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Using a Self-Directed IRA to Invest in Real Estate

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Navigating the Rules for IRS Compliance by Erica Campos and Eric Feldman Investing into a retirement fund is one of the most crucial financial decisions a person makes throughout their life. Many individuals choose to do so through use of an Individual Retirement Account (IRA). If one elects to invest in real estate using their retirement fund, it is imperative to understand the differences between the types of IRAs. Various IRAs provide different tax and economic growth opportunities; the most common being Traditional and Roth accounts. However, alternative accounts such as Self-Directed IRAs are similar to traditional options but also offer their own unique investment benefits. Like a Roth or Traditional IRA, Self-Directed IRAs are governed by the same eligibility and contribution regulations set forth by the IRS. In both a Traditional and Self-Directed IRA, an individual is allowed to contribute up to $6,000 per year if they are 50 and younger while if over the age of 50, $7,000 per year is authorized. Further, both types of accounts allow an individual to withdraw money only after they turn 59 ½ years old. The key differentiation that sets a Self-Directed IRA apart from a traditional account are the types of investments that an individual can make. Traditional and Roth accounts require funds be invested into publicly traded securities such as CDs, mutual funds, and stock. Self-Directed IRAs allow a person to invest in various types of investments, including real estate. Of course, like any other type of investment, using IRA funds to invest in real estate comes with its own set of regulations to navigate and interpret. Some of the most relevant include: A.         Understanding a “disqualified” person, B.         The type of benefits one can gain from this investment, C.         How to title and maintain the property purchase and sale. According to 26 USC, it is prohibited to transfer assets owned by your IRA to, or use to the benefit of, a “disqualified person.” The code defines a disqualified person as someone who is a family member, employer, estate or trust, business, or anyone providing services to the IRA. Meaning that neither the owner, nor anyone related to them, will be able to benefit from the property. Additionally, the IRS prohibits a disqualified person from being paid to perform maintenance on the property. As set forth in IRS Pub 590, a transaction that benefits the IRA’s owner or a disqualified person is classified as a prohibited transaction and the account will become void as of the first day of the year that the transaction took place and can be considered taxable. As a general rule of thumb, it is important to keep in mind that the IRA and the account holder cannot simultaneously generate economic benefit from any asset owned by the IRA.  Understanding how to distinguish prohibited transactions becomes clearer when considering that the account holder and the IRA are classified as two separate entities by the IRS. Therefore, a real estate purchase made through an IRA will always be titled in the name of the IRA’s custodian and for the benefit of (“FBO”) the account holder. Since banks and common financial brokerages often do not allow for IRA real estate investments, it is important to seek a custodian who is highly specialized in IRS rules regarding real estate investments. Using a Self-Directed IRA to invest in real estate can offer numerous benefits that go beyond traditional IRA investments. Investing in real estate can mitigate the risk that comes along with investing in stock. Historically, the housing market is more stable than the fluctuating economy and a real estate investment offers a reliable source of growth for your IRA account. Additionally, investing in real estate offers its own set of tax benefits. Self-directed IRA tax benefits function like a Roth or a Traditional account. A Roth Self-Directed IRA operates like a typical Roth IRA in the way that earnings from a real estate investment will be taxed before retirement and distributions after will be tax deductible. In a Traditional Self-Directed IRA, real estate investments will be tax deferred until after retirement. Nevertheless, using a Self-Directed IRA to invest in real estate offers tax options that are not typically available to a standard real estate investor. Tax advantages also add to the future benefit one could gain through real estate investment with their IRA. Though a real estate purchase cannot directly or indirectly benefit an account holder prior to retirement, that is not to say such a person would never be able to utilize their property. If the purchased real estate is bought with expectations to be enjoyed after retirement, renting the property until then can allow the account holder to pay off the mortgage using tax-deferred savings. After retirement or the age of 59 ½, an individual can simply withdraw the property from their IRA before occupying it. Still, enjoying the benefits of investing in real estate with a retirement fund comes at the cost of taking the time to understand and learn the complex regulations that dictate Self-Directed IRA investments. This research is more suited for an investor who wishes to be actively involved in their IRA account, as noncompliance with IRS regulations can cause substantial loss. Even a hands-on investor will require the help of a highly qualified IRA custodian for real estate investments. These types of custodians can be expensive and commonly charge extra for the additional services they will need to provide for a real estate purchase. The expense of a qualified custodian is but another cost that comes with real estate investment along with maintenance, repairs, insurance, etc. Investing in real estate using a Self-Directed IRA can offer unique growth and tax advantages so long as they are achieved within IRS regulations. Being mindful of disqualified persons and prohibited transactions can already put someone ahead of the curve when it comes to making informed real estate investments with their retirement account. Still, even for experienced investors, seeking legal and financial assistance in order

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Installment Sales May Provide Tax Flexibility

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It is Impossible to Predict the Outcome of Proposed Tax Legislation  by Scott Roper In today’s hot real estate market, many investors own real estate that is substantially appreciated. Some investors are choosing to cash out and pocket their gain while demand for real estate and selling prices are high. In the right circumstances, investors who sell real estate also can enjoy tax flexibility. Special tax rules apply to certain investors who sell real estate or other qualified property on an installment basis. These investors typically structure their sales to receive at least one payment after the close of the tax year. In that situation, the investors also defer a portion of the federal income tax liability on the gain to a future year. They pay tax on the gain as they receive sales proceeds. For example, assume that Nancy owns a second home worth $2 million in today’s hot market. Assume further that Nancy paid $800,000 to buy the home several years ago. Nancy has a $1.2 million gain embedded in her second home, and she wants to sell. Nancy structures her sale to receive $200,000 up front and the remaining $1.8 million next year in 2022. So, she receives 10% of the sales proceeds in 2021 and the remaining 90% in 2022. As an installment sale, Nancy reports 10% of her gain as taxable income in 2021, and she reports the remaining 90% in 2022. One benefit for Nancy is that she defers the tax liability on 90% of her gain until next year. So, she reports $120,000 (10% of her gain) on her federal income tax return in 2021, and she reports $1.08 million ($90% of her gain) on her federal income tax return in 2022. The benefit for Nancy is that she matches her tax liability to the timing that she receives sales proceeds. This is especially helpful to Nancy at year-end because she can push off her tax liability on most of the gain to next year. Another benefit for an installment sale is that the tax rules apply automatically. Nancy gets installment sale treatment automatically, unless she makes a special election not to apply the installment sale rules when she files her 2021 federal income tax return. Flexibility is Key This year, Nancy actually may want to elect out of installment sale treatment and to accelerate the federal income taxation of all of her gain into 2021. Why? Because the income tax rate applicable to Nancy’s gain might increase based on proposed tax legislation currently under consideration by Congress and the Biden Administration. This proposed legislation contains numerous tax increases for individuals and businesses, including a substantial increase in the tax rate applicable to Nancy’s gain. Lots of negotiation on new tax legislation is occurring in Congress and with the Biden Administration. But, as of the date this magazine went to print, it is impossible to predict the outcome of that legislation or the effective date of new tax provisions. That is because all of the proposed tax changes, including the effective dates, are subject to further negotiation and consensus. It is possible that Congress and the Administration will come together and enact new tax legislation later this year. The effective dates of that legislation could be as proposed, with an increase in the federal income tax rate applicable to capital gains occurring in 2021. As an alternative, some of the effective dates could be pushed out to the future, based on negotiation and consensus that occurs later this year. As another alternative, it is possible that Congress and the Administration might just be too far apart to enact any meaningful tax legislation in 2021. This is where flexibility benefits Nancy on the sale of her second home. If the federal income tax law stays the same in 2022, Nancy reports 10% of her gain in 2021, and she reports the remaining 90% in 2022, deferring the taxation of 90% of her gain until next year. If Congress and the Administration do not reach consensus on new legislation, the current federal income tax rate on capital gains (generally 20%) will continue to apply in both years. On the other hand, Congress and the Administration might reach consensus on new legislation. Assume in that case that the federal income tax rate increases substantially for gain recognized in 2022 or later. In that case, Nancy might be better off electing out of installment sale treatment when she files her 2021 federal income tax return in 2022. She reports all of her capital gain on her 2021 return – at the lower 2021 rate and not the higher 2022 rate. Of course, Nancy does not know now what Congress and the Administration might actually agree to do, if anything. But one thing that Nancy can do now is to structure the sale of her second home as an installment sale in 2021. That gives her the flexibility to time her income tax liability in 2021 or 2022, whichever timing produces the best overall result. Readers who are interested in the installment sale rules should consult with their professional tax advisors. That is because there are additional complexities and limitations to consider. Readers also might want to review IRS Publication 537, Installment Sales, which is available on the IRS website at irs.gov.  

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Life’s Better on the Water

How COVID-19 has Affected 3 Different Waterfront Markets by Carole VanSickle Ellis The global pandemic might have lit the fire underneath U.S. vacation real estate, but fundamentals are keeping things frenzied in many waterfront locations around the country from East Coast beaches to West Coast shorelines to the often-overlooked Great Lakes of the Midwest. For real estate investors, knowing where to look for potential opportunities in one of the hottest market sectors in the country could mean the difference between overpaying for a vacation property in a cooling market and getting ahead of the competition in a solid market with plenty of growth potential this year and beyond. Why Waterfront Property is Booming In 2020, COVID-19 changed the vacation rental industry as city-dwellers scrambled to leave crowded multifamily dwellings, packed sidewalks, and suspected hotbeds of contagion otherwise known as office buildings in favor of less-densely-populated suburban and rural areas. Of particular interest to these participants in the sudden urban exodus were vacation markets with access to outdoor recreation options, decent internet connectivity for daily zoom meetings, and the option to rent for a few weeks (or months) while they waited out experimental health policies like economic shutdowns, stay-at-home orders, and lockdown mandates. While competition remains fierce in the single-family residential sector mainly for properties accessible to middle-class earners, vacation markets offer the opportunity to cater to buyers and renters with large amounts of disposable income even as the luxury sector cools in other areas of the country. “It’s about being able to enjoy life [in]…these luxury markets,” explained Danielle Hale, chief economist for Realtor.com, in an April 2021 interview with Mansion Global. Hale went on to observe that many emerging housing markets in this sector may be identified using conventional indicators like housing supply and demand, median listing prices, unemployment, and wage growth. However, the markets with the most growth potential also tend to display additional indicators like a healthy small-business population and what Hale described as “a share of foreign-born residents who contribute to the vitality…of the area.” She also noted in her observations on the results of the June 2021 Wall Street Journal/Realtor.com “Emerging Housing Markets Index,” which is released quarterly, many households will “continue to have more flexibility around where they will work, making moves from one part of the country to another a possibility for more and more home searchers.” Of note for any potential vacation-market investor should be the pandemic-driven indicator for market desirability: drivability. As many Americans continue to feel skeptical about flying or, more recently, simply feel the odds of a canceled flight are too high to stomach, waterfront markets within about four hours’ drive of major metropolitan centers have boomed. These markets are literally “just what the doctor ordered,” as Jonathan Hughes, a contributor to MDLinx.com, observed in an August article on how to get the most out of a pandemic vacation. “The effects of a scenery change appear to be especially potent when we put ourselves in a natural setting,” Hughes wrote. Naturally, waterfront areas are a perfect fit, which is why we will use this market study to evaluate and compare three very different waterfront markets and determine what makes them attractive to investors, vacations, and permanent residents alike. Market 1: Hilton Head Island, South Carolina “Temperatures Rising in the Southeast” Hilton Head, South Carolina, is known for its beaches, golf courses, and high-end real estate. Thanks to a temperate climate and the relative affordability of the southeastern United States compared to other regions of the country, Hilton Head has long been an attractive destination for homebuyers and vacation-rental investors. COVID-19 has “accelerated” this trend in Hilton Head just as it has accelerated many other trends across the country. In fact, in March 2021, homes were spending half the time on market they spent in 2019 (62 days vs. 117) and home prices had risen 8.9 percent year-over-year across all price sectors including Hilton Head Island’s thriving luxury market. Local real estate professionals credit a combination of attractive property types, retiring baby boomers, and millennials finally starting families amid the remote-work environment of the pandemic for the wild escalation of property values in Hilton Head and the surrounding areas of South Carolina and Georgia. On top of residential demand, there is strong demand for short-term vacation rental investments. According to rental analytics service Mashvisor.com, Airbnb income alone in Hilton Head is currently averaging about $2,501 a month for full-time operators with average occupancy. Hilton Head also had an additional boost thanks to the “Revenge Summer” mindset of 2021. Although the Delta variant of COVID-19 did slow some Americans’ travel plans (particularly abroad), the southeastern beachside destination is highly drivable and effectively lured in travelers seeking something memorable to help them “make up” for the whole of 2020.  In many cases, families that experienced that “memorable” trip this past summer are now seeking to acquire properties in their favorite vacation markets as it becomes evident fewer employers than expected will require a return to full-time, on-site office work this fall. This ongoing attraction pushed Hilton Head from seventh place on the WSJ/Realtor.com emerging luxury market index in Q1 2021 to third at the end of Q2 2021. Investors seeking opportunities in the Hilton Head area must realize the drivability factor makes a much broader area than just Hilton Head Island attractive to buyers seeking second homes or pandemic-related relocation. In fact, the more recently released index included the entire Hilton Head-Bluffton-Beaufort area of South Carolina on its emerging markets list at number three. Market 2: Newport Beach, California “Cooling, but Still Hot Enough to Burn Overenthusiastic Investors” On August 20, 2021, residents experienced something they had not felt firsthand in quite some time; a decline in the relative “temperature” of the local housing market. August numbers indicated that starting in July and continuing into Fall of this year, #4 on 24/7 Wall Street’s “America’s Best Cities to Live” might experience a little bit of real estate-related cooling. As the entire

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Innovative Solutions for Experienced Investors

Temple View Capital has Service, Creativity in Its DNA by Carole VanSickle Ellis Steven Trowern, co-founder and principal at Temple View Capital, does not pull any punches when it comes to explaining how the non-bank lender operates. “When we identify situations where the credit market is either absent or broken, we believe that is an opportunity for us to serve real estate investors,” he said. “Temple View Capital exists to provide innovative solutions that do not exist in traditional lending channels.” Co-founder and principal Michael Niccolini agreed. “We pride ourselves on creating and providing those innovative solutions,” he said. “It is in our DNA to serve real estate investors whose businesses and strategies are not necessarily served by the GSEs and large-money banks.” Trowern and Niccolini, like the entire team at Temple View Capital, have a track record of high-level positions in the finance industry. They pride themselves on their pragmatic approach to residential real estate lending, observing that their practice is to view investments and lending opportunities through a more commercial lens than most lenders. For example, one of the company’s programs evaluates a client’s debt-service coverage ratio (DSCR) in order to determine what type of loan a client might use to fund a project. DSCR lending bases the decision on whether to make a loan and how much to lend using information about project-related income rather than focusing solely on credit history. This enables borrowers to take on more diverse projects than a conventional loan would permit. “If you are serving real estate investors, basing the decision to make a loan on their rent rolls is just a more efficient, more commercial way to think about the world than the methods used by traditional mortgage lenders,” Niccolini said. “It is just part of how we address the needs of a marketplace that does not necessarily come with traditional solutions.” Big-Picture Focus Serving Individual Investor Needs Both Trowern and Niccolini spent decades in the financial services industry prior to launching Temple View Capital and had experience starting companies and working with investors long before founding the company in the mid-2000s. From their vantage point inside the industry prior to the housing crash in 2007 and the credit crisis in 2008, Trowern and Niccolini saw clearly that there were and would continue to be certain lending services that federal programs and traditional mortgage lenders would not (or could not) provide to real estate investors – particularly investors specializing in smaller residential properties of no more than four units. Temple View Capital focuses solely on serving this sector of the real estate investing population with a variety of customized programs intended to meet the evolving needs of the residential sector. “If investors really want to expand their business and build their portfolios, they need consistent lending parameters that are applied in common-sense ways,” Trowern said. Temple View’s company-wide determination not to lose sight of the big picture, helping real estate investors get projects done, has led to the creation of a series of evaluative strategies that help Temple View Capital identify opportunities for lending that other companies might miss. Strategies include the implementation of a series of “borrower tiers” that rank a potential borrower based on the number of successful projects they have completed in the past 36 months, a system that factors in investor experience, and new programs that offer up to 24-month terms on bridge loans, ground-up construction project funding, and even a newly launched short-term rental product that Niccolini reported is already “a big growth area for investors in the market.” Niccolini and Trowern are certainly well positioned to identify “big growth areas” in real estate. In a separate business venture together, they were involved in the purchase of more than 30,000 loans on distressed assets. That experience led to the decision to focus on single-family residential units and multifamily projects of no more than four units at Temple View. “We really understand the value of these types of properties,” Trowern said. “We wanted to get really good in one asset class and collateral type that would fit the needs of our investors whether they are looking for conventional financing in the future, liquidity, or the easy sale or financing to another buyer. All of these goals actually require a project to meet nearly the same lending criteria so that the borrower can ultimately create an attractive, profitable asset.” Achieving Reliable Results Through Analytics & Market Data Since its founding in 2007, Temple View Capital has underwritten more than half a million loans on around $10 billion of mortgage assets. This track record brings with it a certain degree of comfort when it comes to understanding real estate investments and the markets in which Temple View’s borrowers are operating. “We are very comfortable in our underwriting when it comes to understanding value, market trends, and the short-, medium- and long-term outlooks in those markets,” Niccolini said proudly. “We know what the rents and market should look like in order for us to make good underwriting decisions.” Temple View has also used its vast reservoir of data over the years to create a proprietary analytics system used in the evaluation of every potential loan. The grounding in a solid background and deeply rooted comfort in both finance and residential real estate feed the innovation on which both the Temple View executive team and the company’s employees pride themselves. That innovation, Niccolini noted, is the primary source of the company’s constantly evolving product and service offerings. For example, the DSCR rental finance product that was recently expanded to include financing for short-term rentals like Airbnb properties could not have been added so successfully without the internal support of years of data and analytics and a deep understanding of the industry stemming from the underwriting department. “You have to track short-term rental rates, occupancy rates, and the effects of seasonality when you are underwriting for short-term rental projects,” Trowern explained. “It is essential that you identify what the market should

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Rethinking Private Loans

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Facing the Challenges in Housing Demand and Funding by John Beacham The U.S. is experiencing a severe shortage of quality, affordable housing and new construction developments are unable to sustainably meet demand. However, renovation, repositioning and rental of residential properties, fueled by private loans made to local borrowers, is contributing to the improvement of the situation. Increased Housing Demand A recent report from the National Association of Realtors shows new housing construction in the U.S. over the past 20 years fell 5.5 million units below historical levels. Within that shortfall, a total of 3.1 million are in properties of four or fewer units. In addition, new home construction in the past decade fell 6.8 million units short of what is needed to meet household formation growth and normal reductions to housing inventory. For every 100 low-income households, there are only 37 affordable and available rental homes. Compounding the lack of new housing construction, COVID migration patterns have exposed many shortcomings in the U.S. housing market – most notably the lack of sufficient housing supply in suburban locations, where new construction lagged behind city centers. While the COVID-19 pandemic may be easing, companies and workers are realizing that remote work is sustainable over the long term. This means that movement from city centers to suburban areas is expected to increase, placing a priority on the production of new inventory in such areas. Many of those leaving city centers (and not returning) cannot afford to purchase a home and prefer the convenience of rentals. Such rentals are usually offered by local landlords of residential homes, who generally finance their properties with private loans. Challenges in Meeting Increased Housing Demand While it will take years for new construction to make a measurable difference in meeting demand, renovation has the proven ability to provide more immediate relief for the affordable housing market. Opportunity is not the issue – there is a pressing need for updates to outdated housing stock and conversions of single-family properties into multifamily properties. However, despite this increased demand, developers and property investors looking to build, reposition or stabilize occupancy within smaller scale properties with loan needs under $10 million are experiencing a scarcity of reliable capital. Challenges with Funding from Existing Institutions Traditional lenders and government agencies have limited structure to finance business purpose loans for the rehabilitation, stabilization or the rental of properties. Financing for rehabilitation and stabilization loans is limited due in part to the lengthy and complex loan approval processes, as these deals usually involve additional layers of approval, including loan committees that involve a consortium of partners that must reach a consensus. Financing for rental loans is limited, due in part to the lack of focus on the income generated from the property, but rather on the borrowers’ financials.  Since banks and government programs do not typically offer these loans, real estate investors and house flippers have historically relied on private money, also known as “hard money loans,” which are loans that are backed by a “hard” asset, like real estate. However, financing choices were limited to local lenders, private individuals, and companies offering non-standardized, non-institutional, underwriting loan programs with interest rates upwards of 10% and varied credit standards. Many rehabilitation projects went unfunded due to a lack of capital, which only worsened the housing shortage. Rethinking “Hard Money” Financial Arrangements Toorak’s solution was to create an ecosystem that linked small balance real estate lenders to institutional capital – enabling growth along the supply chain while feeding capital back into the system to fund future projects. Toorak provides capital to local and regional lenders that it partners with nationwide, who in turn work directly with the borrowers who are conducting the actual rehabilitation work. The capital Toorak provides enables its network of lenders to fund and close more small balance multifamily loans without locking up their capital. Since its first deal in 2016, Toorak has funded more than 15,000 loans that are expected to provide renovated and/or stabilized housing to 17,000 families (including more than 9,000 units completed to date) at a rate of approximately 500 units per month. For each loan, Toorak conducts a thorough review of the borrower and the property –underwritten by strict credit standards, property value and the borrower’s ability to successfully complete the project itself. After capital has been deployed and projects are complete, there is an attractive market for private capital providers like Toorak to purchase these residential bridge loans from the local loan originators. This allows for greater turnover in capital available for loans, and in turn, for increased housing inventory to be introduced. This equates to more engagement in disadvantaged areas, more home ownership, and improvement in overall quality of life basedon organic, community-focused growth rather than gentrification. Toorak’s established infrastructure offers an institutional, homogenized product, with rapid loan acquisition cycles, an efficient draw and payment process, and consistent and transparent due diligence, enabling lower fees and fastest closings because of its access to capital markets. This new process should dispel the negative and unreliable connotations of “hard money.” Sustainability The key to keeping this type of financing available and self-sustaining is to package the loans in ways that would be appealing to institutional fixed income investors. Toorak has now issued six securitizations to date totaling over $2.0B. There is high institutional interest in these securities. The strict underwriting standards and due diligence on each loan, paired with the fact that additional loan funds are released to borrowers only with proof of project completion, means the underlying assets are of very high quality. In addition, institutional investors have full transparency into the quality and credit worthiness of each project. This capital is used to finance more loans, which in turn leads to additional rehab projects and more housing inventory being released to the market. This approach democratizes real estate investment opportunities, allowing hardworking entrepreneurs the opportunity for wealth creation regardless of education or background. In the process, these entrepreneurs transform outdated housing stock into newly renovated, affordable

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Private Money Has Become Semi-Institutional

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What Does the Future Hold for These Capital Sources? by Barry Harari Are you a real estate investor looking for funding capital? As plentiful as cash seems to be right now, real estate speculators may find it challenging to secure the capital they seek to get a project off the ground. While cash is king and yes, there is plenty of it out there, it helps to know where to look. Conventional lending institutions likely offer the most mainstream approach to securing funding for today’s real estate investing. The advantages are obvious, including reliable liquidity sourcing and the ability to forge a relationship with a specific lender that will be there for current as well as future needs. Conventional sources will always be the cheapest way to get one’s hands on needed funding both from an interest rate perspective as well as origination costs. No other source can compete with the low cost of capital offered by conventional players. Conventional lenders also offer much longer loan terms (5-20 years) when compared to other available channels. Private Money Today “Private Money” sources have blossomed into a popular and more widely available funding approach for today’s real estate investor. Formerly referred to as “hard-money” lenders, private lenders are considerably costlier (both in up-front fees and interest rates) and they offer much shorter loan terms (1-5 years in most cases). Why would anyone opt to go the private money route considering the higher costs? Private money lenders mostly care about the collateral profile and are willing to overlook many other underwriting challenges that a borrower may run into during under-writing. Many private money lenders do not check the credit history of the borrower. If a borrower has no criminal record or bankruptcy history, they are likely to avoid any serious setbacks from a lender’s file review protocols. Sure, private money lenders have much stricter limits when it comes to loan amounts. Most private money lenders top out at 70% of a project’s finished value. Conventional sources may go higher especially if they have plenty of favorable experience with the borrower from prior projects. Private money lenders were known as being more of a niche player in real estate funding for many years. Nothing could be further from the truth today. Today, these lenders have become semi-institutional, obtaining their funding sources from family office funds, hedge funds, regional banks and national banking institutions. Some of these capital sources normally eschew pursuing these types of loan applicants themselves opting to “purchase” this type of debt on the secondary market straight from the originating lenders themselves. Many of these semi-institutional private money lenders are the silent partner funding source to local-market lending operations. The bottom line is this… a borrower doesn’t care from where the money comes as long as it’s green. If a borrower knows the market terrain well enough, they will be plenty aware of the various risks and costs attributed to each type of lender out there. Private Money Tomorrow So, what does the future hold for these capital sources? To answer that question, one must first examine the near and mid-term prospects for the real estate market as a whole. Walk the floor of an industry conference and the general sentiment one will hear is optimism. People in the real estate industry ranging from lenders to borrowers and all types of service providers (think appraisers, trustees, fund controllers, contractors, etc) have a vested interest in seeing this bull market continue its run of the last dozen or so years; however, experts also can read the writing on the wall when it’s dubious. The general sentiment on the street is one of confidence and optimism. Many pundits and experts believe that the real estate market, especially the SFR product (single family residential) has enough wind in its sails to carry it at least another two years before we see any headwinds. If a pandemic couldn’t derail this red-hot market, few things will. Interest rates made their move upward and many believe stability has returned there as well. If the market remains strong, so will the flow of capital coming from the lenders’ spigots.

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