extensions
Amortization	Interest Only
Security	First Mortgage Lien or Deed of Trust
Loan-to-Contract	Up to 80% (Mezz to 85%)
Origination/Exit Fees	3-5%
Recourse	Non-Recourse & recourse options available
Borrower/Guarantor	No min. liquidity re’d, asset-based loans only, Previous experience preferred
Location	Inner City Infill & Developed Suburbs Only
Loan Type	Predevelopment to Construction, Acquisition
Geographical Focus	Continental US (primary, Secondary, and Tertiary markets)

Hotel Construction Loans

Loans to cover the costs of hotel construction projects before obtaining long-term funding
Loan Amount	$5M and up
Interest Rate	Libor +3% and up
Loan Term	2 – 5 Years
Amortization	Interest Only
Geography	Continental US (primary, Secondary, and Tertiary markets)
Options	Mini perm and Permanent
Loan-to-Cost	Up to 75%
Minimum proforma DSCR	1.50x
Experience	Previous experience preferred

Self-Storage Construction Loans

Loans to cover the costs of construction of self-storage facilities
Loan Amount	$5MM and up
Interest Rate	30 Day Libor + 2% and up
Loan Term	2 – 5 Years
Amortization	Interest Only
Geography	Continental US (primary, Secondary, and Tertiary markets)
Options	Mini perm
Loan-to-Cost	Up to 75% (Mezz to 85%)
Minimum proforma DSCR	1.35x
Recourse	Non-Recourse  options available
Type	Metal or concrete building allowed.
Experience	Strong operator or management company preferred.

Amid declining property values in a tight lending environment, all-cash buyers will benefit from bargain pricing, CBRE predicts in its latest outlook.

CBRE expects an economic slowdown in the U.S. next year that will impact commercial real estate with bank lending remaining tight throughout 2024, investment volume decreasing 5 percent, cap rates expanding and property values declining.

But the U.S. may be able to avoid a recession and interest rates should be reduced later in the year as activity picks up in the second half of 2024, according to the firm’s 2024 U.S. real estate outlook.

Property types with relatively strong fundamentals, including demand, vacancy and rent growth, like industrial, retail, multifamily and data centers will be most favored by investors in 2024, according to CBRE.

Richard Barkham, CBRE global chief economist & global head of research, said in prepared remarks there is still some more pain ahead for the commercial real estate industry in 2024, including overall investment volumes remaining down for the year. But he expects an upturn by the second half and overall leasing activity to pick up as well. He notes stabilization and the early stages of recovery are also not far off.

North America dry powder by strategy. Chart courtesy of CBRE

With inflation easing, the Federal Reserve is expected to begin reducing short-term interest rates in 2024, possibly to around 4.25 percent by the end of the year and to 3.5 percent in 2025.

There should be buying opportunities in the first half of 2024, especially for all-cash buyers like sovereign wealth funds, pension funds and endowments. CBRE expects the lowest pricing for assets will occur in the first two quarters.

The report notes increasing cap rates, which have risen by about 150 basis points between early 2022 and late 2023 depending on the market and asset type, imply a 20 percent decline in values for most property types. For office, the increase was higher, rising by at least 200 basis points.

“We think cap rates will expand by another 25 to 50 basis points in 2024, with a corresponding 5 percent to 15 percent decrease in values,” the report states.

CBRE expects real estate values for most property types will likely not stabilize before mid-2024.

Historical & forecast cap rates. Chart courtesy of CBRE

Office vacancies to peak

The outlook expects another tough year ahead for the office market with office vacancy peaking at nearly 20 percent in 2024, up from 18.4 in the third quarter of 2023 and 12.1 percent at the end of 2019.

CBRE notes a slowing economy in the first part of 2024 and increasing acceptance of hybrid working arrangements will continue to limit office demand next year. The 2023 U.S. Office Occupier Sentiment Survey found more than half of the respondents planned to further reduce their office space in 2024.

Companies looking to lease less than 20,000 square feet will account for most of the leasing activity, according to CBRE. Leasing activity should rise by 5 percent in 2024, however that is still 20 to 25 percent lower than pre-pandemic levels.

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READ ALSO: How Incentives Boost Office Conversions

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Meanwhile, the flight-to-quality trend should continue with occupiers seeking space in newer, prime office properties with the best amenities. But office construction levels will be at their lowest levels since 2024, which could result in a shortage of that sought-after Class A space later in the year. CBRE forecasts that average prime office asking rent will increase by as much as 3 percent.

On the investment side, the higher-for-longer outlook for interest rates will cause some owners of Class B and C office assets to sell due to further erosion in values. Many of those older buildings that lack modern amenities will continue to struggle to attract tenants, so a higher percentage of older office assets are likely to be converted to other uses. While office conversions can be challenging, the report notes the federal government is providing grants, low-interest loans and tax incentives and local governments are also offering incentives.

Not all office markets are suffering, and the outlook shines a light on several active cities in the U.S. In Nashville, Tenn., where absorption and rents are up, demand for new office space is expected to remain strong. Miami is seeing one of the highest rent increases in the country and the vacancy rate is dropping as new-to-the market tenants are keeping the market healthy. Las Vegas has seen an uptick in leasing activity and strong preleasing at speculative projects, putting the market in a strong position heading into 2024.

Industrial sector slowdown

The industrial sector should see net absorption similar to 2023 levels and rent growth moderating to 8 percent. Construction deliveries are tapering off and expected to continue to slow down due to economic uncertainty, tight lending conditions and oversupply in some markets.

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READ ALSO: Property Management Success: How AI Boosts Industrial

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Vacancy is expected to hit 5 percent by mid-2024, up from 4.2 percent in the third quarter of 2023 but decrease later in the year due to the decline in new construction. Looking ahead, CBRE is forecasting a 7.5 percent increase in U.S. industrial production over the next five years as more occupiers improve their supply chains by adding more import locations and onshoring or nearshoring of manufacturing operations. Markets to watch include Austin and San Antonio in Texas; Nashville; Salt Lake City and Central Florida.

Retail’s declining availability

The retail sector is also facing a lack of new construction. That will contribute to retail availability rates dropping by 20 basis points next year to 4.6 percent. Asking rent growth is expected to drop below 2 percent for most of 2024 but go above 2 percent by the fourth quarter.

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READ ALSO: Mixed Shopping Cart for Retail

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Open-air suburban retail centers will see demand grow faster than other retail formats and neighborhood, community and strip centers will have stable occupancy throughout the year. Look for traditional mall-based retailers to seek other new formats outside the malls for expansion. Texas markets are expected to see more luxury brands. Other markets to watch include Orlando, Fla.; Charlotte, N.C.; Denver; San Francisco and Orange County, Calif.

AI to fuel increased data center demand

The data center market is seeing growth, often driven by advances in cloud-based solutions, artificial intelligence and other new applications and technologies. CBRE notes demand will continue to be higher than supply and construction in major markets will exceed 3,000 MW in 2024, up from the company’s 2023 estimate of 2.500 MW. Markets to watch include Austin; San Antonio and Omaha, Neb.

https://www.commercialsearch.com/news/what-to-expect-for-cre-in-2024/

Renters looking for new digs may be in luck. Rents have fallen for the fifth month in a row thanks to an uptick in home and mortgage prices which continue to bend the housing market in favor of tenants.  

That’s according to Realtor.com’s September Rental Report, which shows median rents for 0-2 bedroom apartments fell by as much as .7% year-over-year. The median asking rent across the 50 largest metropolitan areas in the U.S. hit $1,747 in September, which is $5 less than it was in August, and $29 less than its peak in July 2022. 

“September marked the fifth month with year-over-year declines in median asking rents,” according to the report. “An important factor contributing to the softness in the rental market is the increase of multi-family construction which keeps working its way through the pipeline to boost the supply.”

Rents fell the most in the Austin, Texas (-7.3%); Dallas (-6.2%) and Orlando, Forida (-5.4%), despite recent growth in those areas, particularly Austin, as emerging tech hubs

Demand remains strong

In September, the number of multi-family buildings with five or more units completed was 445,000, a 10.1% increase from the previous month and a 15% increase from the year prior, according to Rental.com. Meanwhile, 82,310 apartments were completed in buildings featuring five or more units during the first quarter of 2023, the Census Survey of Market Absorption of New Multifamily Units (SOMA) shows. 

Rental.com’s report also reveals that recently completed housing units have been quickly absorbed into the housing market, signaling that demand for affordable rentals remains strong. Within the initial three months following completion, 61% of newly finished apartments had renters. 

Not all cities saw rental prices fall. Here are the 24 metro areas where median rent are lower than they were a year ago, according to Realtor.com’s data.

Metro area	Median Rent (0-2 Bedrooms)	YOY (0-2 Bedrooms)
Austin-Round Rock, TX	$1,638	-7.3%
Dallas-Fort Worth-Arlington, TX	$1,530	-6.2%
Orlando-Kissimmee-Sanford, FL	$1,710	-5.4%
Portland-Vancouver-Hillsboro, OR-WA	$1,681	-5.4%
Phoenix-Mesa-Scottsdale, AZ	$1,563	-5.2%
Atlanta-Sandy Springs-Roswell, GA	$1,659	-4.9%
San Francisco-Oakland-Hayward, CA	$2,925	-4.8%
Raleigh, NC	$1,562	-4.3%
Seattle-Tacoma-Bellevue, WA	$2,058	-3.9%
Tampa-St. Petersburg-Clearwater, FL	$1,720	-3.9%
Los Angeles-Long Beach-Anaheim, CA	$2,887	-3.4%
Las Vegas-Henderson-Paradise, NV	$1,509	-3.3%
Memphis, TN-MS-AR	$1,293	-3.3%
Sacramento–Roseville–Arden-Arcade, CA	$1,864	-3.3%
Miami-Fort Lauderdale-West Palm Beach, FL	$2,486	-2.4%
San Antonio-New Braunfels, TX	$1,279	-2.4%
Charlotte-Concord-Gastonia, NC-SC	$1,604	-2.2%
San Diego-Carlsbad, CA	$2,891	-2.0%
Riverside-San Bernardino-Ontario, CA	$2,316	-1.6%
Denver-Aurora-Lakewood, CO	$1,957	-1.0%
Chicago-Naperville-Elgin, IL-IN-WI	$1,801	-0.6%
San Jose-Sunnyvale-Santa Clara, CA	$3,305	-0.6%
Philadelphia-Camden-Wilmington, PA-NJ-DE-MD	$1,790	-0.4%
Nashville-Davidson–Murfreesboro–Franklin, TN	$1,649	-0.2%

https://www.cbsnews.com/news/rents-falling-cheaper-18-cities-pay-less-relator-com-september-rental-report/

If you’re considering buying a rental property, familiarizing yourself with the best rental markets in the country could go a long way in preparing you to invest in your first buy-and-hold asset. Aside from being some of the best cities to invest in real estate, today’s best places to buy rental property can teach us a lot about how to invest in specific locations. The location you choose to invest in will ultimately determine the viability and success of any assets you acquire. After all, those who know how to read and interpret market indicators will know where the best rental markets reside. Keep reading to learn where the best places to invest in real estate long term are, and why investors should be excited.

Best Rental Markets In 2023

Rent growth in 2022 was attributed to supply and demand constraints in the housing sector. Historically low interest rates, pent-up demand, and years of government stimuli created a competitive market—the likes of which had never been seen before. At the same time, inventory was unable to keep up with the pace of buying activity; there simply weren’t enough homes to keep up with demand. As a result, even those who wanted to buy were relegated to the renter pool in 2022, causing rents to spike. In response to higher home prices and rental rates, many households used the work-from-home trends created by the pandemic to relocate to the Sunbelt.

As we get closer to turning the page on 2022, however, the best rental markets are starting to shift to the Midwest. Over the latter part of 2022, the Midwest has seen some of the fastest rental rate growth in the country, and 2023 doesn’t appear as if it will put an end to the momentum. The convergence of record rent increases and inflation is forcing more people to move back in with families or roommates, or even delay renting altogether.

The shift in sentiment has also changed the best places to buy a rental property in 2023. Instead of focusing on the Midwest, as investors have done throughout 2022, the best rental markets in 2023 are looking more and more like the following:

• Chicago, Illinois
• Cincinnati, Ohio
• Columbus, Ohio
• Grand Rapids, Michigan
• Louisville, Kentucky
• New York, New York
• Phoenix, Arizona
• Spokane, Washington
• Raleigh, North Carolina
• San Diego, California

Chicago, Illinois

The Chicago real estate market looks well positioned to be one of the best rental markets in 2023. If for no other reason, Chicago represents the third-largest metropolitan area in the United States. With more than 50.0% of the city’s population already locked into a rental agreement, buying a rental property in Chicago is just as much of a volume play as it is a smart decision. The number of potential renters in a city with relatively high private sector employment bodes well for investors looking to fill units. Additionally, Chicago could see its number of renters grow over the course of 2023. With a mere 16.8 weeks of supply in the housing sector, there aren’t nearly enough homes to keep up with buyers. Those who can’t buy will be forced to rent and drive up demand in a city that already has peak competition. Rents have already risen about 7.3% over the last 12 months. If interest rates continue to spike and home affordability continues to crumble, there’s no reason to think rents won’t march even higher in 2023.

Cincinnati, Ohio

Owning a rental property in the Cincinnati real estate market is growing more attractive with each passing day. With local rents growing about 6.0% in the last six months alone, Cincinnati has one of the fastest metro-level rent growth rates in the country. The rise in rental rates appears to be attributed to the city’s relative affordability. With that in mind, more people are looking to Cincinnati in an attempt to escape today’s high prices. With a median sales price somewhere in the neighborhood of $230,000, Cincinnati real estate is more affordable than the national average and, therefore, one of the last bastions of affordable housing. The added action, however, is straining the city’s 11.4 weeks of supply. Not unlike just about everywhere else, there aren’t enough homes to satiate buyers. As a result, local rents are expected to increase significantly as buyers are turned away from purchasing and towards renting. 

Columbus, Ohio

One of the best places to buy a rental property in 2023 is shaping up to be the Columbus real estate marketin Ohio. Similar to Cincinnati, Columbus has seen a lot of extra attention over the course of 2022. At $246,515, the median home value in Columbus is well below the national average. Due to the city’s relative affordability, more people are looking to call it home. However, Columbus only has about 13.1 weeks of inventory; not nearly enough to keep up with demand. The imbalance between competition and inventory has created more demand for rentals, increasing rents as much as 6.0% over the last six months. Looking into 2023, demand for real estate in Columbus will increase as more people look to escape less affordable markets. When supply fails to keep up with demand, more renters will enable landlords to increase rental rates, making Columbus one of the best rental markets in 2023.

Grand Rapids, Michigan

While rents in the Grand Rapids real estate market haven’t increased at quite the same pace as the previously mentioned cities, 2023 is starting to look like a great year for passive income investors. For starters, landlords will see plenty of demand thanks to the city’s distinct lack of inventory. With 7.0 weeks of supply, inventory is nowhere near capable of keeping up with demand. Subsequently, Grand Rapids is expected to see a steady influx of net migration due to the city’s relative affordability. More households will be forced to rent, regardless of whether they can afford to buy. Discrepancies in supply and demand have already resulted in a 5.4% increase in rents over the last year, and there’s nothing to suggest the trend won’t continue. As a result, investors will see plenty of demand for their rental units, giving them the ability to increase asking prices accordingly.

Louisville, Kentucky

While not technically part of the Midwest, the Louisville real estate market is benefiting from the same migration trends as the rest of the best rental markets on this list. Most notably, renters are choosing to call Louisville home because it represents a more affordable real estate market. The median home value in Kentucky is about $125,000 less than the national average, serving as an affordable alternative for anyone who was granted work-from-home privileges over the course of the pandemic. The added attention on the Louisville market will pose a significant challenge for local inventory levels. With a little more than two months of inventory, demand greatly outweighs supply. The lack of inventory has already increased rents by 8.1% over the last 12 months. Therefore, it’s reasonable to assume that more people moving to Louisville in search of affordable living situations will ironically increase rental rates.

New York, New York

Few cities across the country have proven to be a better market to be a landlord in than New York. In the last six months, metro-level rent growth increased upwards of 5.0%, trailing behind only Columbus and Cincinnati. However, unlike its Ohio counterparts, New York hasn’t seen an influx of demand because of affordability. Instead, the New York real estate market is finally starting to get its legs underneath it. With what looks like the worst of the pandemic in the rearview mirror, New York is starting to fire on all cylinders. People are going back to the office, and landlords are seeing more demand for their units. New York landlords have already been able to increase rents at an attractive rate, and current trends suggest they will continue to be able to do so—at least for the foreseeable future. 

Phoenix, Arizona

Only a handful of metropolitan areas have seen their rents increase as much as the Phoenix real estate market over the last three years. Since the beginning of the pandemic, in fact, rents in Phoenix have increased by about 32.0%. Only seven other cities with a population greater than one million saw rents increase at a faster rate than Phoenix since the first quarter of 2020. The increase was directly correlated to the market’s relative affordability and households’ inclination towards warmer weather during the pandemic. Rent increases have cooled off in recent months, but Phoenix remains a destination for both older generations on the brink of retirement and up-and-coming tech industry employees. Demand from several generations of buyers and renters will make Phoenix one of the best rental markets in 2023.

Spokane, Washington

While separated by an entire state, the Spokane real estate market is benefiting from its more expensive neighbors to the West: Seattle and Portland. Both Portland and Seattle have seen exorbitantly expensive home values lead to a mass exodus. In search of more affordable living arrangements, many households have set their sights on Spokane. With a population that barely eclipses 200,000 people, Spokane is a relatively small city receiving a lot of attention. Demand for housing has already increased home values 12.6% over the last year. Additionally, Spokane’s 11.9 week of supply can’t keep up with the net migration. As a result, the rental market has become the beneficiary of an influx of demand. Spokane real estate investors with units for rent will most likely be able to avoid vacancies with ease and increase rental rates in 2023, making it one of the best rental markets to invest in.

Raleigh, North Carolina

The Raleigh real estate market was a beneficiary of the new migration patterns created by the pandemic. Local home values have increased about 56.3% since COVID-19 was officially declared a global emergency. In that time, rents have increased a slightly more modest (but nonetheless impressive) 32.9%. As more people chose to call Raleigh home, landlords and sellers were able to increase their prices at a historic pace. That said, residents haven’t chosen to flee Raleigh as prices rise. If anything, more people are looking to call Raleigh home in 2023, which suggests it may be one of the best rental markets in 2023.

San Diego, California

Many of the hottest real estate markets in 2022 were located in the Sun Belt. As more people were granted permission to work from home during the pandemic, many households chose to relocate to warmer locations. The San Diego real estate market, in particular, saw an incredible influx of demand when buyers and renters prioritized cities with warmer weather. The resulting demand increased rents and home values almost exponentially over the last three years. Landlords have been able to increase rents as much as 5.0% in the last six months alone. That said, higher home values and rents haven’t scared away potential buyers and renters; if anything, demand remains largely intact. As a result, local landlords will find that they can simultaneously lower the risk of vacancies and increase rents in 2023.

Top Factors That Affect A Rental Property Investment

There are countless factors that play into a location’s rental viability. The sheer number of variables that have even the slightest impact on an area’s rental property performance is staggering. That said, not all indicators are created equal; there are some factors that affect a rental property investment inherently more than others, not the least of which include:

• Location
• Economy
• Vacancies & Listings
• Future Development

Location

First and foremost, the golden rule of real estate investing is still alive and well: location, location, location. Investing in a rental property with at least some success is always contingent on the area in which it is located. The location of the respective property will determine everything else I’ll discuss henceforth.

Before considering a subject property, you need to pick a location that facilitates a healthy rental market. Specifically, pay special consideration to the economy’s health, demand, job opportunities, new home construction, unemployment rates, household income, affordability, and anything else that could potentially influence a renter’s decision to live in the area. Even the best rental property in a poor location doesn’t stand a chance when all is said and done. You need to invest in an area that people want to call home and where demand will persist for the foreseeable future.

Economy

The local economy will play an integral role in determining the best places to buy rental property. Here’s a list of some of the most important economic factors you’ll need to consider when looking at the location in which a rental property is situated:

• The number of sales of existing homes
• The prices of existing homes
• The volume of new construction
• The local economy
• Population trends
• Unemployment rates
• Job growth
• Median household incomes
• Affordability

While this list is not exhaustive, each of these indicators will play an essential part in determining whether or not an area is worth investing in. Positive trends in each would likely suggest the location is ready to be invested in, but economic indicators are not mutually exclusive. Darren Nix, Founder of Steadily Landlord Insurance, adds that “investors should watch for new home costs. When the costs start to decrease, there will be less demand for existing homes and rentals”. While it’s better to have everything working in an area’s favor, a rental market can thrive with just a few of these factors on its side.

Vacancies & Listings

Mind due diligence and pay close attention to the ratio of vacancies relative to the number of listings in a particular area. An unusually high number of listings, for example, could represent one of two scenarios: either the neighborhood is currently in the middle of a seasonal cycle, or it is trending downwards. It is in your best interest to discern what the listing ratio in a particular area means for an impending investment.

Take note of the area’s vacancy rate, too. At the very least, vacancy rates will give you an idea of what sort of demand to expect. Low vacancy rates could be a good sign, as demand appears intact and active. High vacancy rates, however, could suggest poor conditions. Additionally, lower demand could force landlords to lower rates to attract tenants, not unlike yourself.

Future Development

Areas with future development projects in the pipeline are typically representative of a healthy market. Most likely, projects have broken ground because the area has shown promise, which bodes well for rental property investors. Conversely, a distinct lack of development suggests there is reason to avoid the area. Therefore, you’ll want to contact the local municipal planning department to gather information on all the new projects currently underway or will be sometime soon.

Summary

Finding the best places to buy rental property, or at the very least the best market near you, is essential whether you are purchasing your first or your fourth buy and hold property. Luckily, several indicators can help you choose an optimal location. These factors range from local economic markers to average vacancy rates and population trends. A great place to start is always looking at the year’s best rental markets. Although, these cities are just the beginning. Pay attention to the factors defining these emerging real estate markets and allow them to guide your search for the best location for your investment.

• New York allocated $85 million to pay homeowners for building ADUs in their backyards.
• Grants are given to local governments or nonprofits who distribute the funds.
• New York is doling out millions to help homeowners build tiny homes, called accessory dwelling units, or ADUs, in their backyards. 
• As of August 15, the Empire State has spent $23.4 million doing so, according to New York State Homes and Community Renewal, which is in charge of the funds. 
• It’s part of a package passed within the state’s 2022 to 2023 budget called the Plus ONE ADU Program, which provides grants of up to $125,000 to homeowners across the state who add an additional housing unit to their property. The state plans to give a total of $85 million out in grants by 2028. 
• “It comes at a time when we need to investigate every avenue to build every single unit that we have,” Jolie Milstein, president of the New York State Association for Affordable Housing, told Insider. 
• The program is one way lawmakers are trying to ease a worsening housing shortage, a nationwide issue that is making both buying and renting a home very expensive for most Americans.
• Through this program and other proposals, Gov. Kathy Hochul is planning to address “New York’s housing crisis by increasing the housing supply, which is why she brought forth initiatives to expand housing options — including through the construction of accessory dwelling units,” a HCR spokesperson told Insider. 
• In the first round of funding, HCR gave out nine grants of between $500,000 to $2.6 million to local governments like Ulster County and the Town of Amherst, and nonprofits like Habitat for Humanity of New York City and Westchester, HCR said. 
• Through these grants scores of homeowners — from those located near Buffalo to New York City — will receive cash to turn their garage into an apartment or build a tiny home in their backyards, HCR said. 
• In order to apply, owners need to meet a certain threshold of the area median income, which varies depending on where they live in the state.
• Many cities, in New York and beyond, have eased zoning ordinances to allow homeowners to build additional living units on their property.
  
• In California — where the housing crisis is especially dire — the state legislature even overrode local zoning ordinances, to allow all homeowners to build on their property. A similar bill in New York did not make it through the legislature, Spectrum News 1 reported.
• Still, Milstein sees the grant program as an “innovative” way to give those a head start where building is legal, and “show this can be a successful way to allow people the freedom and flexibility to address the crisis in their own home.”

The commercial real estate market, not unlike the single-family housing and residential markets, is subject to cyclical trends. Investors are constantly looking for how these trends might affect their individual markets for the foreseeable future and ask themselves: what are the best real estate markets for commercial investments? These ever-changing trends and their impact are what drives an investor’s strategy on how they will edge out their competition. To better understand the current and upcoming commercial real estate market trends, it’s also important to review the trends that brought us to today.

Understanding Today’s Commercial Real Estate Market

The real estate market has proven to be a reliable and successful wealth-building tool for investors in recent years and is expected to continue its growth in 2022. 

At the beginning and peak of the COVID-19 crisis, experts and professionals alike were concerned about the short and long-term effects on the real estate market. The pandemic undeniably impacted the economy on many levels. However, the real estate market continued to move without slowing down. 

The pandemic did force commercial space occupants to adapt quickly, but COVID-19 statistics are improving and businesses are resuming to operate normally. Many businesses had to take new health policies into account before requiring in-office work. Some businesses continue to adapt and implement work from home or partial work from home policies successfully. Demand for office space have risen again as businesses who prefer to work face to face have been cleared to do so. 

Commercial real estate agents can also expect demand for a restructured design of office spaces. Some commercial landlords may find that changing their buildings to accommodate more space or privacy between employees will prove an attractive quality to prospective tenants. 

Although the changes that the COVID-19 pandemic has caused have been challenging for the commercial real estate industry, the quick return to commercial spaces has proven encouraging. As the economy recovers and workplaces adapt to changing public health practices, the commercial industry is expected to remain strong.

Real Estate Trends & Predictions For 2022

Many experts are eyeing the real estate industry to see what will happen in the year ahead. A brief review of previous years might suggest that while predictions can be useful in planning, they are not entirely accurate. For example, at the start of 2020 many would never have guessed the biggest driving factor in the market would be the COVID-19 pandemic. As we head into 2022, the effects of the pandemic continue to drive several changing trends in real estate including an emphasis on e-commerce, upgraded rental properties, and inventory shortages. 

Real estate investors should keep an eye on the return to retail spaces. While the conversation around e-commerce has continued to suggest an end to brick-and-mortar stores, this is simply not the case. Many individuals, in light of eased COVID-19 restrictions, still want to attend restaurants, shop, and spend time in commercial retail spaces. With the exception of possible vaccine and mask mandates, many commercial areas are open for business as usual and investors should expect that trend to continue. 

Professionals across the industry have been anxiously waiting to see how many companies continue work from home policies in the future, and the answer is still unclear. What we do know is that many top companies still want employees back in the office — promising news for commercial spaces. Note that the decision to work from home vs. return to the office is very divided by industry (for example, Tech seems to be leading the work from home push). Investors interested in office spaces should consider possible tenants and which spaces would be best for these businesses. 

A few other trends to consider in the year ahead include the recovery of multifamily rental units and a shortage of housing inventory. Investors may find they are able to keep vacancies low in the year ahead with single-family and multifamily rental units. On a final note, investors should keep an eye out for state and federal plans to improve infrastructure across the country. These changes could greatly increase the accessibility of commercial spaces and increase demand from tenants. 

2022 is expected to be an interesting year for real estate market trends. Investors should keep an eye on both residential and commercial trends to stay informed about the year ahead. For those looking for new markets to watch, here are the top 10 markets to pay attention to in the year ahead: 

• Nashville, TN
• Raleigh-Durham, NC
• Phoenix, AZ
• Austin, TX
• Tampa, FL
• Charlotte, NC
• Dallas, TX
• Atlanta, GA
• Seattle, WA
• Boston, MA

Real Estate Trends & Predictions For 2021

Commercial real estate was expected to face some interesting challenges throughout 2021. Most notably regarding the future of remote work and office buildings. With a large portion of the workforce remote due to COVID-19, many investors questioned the future of office buildings and long-term commercial leases. These concerns were heightened as big-name tech companies announced employees would be able to work from home permanently. Many expected
office buildings to reopen as the vaccine is distributed across the country and the economy returns to normal. 

While office spaces were expected to bounce back, so to speak — 2021 saw a rise in something called “dark stores.” Dark stores refer to retail outlets or distribution centers that have shut down inside operations and instead allow for curbside pickup or shipping. Dark stores were used before the COVID-19 pandemic, but as expected, they increased in size and demand as restrictions were put in place on in-person shopping and dining. Real estate investors hoping to tap into this trend today should look for properties that are easily accessible and in popular market areas. 

Warehouses represented another promising commercial property type for 2021. The demand for warehouses increased dramatically as retailers attempted to keep up with the rise in e-commerce. Real estate investors can expect the property value of warehouses and other industrial property types to continue to increase in the years ahead. Owners can not only benefit from property appreciation but an increase in average rent prices for these spaces. 

Unfortunately, not all areas of commercial real estate were expected to thrive as the world continues to feel the effects of the pandemic. Investors were warned to be wary of hotels and other areas of hospitality-related real estate. These industries are expected to recover at much slower rates than others, particularly in dense cities. Investors who are eager to find opportunities in hotels should be sure to focus on markets that are recovering more quickly than others. 

There are a few real estate markets that are expected to stand out in the year ahead as a result of job growth, cost of living, and population increase. Here are some of the top growing commercial real estate markets from 2021: 

• Austin, TX
• Tampa Bay, FL
• Atlanta, GA
• Nashville, TN
• Salt Lake City, UT
• Raleigh-Durham, NC
• Portland, OR
• Denver, CO

Real Estate Trends & Predictions For 2020

When 2020 began, many industry experts predicted sustainable but slow growth across the commercial real estate market. Experts predicted the impact of changing demographic trends, as both Baby Boomers and Millennials’ preferences changed regarding housing, office, and other properties. 

With the U.S. experiencing its longest expansion in history, many believed the slow and steady growth would continue in 2020. At the start of the year, mortgage rates were at 3.75%, according to Freddie Mac. This was nearly a 1% difference from the monthly average just a year ago. At the end of 2019, this drop in rates was the cause of a surge in refinancing and purchase activity. Among experts, there was a consensus that rates will remain low in 2020, somewhere between 3.7% and 3.9% 

Due to high demand, prices for homes were predicted to continue their climb upward. Home prices were estimated to rise by 5.6% by Fall 2020. This is an increase of about 2.1% from last year. With more and more listings coming on the market, there will be much more competition starting in early 2020. On the lower price end, low-interest rates and a shortage of entry-level homes will cause prices to rise even more. The shortage of entry-level homes is due to builders tending to focus more on higher-end, higher-profit homes.

Housing inventory was predicted to remain limited for most of 2020 due to interest rates and record-high homeownership tenures. According to Redfin, homeowners stay in their homes for an average of 13 years or higher, a 5-year increase from 2010. Homeownership tenure in some cities goes as high as 23 years. Essentially, you can’t buy what’s not for sale. Even with historically low rates, potential buyers risk buying in a market with a supply shortage. This trend was predicted to continue through 2020 and may even intensify in the coming years, directly affecting commercial real estate as a result. A bit of relief to this situation may come with the projected increase in construction. According to the Census Bureau report, both building permits and housing starts have increased over the year. Realistically, the pace of building is still behind historical standards, meaning it may take months before the pace can support the higher demand.

According to Realtor.com, Millennials were a significant 46% of all mortgage originations in September 2019. This was no surprise as many Millennials regard homeownership very highly in their life goals, even higher than getting married or having children. The combination of low-interest rates and higher incomes urged more and more Millennials to close deals on homes. A problem they face comes from the Baby Boomer generation. Many of this group choose to stay in place, resulting in more homes being kept off the market. As Millennials get older, many of them will move from urban to suburban areas. Although, they yearn for a community that can imitate the lifestyle of a lively city. This trend is drawing Millennials toward affordable suburban homes on the outside of major cities. As cities like New York and San Francisco become increasingly expensive, younger families populate the small towns outside major urban areas.

These commercial real estate trends give rise to the growth of a number of cities in the coming year. The best commercial real estate markets for overall investment and development in 2020 include:

• Austin
• Raleigh/Durham
• Nashville
• Charlotte
• Boston
• Dallas/Fort Worth
• Orlando
• Atlanta
• Los Angeles
• Seattle
• Tampa/St. Petersburg

These cities are the top commercial real estate markets in terms of population growth and net migration. Larger metros, such as Los Angeles and Boston, are projected to have slower population growth but will continue to be highly sought-after real estate markets that will continue to attract capital. 

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Real Estate Trends & Predictions For 2019

Released jointly by the Urban Land Institute and PwC, the annual Emerging Trends In Real Estate report highlighted a theme of unpredictability for 2019. Researchers stated that simply “connecting the dots” will no longer work and that this will be a “new era that will demand new thinking.”

The report also posited that 2019 would lend itself to overlapping trends, with the intersectionalities themselves leading to new conditions. For example, researchers postulated whether or not the technology used to improve productivity and efficiency would accelerate the industry’s downsizing. Investors were advised to prepare to be surprised in any way possible, which was great for spurring innovation and creativity within the industry. 

The following covers the top commercial real estate trends and predictions for 2019, as well as a review of the trends in preceding years. Federal officials have hinted that they will continue boosting interest rates to moderate inflation and stabilize the economy. The Federal Reserve hiked rates three times in 2018, between 2 and 2.25 percent. According to Curbed, the slowdown of economic growth will impact the real estate sector, especially in emerging markets. As real estate activity slows, investors will have a tougher time identifying new deals.

In 2018, much of the commercial market’s attention was focused on the compression of the retail industry. CBRE Head of Industrial Research, David Egan, predicted that the shift in demand from traditional retail to industrial real estate will continue. As large retailers focused on e-commerce, the demand for warehouse, shipping, and logistics spaces continued. This was especially true as more and more traditional retailers entered the online space. According to Bisnow, however, the retail industry is not dead. Instead, experts believed retailers would focus on delivering omnichannel shopping experiences, while e-commerce retailers would start opening physical store locations. (Amazon Books is an example of the latter.) Experts also warned investors would need to spend more time supporting the efficient use of commercial space. Retailers were predicted to seek out better (not bigger) brick-and-mortar presences.

Another trend highlighted in 2018, expected to continue in 2019, was the growing number of millennials flocking to secondary and suburban markets. According to the U.S. Census Bureau, 2.6 million Americans moved from cities to suburbs in both 2017 and 2018. Experts believed this mass exodus occurred as millennials opted for larger, more affordable housing in suburbs when starting families. Neighborhoods that were walkable, transit-oriented, and have strong school systems attracted the most newcomers. This trend was of interest to commercial investors; with migration patterns leading to a spike in demand for retail development and employment centers. Multifamily developments experienced “amenity creep,” or a need to provide increased, high-end amenities to attract sophisticated renters and buyers.

Technology was also expected to play a big role in 2019. According to Curbed, industry-specific technology is changing the way real estate professionals do business. For example, there was been a boom in building and construction technology and a push for better, more transparent analytics reporting. Experts were also excited to see how machine learning and other emerging technologies could improve building management, organization, and design. The Urban Land Institute reported increased use of artificial intelligence in assets such as co-working spaces and smart buildings. Uses included building efficiency, safety, and security, as well as property access.

Amidst all these demographic and technology shifts, the Emerging Trends In Real Estate survey reported that construction costs topped the list of concerns for investors and developers. A decline in immigrant construction labor, superstorms leading to rebuilding efforts, and international trade wars were factors squeezing construction costs across the nation.

Finally, the commercial investing community gained a renewed focus on sustainability due to serious reports on climate change. Many investors turned to impact investing, making green practices a core part of their businesses. Keep reading to get an overview of the top commercial real estate trends from 2018 to better understand what factors contributed to these trends.

6 Trends Affecting The Commercial Real Estate Market

If you’re interested in getting your start in commercial investing, then you’ll definitely want to familiarize yourself with the trends and factors that influence commercial real estate market trends. Take some guesses on what kind of factors might attract new businesses and help certain markets boom. Did you guess any of the following trends correctly?
Commercial growth: Directly impacting job growth, the movement of major companies and sector-based growth can all lead to demand for commercial spaces and housing.

• Development: The urban development of city centers, business districts and public-private projects each affect the attractiveness of a market for commercial real estate tenants.
• Cost of business: The cost of conducting business will influence how companies move in and out of certain markets. Cities with relatively lower costs of conducting business are more likely to attract new businesses and employment.
• Infrastructure: Public infrastructure, including public transit, communication, electric and transportation systems all influence the ease of doing business in a market. Cities with continued infrastructure improvements are more likely to attract and retain residents, businesses and tourists.
• Housing: Local real estate prices, rental affordability, and housing options are all factors that contribute to the migration patterns of workers. For example, a major company may be influenced by their decision of where to move their new headquarters, based on the overall cost of living for their employees.
• Quality of life: Urban, walkable cities with plenty of public transit, parks, good schools, and entertainment all contribute to the general quality of life for residents. Great quality of life is important considerations for businesses and their employees.
• Tourism: The tourism industry presents many opportunities for commercial real estate to boom, such as hotels or airports.

How To Determine The Best Places To Buy Commercial Real Estate

Curious about which commercial real estate markets are best for getting started? It’s important to keep a few priority items in mind. Although there will always be variances, commercial markets that embody the following five criteria are known to offer the best returns for investors:

• Low Unemployment Rates: Cities that have a low or decreasing unemployment rate indicate a robust job market, with a probable demand for office and retail spaces.
• Low Purchase Prices: This might sound like a no-brainer, but it is important to find a property that is priced either below or at market value. If you want to profit off your renters, consider finding a slightly distressed property that is being sold for a deal. There is also the option to buy a commercial foreclosure property.
• High Asking Rents: Be sure to do your due diligence before jumping into commercial real estate and research comparable markets to see what average asking rent prices are. If the asking rent rate is high, and your purchase price is low, you should make a substantial profit.
• High Tenant Demand: Search for up-and-coming markets that are creating new jobs and developing new residential complexes because there will be an increased demand for space.
• Low Vacancy Rates: If you have high tenant demand coupled with low vacancy rates, you will be able to charge a higher rent price, therefore increasing your profits.
• Favorable Conditions For Business: Pay attention to local and regional economic policy. Are new plans attracting businesses to the area? Review the tax rates for business owners and economic growth as indicators.

Top 10 Fastest Growing Commercial Real Estate Markets

There are four different types of commercial real estate spaces investors can consider: retail, office, industrial, and multifamily complexes. If you’re looking to invest on a budget, experts recommend starting with either industrial spaces or multifamily complexes, as those options tend to have lower price points than retail and office spaces.

If you think you’re ready to make the jump into commercial real estate, consider these rapidly developing markets, which are arguably the best places to buy commercial real estate right now:

Summary

Although predicting the future of the commercial real estate market might seem like a job for economists and top-rate experts, the truth is that any investor can make their own educated guesses. As shown in this discussion, market trends are extremely interconnected from year to year. All you have to do is study up on market outcomes from previous years, as well as have an understanding of the economic drivers that impact the current commercial market. Investors who take the initiative to perform their own research and make educated predictions will be the ones who beat their competition and find the answer to: what are the best real estate markets for commercial investments?

Fixing and flipping properties has enjoyed something of a golden era over the last two decades. 

House fixing and flipping really started to pick up steam during the early 2000s, especially in the wake of the 2008 financial crisis. When housing prices plummeted, savvy real estate investors saw the opportunity to purchase properties at a discount, fix them, and sell them for a profit.

However, this is the 2020s, and the economy has changed. So, is fixing and flipping properties still a lucrative and sound investment in 2023?

The outlook for fix-and-flip properties in 2023

Some of the fundamental factors that affect how likely a fix-and-flip project is to succeed include local real estate market conditions, interest rates, the availability of financing, and your own financial goals and resources. 

According to a March 2023 report by ATTOM Data Solutions, the average gross profit on a flipped property in the U.S. in 2022 was $67,900 in the fourth quarter of 2021, down from $70,000 in 2021. Here’s the thing, 2021 was the highest profit point since 2005, so there was bound to be a decline.

The average profit margin for flipped properties in 2022 was 26.9%, which factors the percentage of the property’s purchase price earned as profit after deducting the cost of renovations and other expenses. 

That said, many real estate investors have earned significantly more or less depending on the project and the region of the country where their property resides. For a deal to be profitable, it’s essential for real estate investors to crunch the numbers to understand the cash-on-cash return before putting in an offer. 

When you’re considering investing in fix and flip properties, the potential benefits haven’t changed:

Potential for profit

The profit potential still exists in the fix-and-flip market, especially with less competition in the market from potential homebuyers. When you can buy at a lower price and renovate a property to increase its value, you can sell it for a profit.

Active income

Fixing and flipping houses can provide an active source of income. And unlike passive investments, like stocks or mutual funds, you can actively control the outcome of the investment.

Potential tax benefits

Flipping houses can provide some tax benefits, such as deductions for renovation expenses and property taxes. As always, it’s essential to consult with a tax professional if you’re looking to fix and flip.

Diversify your real estate investment portfolio

Depending on the type of property and the scope of the work required to renovate and sell the property at a profit, fixing and flipping a property can bring in cash flow in a shorter amount of time than other types of real estate investments.

Potential pitfalls of fix and flip investing in 2023

While fixing and flipping properties can still be a lucrative investment strategy, there are also potential pitfalls to be aware of, especially in 2023, when the real estate market may experience changes due to economic, social, and political factors. 

Here are a few potential pitfalls to keep in mind when deciding if a fix-and-flip project makes sense right now:

Market volatility

The real estate market can be volatile under the best circumstances, with prices fluctuating rapidly in response to economic and social changes. In 2023, in particular, adjustments to interest rates, inflationary risks, inventory issues, and economic uncertainty can impact the value of your property and potentially affect your profits. 

Other factors, like the job market outlook and unemployment numbers, can also affect buyer behavior.

High competition

The popularity of fixing and flipping properties has led to increased competition among investors, which can drive up prices and make it harder to find good deals when buying diminished properties.

Rising construction costs

The cost of building materials and labor has been rising in recent years, which can increase the costs of renovating an investment property and lower your potential profit margin.

Regulatory changes

Government policies and regulations can change quickly and impact the real estate market in unforeseen ways. For example, changes to tax laws or zoning regulations can affect the profitability of your investment.

How interest rates affect the real estate market and your investments

Interest rates can significantly impact the real estate market, as they affect the cost of borrowing money to purchase or refinance a property. The fluctuation in interest rates can also impact how much buyers can spend on a new home.

It helps to understand the ways that changes in interest rates can impact the real estate market:

Affordability

New buyers are more likely to afford a home loan when interest rates are low, as lower interest rates mean lower monthly payments. Low interest rates, like those we’ve seen in the last couple of years, can increase home demand and drive up home prices. When interest rates are high, buyers are less likely to afford a new home loan, which can decrease demand for homes and drive down home prices — and potential profits for investors.

Refinancing

Changes in interest rates can also impact the number of people who refinance their home loans. When interest rates are low, many people refinance to take advantage of lower rates, which can stimulate the economy and increase consumer spending. When interest rates increase, fewer people are likely to refinance, which can slow down economic growth.

Overall, changes in interest rates can have a ripple effect on the real estate market and the general economy. However, as a fix and flip investor, you can refinance a short-term loan into a long-term loan to buy and hold until the market stabilizes.

2023 outlook

Spring is always the home-buying season. Because home inventory remains low, buyers are still looking for new homes.

As always, research the area you think you want to buy to find out how fast new and flipped homes are selling. Bargains still exist, and educated investors can take advantage.

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.