Archives November 2020

There’s no doubt that 2020 was a tough year for many investors in just about every sector, but with the uncertainty of the election behind us and in light of the news of numerous vaccines on the way, there’s a renewed sense of optimism out there. I know I am very excited about the opportunities 2021 will bring. Here’s the way I see it…

The economic transformation was already happening. COVID-19 just kicked it into overdrive. In many markets, particularly here in my backyard, South Florida, people are abandoning their high-rise apartments and condominiums because of the pandemic. Even though the vaccines may be on their way, the migration has begun and there’s no stopping the trend now. Renters want to trade in their confined surroundings for the open-space living that comes with the kind of multifamily properties that I invest in. Not even the fact that landlords have significantly lowered rents of those apartments has been able to stop the exodus. This means that while the value of large apartment buildings goes down the value of multifamily communities is projected to rise, possibly by double digits.

Also, the trend of people working from home is going to be permanent in a lot of cases. People who used to live in small apartments in the city just to be close to work are now telecommuting from bigger and more comfortable residences in communities that offer more luxury and more amenities at much lower rents than you find in New York, Los Angeles, Atlanta, Chicago and the other major markets.

Another factor that’s going to have a lot to do with the shifting real estate investment landscape is the concentration of new jobs in certain up-and-coming markets. 30 markets containing 40 percent of the country’s population benefitted from a 60 percent job creation influx since 2015. People go where the jobs go. That means a growing demand for housing and it will continue for years because the nature of jobs is changing. Most jobs are found in companies that provide some type of service or in offices. Demand for IT support, support personnel, and healthcare workers in particular has grown considerably. When demand like this occurs, businesses in the same industry tend to cluster in markets where these services already exist. This stimulates the job market which attracts potential renters. See where this is going?

What it boils down to is that demand for housing in these markets will continue to grow at a quicker rate than developers can build new residences. This is good news for investors like me and those who invest with me because demand will keep going up…and so will rents.

Last year showed us how vulnerable local economies in smaller markets were. Unemployment went through the roof while home prices skyrocketed as people left the cities. Thankfully the unemployment rate is down. This means that more people will be in the position to rent a unit in a multifamily property in one the many markets that have benefited from people leaving the crowded urban areas.

Many of these up-and-coming markets present interesting opportunities, especially for entry-level investors. These units are tangible assets, which almost always increase in value and are by far the best and safest way to generate passive income.

Cardone Capital is constantly watching these areas for new opportunities and already has some deals in the works so anyone interested in this type of investment should definitely consider investing with us as we do all the work. Cardone Capital has nearly $2 billion in assets under management and currently pays out nearly $2 million a month in distributions.

https://thinkrealty.com/why-rental-properties-are-a-great-investment-in-2021/?inf_contact_key=ac21a577ce2c77af2686587d9a74d10a680f8914173f9191b1c0223e68310bb1

Our research team releases regular monthly housing trends reports. These reports break down inventory metrics like the number of active listings and the pace of the market. In light of the developing COVID-19 situation affecting the industry, we want to give readers more timely weekly updates. You can look forward to a Weekly Housing Trends View near the end of each week along with weekly coverage from our Housing Market Recovery Index and a weekly video update from our economists. Here’s what the housing market looked like last week.

Weekly Housing Trends Key Findings

Key Findings:

• Median listing prices continue to grow at 12.9 percent over last year, marking the 13th consecutive week of double-digit price growth. Economists, market watchers, and most especially buyers have been looking for signs of a slowdown in the housing market that has been red hot since its post-pandemic recovery. So far, at least, the median listing price continues to defy gravity. 
• New listings were down 12 percent. The new listings trend took another step back this week. Earlier in the year, new listings growth was tied closely to the prevalence of coronavirus spread in various housing markets. The second week of larger declines in new sellers could be related to rising new coronavirus cases.  New listings are a necessary ingredient for further home sales, so additional improvement here will be important for home buyers and sustaining home sales activity. 
• Total inventory was down 39 percent. After five steady weeks at 38 percent, the total number of homes available for sale shrank by a slightly larger amount this week. Fewer new sellers coming to market while a greater than usual number of buyers continue to search for a home causes inventory to continue to evaporate.
• Time on market is still 13 days faster than last year. With limited homes available for sale, those that are on the market are selling quickly–roughly 2 weeks faster than a year ago. For 7 weeks now, we’ve seen homes sell 13 or 14 days faster than last year. We typically see a big increase in time on market before the end of November. If this indicator remains steady in the weeks ahead, that points to a seasonal slowdown, but if time on market shrinks by a greater amount, that’s a signal that this year’s housing market is not taking the holidays off.

Data Summary

	First Two Weeks March	Week ending Oct 24	Week ending Oct 31	Week ending Nov 7
Median Listing Prices	+4.5% YOY	12.2+% YOY	+12.9% YOY	+12.9% YOY
New Listings	+5% YOY	-2% YOY	-9% YOY	-12% YOY
Total Listings	-16% YOY	-38% YOY	-38% YOY	-39% YOY
Time on Market	4 days faster YOY	14 days faster YOY	13 days faster YOY	13 days faster YOY

Weekly Housing Trends View — Data Week November 7, 2020

We all crave the creature comforts of a cozy, well-designed home. While there are a lot of do-it-yourselfer’s out there who work tirelessly on their homes and seem to be updating or renovating on a constant basis— this is not possible for those of us who don’t know the difference between a table saw and a drill.Of course, the latter-mentioned group of people could just hire someone to renovate their homes for them, but then that comes with messy and costly renovations. Anyone who has done a major renovation can attest to the unexpected costs and immense mess that it creates.How can we update our homes while bypassing major renovations? We want updates that all of us can do, not just those handy do-it-yourselfers. Here is your answer — 10 of them, in fact.

Let’s look at 10 imaginative ways to update your home without tearing down walls or breaking the bank.

1) Create Open Space In Your Home

According to a Bankrate Study, open floor plans are on the top of the list when it comes to home buying and home ownership. Homeowners want an open floor plan where the kitchen, family room and dining room share one vast open space. Also, formal dining rooms seem to be going out of style.Here is your opportunity to create space in your home, making  it more appealing to you and to your visitors. How can you do this without tearing out walls, you ask? Actually, making your home seem open and airy can be easier than you think. Sometimes it’s as simple as getting rid of bigger, bulkier furnishings, or moving furnishings around the room to see what placement gives the most open space. If you are attached to the huge armoire, cabinet or other bulky furnishing that is taking up a lot of space, then consider painting it a warm off-white color— this will help it “disappear” into the room, tricking the eye to think the space is more airy and open.Another trick of the eye that gives the illusion of open space, is mirrors. Mirrors when placed opposite windows reflect light into the room and make the room seem more open. If you have a formal dining room that you really don’t use, then consider turning it into a cozy den, home office, crafting room or library with a reading nook. This will make the current space you have more usable, and creates a whole new room in your home that you never had before (without any messy renovations!).

2) Add New Lighting To Your Home

Proper lighting can truly bring a room to life.  A poorly lit room looks small, dark and cramped, while a brightly lit room appears open, airy and welcoming. There are numerous ways to brighten up your home with lights. Some of the easier methods are as simple as buying table lamps and floor lamps for your home.Strategically place a couple tall floor lamps in dark corners and watch your room come alive. Layer this lighting with lamps on side tables, making the room feel welcoming and cozy.  Then, if you want to get adventurous, you can replace all those out-dated ceiling fixtures with the stunning modern masterpieces that are available on the market.Of course, this last part may require you to hire an electrician for installation, but if you’re handy, replacing a ceiling fixture is something that is not too complicated.  Whether you keep it simple with floor lamps, or go all out and replace all your ceiling fixtures —modernize your home with plenty of bright lights.

3) Cabinetry: Update Drawer Pulls and Door Handles

Nothing dates your kitchen and bathrooms more than old-fashioned, worn and dirty handle pulls and knobs. There is no excuse not to update all your cabinet and door handles when it is really so simple to do, and there are so many ways to update your cabinetry.There are numerous finishes to choose from such as bronze, brushed nickel, aged copper, and shiny stainless.  With so many modern choices on the market it may be hard to decide what best suits your home. Don’t stress too much about the plethora of options, after all, you could always buy one or two different styles to see what works best in the room.Plus, there are not really any steadfast rules to choosing cabinet pulls and knobs. Essentially, a country kitchen can look chic and updated with very modern stainless knobs, while a modern kitchen can look cool and eclectic with more vintage-style knobs. The design choice is up to you, so get out there and start updating your kitchen and bathroom cupboards today.

4) Update Window Treatments

Windows seem to be overlooked a lot of the time. Homeowners struggle to decide what style would suit the room best, leading them to give up and leave the windows bare or just install simple blinds for privacy.Here’s the thing— windows beg to be dressed! By leaving your windows bare, you are missing out on a whole spectacular layer of decorating.  While those who are lucky enough to enjoy ocean or mountain views may argue this fact, but even the best of views could be framed by stylish window panels. Windows can be dressed to perfectly suit your style and taste.You can go bold and graphic with geometric curtain panels, or beachy with gauzy white sheers, or minimalist with bamboo shades—-the options are endless. If you are stressing about all the possibilities, then take a cue from the color schemes that you already have in place. Sometimes the easiest option is to simply match curtain panels to the color of your walls— doing this creates a look that goes with any style.

5) Create An Outdoor Room

Sometimes we forget to look outside our very own doors for unused space. Even if your home doesn’t have a large front porch or amazing backyard patio—there is still space to be used. You just need to be inventive.You can create an amazing outdoor space by starting with an outdoor rug to define a “room” outdoors. Then add a couple comfortable outdoor chairs and throw cushions, a small fire pit, some dangling string lights — Voila! You have a added a new “room” to your home.If you want to get fancier you could put down some brick pavers or flagstones, then layer it with the outdoor rugs, chairs etc… Or you could go all out and install a large pergola, drape the sides with privacy curtains, add an outdoor heater, some music, some wine….yes, this sounds like a great outdoor escape. The pergola install may take the weekend to accomplish, but it would be worth it come Sunday evening when you unwind outdoors with your glass of wine.

6) Landscape Your Yard

Landscaping is too often overlooked.  We plant one or two trees and assume we are done. However, curb appeal is greatly affected by  the design of your landscaping. While not all of us have a green thumb, it can be easy to make a couple raised garden beds, or plant more trees and flowering shrubs.Begin with a visit to your local greenhouse. Staff at these stores are full of advice and knowledge about local plant life. Ask them what plants thrive best in your area and, more importantly, what plants are the easiest to care for. Most of these garden centers have a landscape architect on staff who can design a landscaping plan for you, as well.It is best to start slowly by adding a couple flowering shrubs to your front yard, and then add a small raised bed around a walkway or front door. Remember to layer the heights of plants with the tallest in back, and read the planting directions for spacing and projected heights. With time and patience, you will have a beautifully landscaped yard.

7) Add Easy to Install (And Remove) Wallpaper

This is not your Grandmother’s wallpaper. No, we are talking about all of the amazing new removable wallpapers that are currently hitting the market. We are also not talking about those tacky wall decals that say, “Always Kiss me Goodnight”.Rather, the new lines of removable wallpaper come in amazing patterns and graphics that will make your room look like you hired an interior designer (and spent a fortune). These wallpapers are easily removed by simply peeling them off (without harm to the wall underneath) and most can be reused.For an easy weekend project, consider covering the main wall of your bedroom with a peaceful pattern, or consider a living room update by covering one wall with a funky geometric patterned paper. There are numerous online stores where this wonderful wallpaper can be purchased. Just be sure to read the fine print and buy the brands that are top-of-the-line and remove easily.

8) Spruce-Up Your Bathroom

Bathrooms get dirty and dingy quite quickly. Begin a bathroom overhaul with a thorough cleaning. Yes, not a lot of fun, but the shiny result will give you new motivation to spruce-up the rest of the bathroom.Once the room is clean, look to the outdated knobs, light fixtures, vanity, faucets, and shower curtains. By simply changing out one or two of the most outdated items, you can make your bathroom look modern and new. A coat of paint can really go far in a bathroom, as well.Look to the bathroom below and notice all the shiny white painted trim and blue walls; the modern cabinet pulls; the cool lantern light fixture; the modern faucet; the plush towels, and  the pretty plants—-these all add up to a brand-new bathroom, without  tearing out cabinets, walls or sinks.

9) Make a Man Cave

Men are uniting everywhere— in their man caves. While some of us girls don’t get it, men really like to have a man-cave to escape in, a room to call their own, a room to drink with the guys and watch the game in peace. Who can blame them? It really does sound like a great escape.Men, here are some tips to creating the ultimate man-cave. First, find a space in your home that you can use, whether it is the basement, the garage, or an outdoor room or outbuilding such as a shed. Then you need to decorate it and make it  your ultimate escape. Add a TV, a pool table, a fridge, a bar, some darts, comfortable chairs, rugs, pillows, music…etc Getting the picture? Make it home.There are a lot of companies that customize garages into amazing man-caves. They install flooring, wall units, and sound systems, essentially turning the garage into a new room in your home. Ladies, maybe we can do the same with a craft room?

10) When In Doubt Just Clean and Paint

Does this list have you exhausted? Is your home overwhelming you? Maybe you should just start by simply cleaning-up your main living space. A deep-clean can enhance our mood and make our home more livable (and more importantly inspire us to do more).It seems obvious but a clean coat of paint can take a room from drab to fab. Consider adding a punch of color on a accent wall, or just touch up  your trim with a clean coat of white paint. If your home already has a fresh coat of paint, then look to other things that could use a touch-up.  Maybe paint your ceiling a cool blue, or bring new life to an outdated piece of furniture with a new coat of paint.A deep clean and a new coat of paint can go a long way when it comes to revamping our rooms without major renovations.

As you can see, there are a lot of ways to update your home without the messy overhaul or huge expense of remodeling. Study this list and the rooms in your home , then ask yourself what is the most outdated feature(s) in your home? Then it’s time to get to work!Change out old cabinetry knobs, light fixtures, faucets, window treatments and faded paint. Or look outside the typical rooms in your home by creating an amazing outdoor landscape, outdoor room, or garage man-cave. All of these small updates go a long way to renewing your home, your spirit and your sense of well-being.What recent updates have you done to your home? Or what items in this list do you plan to do first?

10 Ways To Update Your Home Without Major Renovations

Having the knowledge rather than just an understanding of a subject means you have become an expert. So, when it comes to single tenant net lease(STNL) properties, wouldn’t you want to know as much as possible before investing?

This type of lease that’s executed between the developer/landlord and the tenant of the build to suit location solidifies the use prior to development. As a potential buyer of said property, here are a few items you’ll want to review in the build to suit lease before signing the Purchase and Sale Agreement.

Tenant Profile

First and foremost, the tenant concept and credit profile should be taken into consideration. This will impact the overall terms drawn up in the lease. As a future landlord, your lowest risk option would be to choose the single tenant properties with an investment-grade or national tenant.

National creditworthy tenants with a rating of at least BBB- (S&P) are the standard for premium net lease properties. Also, regional or franchise-type credits contribute to the overall value of the property because it is dependent on the tenant.

Dollar General is a good example of a relatively safer real estate investment as it has over 15,000 locations across 44 states — and counting!

In today’s market, sub-investment grade product can provide the investor with greater flexibility in lease variation and ability to capture greater yield. The consistency of a freestanding long-term net lease is more uncertain than in the previous decade. So, risk tolerance is a driver of accomplishing a higher yield.

For example, in a SimonCRE-developed regional quick service restaurant (QSR) location in Phoenix, Filiberto’s Mexican Food, there was high demand as this type of concept is both value-oriented and ecommerce-proof. The property was recently sold and the investor was able to achieve a better cash-on-cash return relative to a newly constructed national QSR lease.

In the same vein, in the SimonCRE-developed medical office project in Florence, AZ, it was a smaller operator so there was a higher discount on the exit purchase price for the investor. It is also immune to the effect of ecommerce as it provides an improved quality of healthcare for the community through its new exam rooms, laboratory, and drive-thru pharmacy. Because it is not located within a major metropolitan city, this traditional market highly benefited from this type of concept.

Lease Type

One could argue that single tenant property is the most “liquid” asset class in commercial real estate due to its consistent lease structures and abundance of comparable data. Although, being an expert in how net leases are drafted first involves the knowledge of the different types of build to suit leases.

For example, in an Absolute Net Lease or a bondable lease, the tenant is fully responsible for all building expenses including the roof and structure. Whereas in a Single Net (N) Lease, the landlord covers all building expenses and the tenant pays a pro-rata share of the property tax, utilities and janitorial. Then in a Double Net (NN) Lease, the taxes and insurance premiums are paid by the tenant while the landlord maintains all the exterior and common areas.

Triple Net (NNN) is likely the industry catch phrase you’ll hear most, especially for a retail single tenant net lease; however, it could also vary in terms of tenant versus landlord responsibilities as it is less rigid than an Absolute Net Lease.

The length of the actual lease term and time left are also important deciding factors. Typically, build to suit leases will have terms ranging from 10-25 years. Although, non-national tenants may follow a trend of shorter term leases.

Keep in mind, the cap rate is calculated using the tenant’s Net Operating Income (NOI), so less time left on the lease means a lower risk of failing to renew. Traditionally, cap rates move in lockstep with the 10-Year Treasury. So, when exploring an investment property, evaluate the value of the building plus the raw land to determine if the price is fair or not.

Rent Increases

Another point to check when combing through the lease is if there are any periodic rent bumps in place. When do they occur? From a developer’s perspective, having the periodic increases will add to the property’s value. It also serves as a safeguard that ensures the rent will likely keep up with the market rate.

Rent escalators tend to drive more demand from investors seeking long-term passive investments. Consequently, it can also create challenges for redevelopment. Rent increases are meant to account for appreciation and inflation. However, in times of market stagnation, it can lead to operator defaults or even situations where the developer is unable to replace rents. So, this all should be taken into consideration.

At this point in the market cycle, S&P-rated investment-grade tenants are structuring flat leases. But without these rent increases in place, an investor could end up with a long-term tenant paying lower than market rate. It’s critical to consider any economic factors that may affect your income down the line.

Renewal Options

A final checkpoint on a single tenant property is to ensure there are multiple lease renewal options drafted. While a property can change hands at any time, it’s always an important selling point.

Having these options protects the tenant but are also crucial for a landlord. Economic factors can impact your income if you’re not prepared for them. For example, during times of a seller’s market where an owner/landlord of a property in an especially competitive area, flexibility in increasing the rate later helps capitalize on the prosperous times.

During recessionary times, even a national tenant like Macy’s could face hardship and need to either negotiate a lower rate to stay, relocate, or close that store altogether.

Checkpoints Before Buying a Single Tenant Property

A Short History of Underwriting Guidelines

Borrower underwriting guidelines have changed dramatically in recent years. Back in the good old days, prior to the Great Recession, lenders did a very cursory job of underwriting the borrower. They typically asked the borrower to provide a simple financial statement with a credit check, and that was the extent of the credit items required.

Back then, they focused almost exclusively on the pros and cons of the property. And if they liked the risks associated with the property, it was very likely the loan would be approved with only a cursory look at the borrower.

Ah, the good old days.  But as you know that all changed in recent years.  In today’s environment, lenders have upped their borrower documentation considerably requiring an extensive amount of information on the borrower.

Under today’s lender guidelines the borrower would do themselves a favor if they were proactive about providing their personal documentation at the same time as the property documentation. Doing so strongly suggests that you, the borrower, are a professional, seasoned investor.  Instead of slowly dripping the required documents over a couple of weeks or so, have it all prepared to give to them right from the get go.

Six underwriting guidelines lenders use to qualify you:

1. Minimum Net Worth to Loan Ratio – Provide the lender with a complete, professional looking personal financial statement. Each lender has different requirements but they typically require the borrower’s net worth to be equal to or greater than the loan amount. Some require a borrower’s net worth to be as much as two times the proposed loan amount.  Ask the lender before you send him your financial statement what is the minimum net worth to loan ratio.  If your net worth exceeds this ratio then proceed with sending him all your personal documentation.
2. Minimum Number of Months of Debt Service Required of Liquid Assets – Again each lender is different but they typically require liquid assets showing on the borrower’s balance sheet equal to 6 to 12 months of debt service. Find out what your lender requires before signing the application.
3. Complete the REO Schedule with all the Details Filled In – Most lenders now create a global cash flow spreadsheet on the borrower. They want to see if the prospective borrower is generating a positive cash flow or slowly draining himself of all his cash.  Much of the detail required to determine his global cash flow comes from the real estate owned schedule.  Prepare the REO schedule before you begin talking to lenders so that when they ask for it, it’s ready for them.  If you need a copy of a REO schedule contact me and I’ll email you one.
4. Credit Rating & Explanations of 30 Day Late Payments – Run a credit report on yourself before you start looking for a lender. Find out your credit score.  Most lenders require that your credit score be a minimum of 680.  If yours is not that high, you better have a good explanation.  Also you need to explain every payment that is 30 days late or more.  Put it in writing before they ask.
5. Explain Past Tax Liens, Judgments, Litigation – Have written explanations with back up documentation already prepared before you sign the application. Give the prospective lender your explanations and have him verify in advance of signing your application that your explanations are satisfactory and will not impact loan approval.  Do it before you sign the application when you have the most negotiating power, not after when you have little or none.
6. Tax Returns, not just Schedule 1040s, signed and dated including all K-1s – Lenders want all of your federal tax returns, not parts of them. This includes providing all of you K-1s.  To speed up the process get it done correctly the first time.

Time Kills Deals

One of the truest statements ever uttered about commercial real estate is, “Time kills deals.”  A lengthy, drawn out loan underwriting process will at the very least move your deal to the bottom of the pile.

It has the potential of killing the deal altogether.  These borrower underwriting guidelines can be verified quickly if the borrower is proactive and anticipates what the lender is going to require.  A borrower should work towards making the lender’s process as easy as possible to avoid ever hearing the words, “I’m sorry to inform you, your loan has been turned down.”

Those are my thoughts, I welcome yours.  What underwriting guidelines do you think are most important for qualifying a borrower?

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