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For professionals seeking quick and flexible financing solutions, hard money lenders are an invaluable source of opportunity in the real estate industry. While these lenders offer a lifeline for those looking to seize lucrative opportunities, navigating the terrain requires caution. In this article, we’ll shed light on common mistakes professionals make when borrowing from hard money lenders and provide valuable insights to steer clear of these pitfalls.

Mistake 1: Underestimating the True Cost

One prevalent mistake is underestimating the true cost of borrowing. Hard money loans often come with higher interest rates and fees compared to traditional financing options. Professionals must meticulously analyze the total cost of the loan, including interest rates, origination fees, and any other associated charges. By doing so, borrowers can make informed decisions about whether the investment remains profitable in the long run.

Tip: Always request a clear breakdown of all costs associated with the loan and carefully assess how they align with your overall financial strategy.

Mistake 2: Ignoring the Terms and Conditions

Another common pitfall is neglecting the fine print in the loan agreement. Hard money lenders may impose strict terms and conditions, such as short repayment periods and high penalties for default. Professionals must thoroughly review the terms, seeking clarification on any ambiguities. Ignoring these details can lead to financial stress and potential legal complications.

Mistake 3: Overleveraging Without a Cushion

One critical oversight is overleveraging without a financial cushion. Some borrowers make the mistake of borrowing the maximum amount without considering unexpected expenses or market fluctuations. This can lead to financial strain and increase the risk of default.

Tip: Build a financial cushion into your borrowing strategy, considering potential unforeseen expenses, market uncertainties, and other risk factors.

Mistake 4: Failing to Have an Exit Strategy

A crucial oversight is neglecting to establish a clear exit strategy. Hard money loans are typically short-term, and professionals need a well-thought-out plan for repayment. Without a viable exit strategy, borrowers may find themselves scrambling to secure alternative financing or facing unfavorable terms for an extension.

Tip: Develop a comprehensive exit strategy before obtaining the loan, considering potential challenges and outlining specific milestones for repayment.

Conclusion

Borrowing from hard money lenders can be a strategic move for professionals in real estate and investment. However, avoiding common mistakes is essential to ensure a positive and profitable experience. By thoroughly understanding the costs, scrutinizing the terms, being cautious about overleveraging, and having a well-defined exit strategy, professionals can navigate the terrain of hard money lending with confidence and success.

When it comes to living a healthier lifestyle, the little things can add up and make a considerable impact! It’s not just about hitting the gym or eating right – it’s also about creating a healthier home environment and adopting habits that promote overall well-being. To help you on your journey, here are some tips that will contribute to a more holistically fit lifestyle.

Purify Your Air

Minimizing indoor air pollution can affect how you feel, from reducing asthma triggers to creating a better sleeping environment. Because of this, ensuring good air quality in your home is something you should prioritize. One easy solution is to invest in an air purifier, which can help eliminate many common indoor pollutants. And if you live in a region that gets smoke-filled air from frequent forest fires, an air purifier is a must in the summer and fall months. Additionally, regularly changing your furnace filters can substantially improve your indoor air quality.

Adopt Some Green Friends

Plants don’t just make your home prettier – they also offer some serious health benefits! Certain types, like the snake plant, aloe vera and peace lily, are well-known to clean the indoor air, increase humidity and release oxygen. Plus, introducing plants is a great way to add a relaxing dose of nature to your living space, along with enhancing the air quality.

Make a Shoes-Off Policy

Keeping your shoes at the door is a simple practice that can keep your home cleaner and healthier. Shoes can track in germs, dirt and other outdoor pollutants, not to mention allergens like pollen. Adopting a shoes-off policy can significantly reduce this influx of unwanted substances into your home, improving the overall living environment and potentially contributing to a decreased risk of allergies and illnesses.

Regularly Deep Clean Carpets

Carpet maintenance is not just about keeping up the aesthetic appeal – it’s fundamentally a health measure. Carpets can act like a filter, trapping various airborne particles, including pet dander, dust mites, pollen and other allergens. Although vacuuming helps, it often isn’t enough to remove all these contaminants deeply embedded in the carpet’s fibers. A regular deep clean is necessary to extract these allergens and pollutants fully. Experts recommend a professional cleaning every 12 to 18 months, depending on your carpet’s usage level.

Filter Your Water

Filters can remove contaminants from your water, providing safer and often better-tasting H2O. Clean, fresh water is vital in maintaining good health, so it’s well worth the investment. A reusable pitcher is also a greener and more economical choice than buying plastic bottled water. Plus, there are fantastic pitcher options, from the downright luxurious to the no-frills model.

Room to Exercise, Destress & Create

Repurposing space in your home and creating dedicated areas for physical activity, relaxation and hobbies can significantly influence your health journey. Make a quiet corner ready for workouts, even if it’s just enough space for a yoga mat – it can motivate you to stick to a regular exercise routine. Exercise not only boosts your physical health but also acts as a natural stress reliever. In addition, having a place to unwind and disconnect can considerably improve your mental health. This could be a reading nook, a meditation corner or somewhere to engage in your favorite hobbies and crafts.

Establish a Tech-Free Zone

Consider a kitchen or dining room charging station to keep phones out of bedrooms at night. A tech-free bedroom can help improve sleep quality and promote a better sleep routine and a healthier home. Tempting as it may be, instead of using your phone’s alarm to wake up in the morning, pick out one of these top-rated and stylish alarm clocks.

Remember, living a fit, healthy lifestyle is more than the big gestures – it’s also about the little steps you can take daily. Pick a few from our list and start 2024 off on the right foot!

US commercial real estate prices have fallen this year for the first time in more than a decade, according to Moody’s Analytics, heightening the risk of more financial stress in the banking industry.  What property types are declining? (hint not just office properties).  What is the only property type that held in positive territory?  Is the recent drop in prices just a blip or the start of a bigger trend?  Why are prices falling now while the economy continues humming along?

What was in the most recent commercial data?

The recent CoStar report, the leading aggregator of commercial data,  showed declines in Office, retail, and apartments.  CoStar has some of the best insight into commercial property values as they also track heavily via Loopnet (largest commercial MLS)

1. THE PRIME INDUSTRIAL INDEX LED GROWTH AMONG THE FOUR MAJOR PROPERTY TYPES. The Prime U.S. Industrial Index was up 2.5% in the first quarter of 2023 and 10.8% in the 12 months ending in March 2023. The equal-weighted U.S. Industrial Index, including a broader mix of asset qualities, underperformed the Prime Index with a modest decline of 0.1% in the quarter. The Prime Industrial Index was the only Prime property type index to hold in positive territory in the first quarter. 
2. MULTIFAMILY INDEX DECLINES. The equal-weighted U.S. Multifamily Index fell by 2.4% in the first quarter of 2023 and dropped 2.2% in the 12 months ending in March 2023. The U.S. Multifamily Index showed the sharpest annual decline in values since the interest rate hiking cycle began in the first quarter of 2022. Debt for multifamily transactions was plentiful and drove investor demand in the sector. The index appreciated by 2.8% in the 12 months ending in March 2023 in Prime Multifamily markets but fell 2.8% in the quarter.
3. OFFICE PRICE DECLINES CONTINUED IN THE FIRST QUARTER. The U.S. Office Index sagged 2.4% in the first quarter of 2023, taking its cumulative decline to minus 5% during the previous three quarters. Office prices were down 1.4% in the 12 months ending in March 2023, marking the first annual decline since the second quarter of 2012. In addition, pricing growth in the Prime Office Index advanced at a negligible pace of 0.4% in the 12 months ending in March 2023 while slumping 2.8% in the quarter.
4. RETAIL PRICING FOOTED SIDEWAYS IN THE FIRST QUARTER. The U.S. Retail Index rose just 0.2% in the first quarter of 2023 and 3.3% in the 12 months ending in March 2023. The tendency of high-profile pair trends to swing the data around at the top end of retail space can lead to strong quarterly fluctuations. The U.S. Prime Retail Index dipped 2.6% in the first quarter while appreciating 12.3% over the year prior. The three-quarter trend in the Prime Retail Index saw values surge 9.9% in the third quarter of 2022 before giving back 2.8% and 2.6% in the fourth quarter of 2022 and the first quarter of 2023, respectively.

Why is multifamily declining as rents are staying high?

Below I put together a hypothetical analysis of what is occurring in the multifamily sector.  Multifamily was trading at insanely low cap rates while at the same time banking on appreciating rents.  As rents have stagnated or even declined in some markets and interest rates have basically doubled, many apartment deals no longer cash flow and are in trouble.  Furthermore, it is more than likely that a bank holds the note below and that note is now a  big problem for them.  Here is a great article in the Wall Street Journal that shows how this is playing out in real life.

Remember most commercial loans are fixed for 3-5 years and then the rate resets to the market rate (typically 10 year treasury +).  This scenario below is especially difficult:

1. LTV using new cap rate is radically different: No lender today would provide a new loan with the cash flow basically at break even due to the higher rate.
2. Cash flow underwater based on new rate: Assuming the note is current and the lender sold the note, a substantial discount would have to be given to compensate for the ultra-low rate.
3. Even if note is held and renewed a substantial loss would have to be taken by the bank for impairment

Pre Covid
Net Operating Income	$    300,000.00
Value	$ 7,500,000.00	assume a 4 cap
Debt service	$         210,000	5.25m (70% LTV at 4%)
Net Cash Flow	$      90,000.00
Today
Net Operating Income	$    300,000.00
Value	$ 5,454,545.45	assume a 5.5 cap
Debt service	$         315,000	5.25m (70% LTV at 6%)
Net Cash Flow	$    (15,000.00)

Is the recent decline in commercial property values a blip or a trend?

“Lots more price declines are coming,” Mark Zandi, Moody’s Analytics chief economist, said.

The danger is that will compound the difficulties confronting many banks at a time when they are fighting to retain deposits in the face of a steep rise in interest rates over the past year.

Excluding farms and residential properties, banks accounted for more than 60% of the $3.6 trillion in commercial real estate loans outstanding in the fourth quarter of 2022, with smaller institutions particularly exposed, according to the Federal Reserve’s semi-annual Financial Stability Report published last week.

“The magnitude of a correction in property values could be sizable and therefore could lead to credit losses” at banks, the report said.

Summary

The recent declines in commercial properties are not a blip.  They are the beginning of an upcoming cycle with huge resets in prices.  These prices will be most profound in office with big impacts also being felt in larger multifamily.

Based on the current federal reserve predictions, rates will remain elevated at least until around mid-year 2024.  This will exasperate the issue new group of office and multifamily notes come due for a reset leading to cash flow issues in many cases.

The overwhelming majority of commercial loans are held by banks so at the end of the day someone will be taking a haircut that will become self-fulfilling as lenders sit out on new deals due to their own cash flow issues caused by commercial property.  I’m already seeing the credit crunch which will get amplified over the next year with higher rates.

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/

Ever stumbled upon a quaint café in an unexpected place and thought, “How did I not know about this?” The world of real estate has its own hidden cafes—secondary and tertiary markets. But why are they like hidden gems, and how can you, as an investor, benefit from them? Let’s unpack it:

• Primary Markets: These are big players such as Dallas, LA, or Chicago.
• Secondary Markets: Cities like Austin, Nashville, and Portland, which have been gaining traction.
• Tertiary Markets: Think of areas like Bend, Oregon, or Macon, Georgia. They may be talked about less, but they’re brimming with potential.

Considering a fix-and-flip project or rental investment properties in these lesser-sung regions? Let’s weigh some of the pros and cons.

Upsides of investing in secondary and tertiary markets

Cost-efficient entry

These markets are often in regions that haven’t experienced the rapid urbanization and commercialization in primary cities. Without the hype and media attention driving up property prices, entry costs remain relatively low. This allows investors to make strategic, calculated investments without the heavy financial weight that prime markets often demand. A savvy investor can view this as an opportunity to diversify their portfolio, leveraging the affordability of these markets.

Less crowd, more space

Most often in the limelight, primary markets attract domestic and international investors. In contrast, secondary and tertiary markets remain relatively under the radar.

The charm of this understated focus is the freedom it offers. Real estate investors can take their time to understand a property, negotiate without the pressure of multiple counter-offers, and finalize deals in a less aggressive environment. This space for deliberation can lead to more informed and, ultimately, profitable decisions.

Promising returns

The untapped nature of these markets means there’s substantial room for growth. The ROI here isn’t just about immediate profits. It’s also about long-term appreciation.

As these markets mature and attract more attention, early investors can see substantial returns on their initial investments. To succeed in these markets, look for properties that can increase in value over time as the market changes.

Steady growth

Primary markets are influenced by global trends and international investments. On the other hand, secondary and tertiary markets typically experience growth as a result of local factors.

This means growth is often steadier and more predictable, grounded in local economic and infrastructural developments. For an investor, this translates to more sustainable, organic appreciation. Monitoring local news, understanding community plans, and keeping an ear to the ground can provide valuable insights into potential growth trajectories.

Challenges of investing in secondary and tertiary markets

Potentially more demanding research

The relatively low-profile nature of these markets means that traditional real estate research tools might not always offer comprehensive data. This challenge, however, is also an invitation for investors to innovate. Engaging with local realtors, joining community forums, and even connecting with residents can offer invaluable insights. Immersive research helps choose properties and understand local culture, preferences, and long-term investment viability.

More gradual appreciation

These markets are influenced by local factors. So, the speed of growth may not be as fast as the rapid increases seen in top markets.

However, slow and steady growth can be a blessing in disguise. It gives investors the time to adapt, make further investments, or even exit if they foresee a plateau. Recognizing the steady nature of these markets is essential to setting realistic expectations and crafting a strategic investment plan.

Networking nuances

The bustling real estate events and seminars are less frequent here, but that shouldn’t deter the passionate investor. Embrace this as an opportunity to pioneer. Host local meetups, collaborate with community leaders, or even establish digital forums for like-minded investors targeting these markets. By taking the initiative, you not only build a network but potentially position yourself as a thought leader in the space.

Market variability

These markets can be sensitive to local economic shifts. A significant employer downsizing or a local industry experiencing a downturn can have palpable effects.

But with challenge comes opportunity. Staying informed about local happenings can allow proactive investors to pivot strategies, hedge risks, and even identify new avenues for investment. Regular engagement with local businesses and economic forums can be invaluable.

Taking the plunge: Market research and tips for new local market investments

It’s pivotal to acknowledge the importance of thorough market research when considering investments in secondary and tertiary markets. Venturing into these lesser-known territories requires a tailored approach. So, where should you start?

• Local Expertise: Building relationships with local real estate agents or brokers can offer unique insights that standard market reports might miss. They have their fingers on the pulse of the local community, understanding the intricacies and trends that define these markets.
• Community Forums & Social Media: Engage in local online forums or social media groups. These platforms have valuable information about neighborhood developments, upcoming projects, and local events that can affect property values.
• Visit In-Person: Nothing beats an on-ground visit. Walk the neighborhoods, visit local businesses, and strike up conversations with residents. This will show you the community spirit and help you understand how many people want to rent or buy renovated properties.
• Assess Local Amenities: Look for signs of growth. Are new schools being built? Are there parks and recreational areas? What about public transport facilities? These can be indicators of a budding community, which can be especially attractive for rental investments.
• Stay Updated: Once you’ve gathered your initial insights, it’s essential to keep updating your knowledge. Markets evolve, and what’s true today might change in a few months. Set up Google alerts, subscribe to local news outlets, and keep in touch with your local connections.

Venturing into a new market also means adapting your investment strategies to align with local demands. For fix-and-flip projects, understanding the local architectural preferences, popular home features, or even favored color palettes can be the difference between a property that sells instantly and one that lingers on the market.

For rentals, it’s about understanding the demographics. Are potential tenants young professionals, families, or perhaps retirees? Each group has unique needs, from proximity to schools to easy access to nightlife.

Aside from conducting market research, it is crucial to find a reliable lending partner. One that has a proven track record and expertise in the local market.

That’s where Muevo comes in

At Muevo, we’re changing the real estate financing game. Our presence in 50 states plus DC has equipped us with diverse market insights. We’ve seen the aspirations of investors in primary cities and the untapped passion of those in secondary and tertiary ones. This broad spectrum of experience allows us to offer tailored financing solutions, from Fix and Flip/Bridge Loans to DSCR Rental and Rental Portfolio Loans.

We combine the agility of technology with human expertise, ensuring you close deals faster, enjoy competitive rates and have our unwavering support in every step.

Wrapping up

Exploring secondary and tertiary markets means embracing both the challenges and opportunities they present. The key? Knowledge, diligence, and a reliable partner in your corner. As the landscape of real estate investing evolves, staying informed and adaptable can be your greatest asset.

So, whether you’re diving into the deep end or just dipping your toes, remember every market has its unique story. Happy investing, and here’s to uncovering the next great opportunity!

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?

Dreaming of homeownership? A mortgage loan can help you turn that dream into a reality. In this edition, we’re excited to explore the world of mortgage loans and how they can empower you to purchase your dream home. Let’s dive in!

Understanding Mortgage Basics:

Begin by familiarizing yourself with the different types of mortgage loans available. Research fixed-rate mortgages, where the interest rate remains constant throughout the loan term, providing stability in your monthly payments. Alternatively, explore adjustable-rate mortgages, which offer a lower initial interest rate that may adjust periodically based on market conditions. Understanding these options will help you make an informed decision when selecting a mortgage.

Building a Strong Credit Score:

A good credit score is essential when applying for a mortgage loan. Take steps to improve your credit score to access more favorable loan options. Pay your bills on time, reduce your overall debt, and keep your credit utilization ratio low. Regularly check your credit report for errors and address any discrepancies promptly. A strong credit score can lead to better interest rates and terms, potentially saving you thousands of dollars over the life of your loan.

Exploring First-Time Homebuyer Programs:

If you’re a first-time homebuyer, explore special programs and incentives designed to assist you in the homeownership journey. Many regions offer down payment assistance programs, reduced interest rates, or educational resources to help you navigate the process. Research what options are available in your area and determine if you qualify for any of these programs. They can significantly ease the financial burden of buying your first home.

Saving for a Down Payment:

Start saving for a down payment as early as possible. A larger down payment can result in a lower loan amount, lower monthly payments, and potentially better interest rates. Review your budget and identify areas where you can cut back to allocate more funds toward your down payment. Consider automating your savings by setting up a separate account dedicated to your homeownership goal. Additionally, explore alternative down payment options, such as government assistance programs or grants.

Getting Pre-Approved:

Before house hunting, consider getting pre-approved for a mortgage loan. This process involves submitting your financial documents to a lender who will assess your financial situation and provide an estimate of the loan amount you qualify for. Pre-approval demonstrates your seriousness as a buyer and can give you a competitive edge when making an offer on a home.

Remember, buying a home is a significant financial decision, and taking the time to educate yourself about mortgage loans is crucial. By understanding mortgage basics, building a strong credit score, exploring first-time homebuyer programs, saving for a down payment, and getting pre-approved, you’ll be well-equipped to embark on your homeownership journey. Stay tuned for more insights and guidance on homeownership in our upcoming newsletters.

Wishing you success on your homeownership journey!

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.

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

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

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

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

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• Elon Musk Is Bullish On Austin. Here’s How To Invest In The City’s Growth Before He Floods It With New Tech Workers
• Want To Grow Your Wealth Passively? These High-Yield Real Estate Notes Might Be Your Holy Grail

Delinquencies And Defaults

Zandi explained the reasoning behind his bearish outlook on Twitter.

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

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

And borrowers will likely face difficulties in meeting payment obligations.

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

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

Office Vs. Housing

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

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

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

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

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

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

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

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

But it’s a different story for housing.

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

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

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

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

Read next:

• While REITs Are Struggling, Private Market Real Estate Pulls In Huge Returns
• ‘People-First’ Real Estate Fund Shares Rent With Tenants While Generating Strong Returns For Investors

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

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

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

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

Understanding Passive Income

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

Strategies To Generate Passive Income

1. Rental Properties

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

2. Real Estate Investment Trusts (REITs)

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

3. Crowdfunding

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

4. House Hacking

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

5. Short-Term Rentals

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

6. Flipping Houses

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

7. Commercial Real Estate

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

8. Private Lending

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

9. Real Estate Notes

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

How to Choose the Right Passive Income Stream

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

1. Time Commitment

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

2. Upfront Investment 

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

3. Risk Tolerance 

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

4. Personal Goals

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

Summary

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

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

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