National Private Lender Association Conference
March 7-9, 2024 // Miami, Florida The Largest NonBank Lending Conference
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Economic Outlook for Multifamily Investment Opportunities
Long-Term Success is Still Extremely Viable By Nate Zielinski Over the past two years, the U.S. economy has been like a simmering pot of water that has yet to reach its boiling point. There was a spike in interest rates across the country and inflation began to creep in and be noticeable in daily life for Americans everywhere. A lot of different facets of the economy were affected and real estate investing was no different. Rising interest rates had a domino effect that led to affordability issues for homebuyers and tenants and even a lack of inventory for investors. However, the market has stabilized, and consumers and investors are now adjusting to the current market and looking to achieve even more success. One of the strategies that is getting the most buzz heading into 2024 and beyond is multifamily property investments. There are mixed signals in the multifamily space currently, but it is always a path to success in the investment industry. Record Setting Supply vs. Diminishing Demand According to RealPage.com, there will be over 1 million new apartment units built throughout the course of 2023 and 2024, the highest level of supply in the U.S. since 1987. Undoubtedly, when these projects began construction, there was the thought that the economy would be a little more stable than it is right now, and this supply would be met with the appropriate demand. The main factor is going to be where the progression of millennials is in regard to owning property. A lot of millennials are moving out of apartments and into single family homes. Whether they are buying or renting, there is the desire to have their own space and privacy, and the apartment life is not as appealing. Also, the next generation, known as Gen Z, is not quite ready to rent as most are still in high school or college. This middle ground between the generations has created a blind spot for apartments, but this will not last forever. There is some speculation from investors due to this supply and demand narrative, but multifamily investing is one of the best ways to exponentially expand wealth. Due to the supply right now, the rental incomes have stalled, so the return-on-investment questions have been raised by investors when deciding to invest in multifamily properties In an article published on FastCompany.com, Lance Lambert states, “This influx has given renters a plethora of options and significantly decelerated rent growth, with outright apartment rent declines in many markets.” Reasons for Optimism While the above statement is true, it needs to be reiterated that with the Gen Z renters coming into the fold in the next few years this issue will not last. Although rents cannot be as high right now due to supply, this can also lead to easily filling every unit for investors due to rent being affordable in these larger apartment style buildings. When demand catches up to supply, investors can begin to charge more for rent year over year, and they can do this with a completely occupied apartment building due to these properties filling up when rents were low. There is obviously some patience that needs to be applied but the payoff is attainable. Also, as stated above, the construction of these multifamily units has hit a 40-year high. Some of the markets seeing the biggest rise in multifamily units include cities such as Nashville and Austin. These two markets have seen a massive spike in population over the past few years and these people are looking for affordable housing options. With rental rates stalling due to the supply, securing a multifamily property in these markets is a huge win for investors. These two cities are expensive to live in, so the potential of increasing rent will be there for investors to cash in on down the line. There is also a bit of a negative connotation for multifamily investment properties right now so the competition in these typically competitive markets may be at the lowest it has been in a long time. Other southern markets that continue to grow include Houston, San Antonio, Dallas and Knoxville, Tennessee. In an excerpt from Forbes magazine, there were some positive signs late in 2023 that displays pushback from the overarching narrative that rent growths are stalling. “Rent growth ticked positive in October 2023, according to Zillow, after falling monthly for more than a year. The slight increase could be seasonal, aberrational or a hint that rent growth might be trending upward. I envision rent growth moderating based on several factors,” writes Michael Zaransky. There is also the elephant that has not left the room yet when it comes to the rise in interest rates that have taken place over the past few years. A lot of potential home buyers have strayed away from purchasing a home as they wait for a decrease in interest rates. Although the preference is a single-family rental for most of this demographic, apartments are also an appealing option because they can typically be cheaper and allow the tenant to save more money before buying a home. There is no denying that most, if not all, would prefer the SFR living arrangement, but it is not always what they can get or afford. The multifamily rental space will still have a sizable presence in the years to come. Final Thoughts for 2024 Of course, there are pros and cons to all investment strategies. There are positive outlooks and negative ones. The multifamily investment strategy in 2024 is no different. There are certainly opportunities across the country where investors can inject themselves into bigger markets and start securing some of these properties. The payoff may not be immediate, but securing these properties to ensure long-term success is still extremely viable and many are forecasting in the next few years that apartments and multifamily properties will be highly sought after by investors and renters alike. Getting ahead of the curve and securing these properties can be a massive
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How to Become Successful Real Estate Entrepreneurs?
Always Do What You Say You Are Going to Do and Do it With Integrity Tim and Melissa Swartz are independent business owners with HomeVestors® of America, Inc. in the Columbus, Ohio, market, and Melissa is currently serving as the Ad Council President for that area. The couple started their HomeVestors business, HumbleBee Properties, LLC in 2017 after each having successful careers in business and education administration. Their driving factor is their family—to have the ability fully enjoy and support their three children through their formative years. Life Before HomeVestors After graduating from Ashland University in 2007 with a degree in political science and government, Tim became a commissioned officer in the United States Marine Corps serving as an attack helicopter pilot and operational planner. He left the Corps in 2016 and attended The Ohio State University where he earned his MBA. Upon graduation, he first worked for JP Morgan Chase and later transitioned to help grow a small insurance technology company called PolicyFuel. It was during his tenure at JP Morgan Chase that they bought the HomeVestors franchise. Melissa met Tim while both were attending Ashland University. After graduation, she attended the University of West Florida where she earned her master’s degree in higher education and administration. For 13 years, Melissa worked in universities focusing on compliance, specifically with issues related to student conduct and sexual assault. It is in this trying environment where she developed her passion for helping people. Becoming a HomeVestors Independent Business Owner “We bought our HomeVestors franchise because we both had an entrepreneurial spirit and we also saw the business as a way of helping others,” Melissa explained. “In fact, the very first question we ask a prospective seller is, ‘What can we do to help?’ Much of the time we don’t buy their house, but we find some other way to get them through whatever difficult situation they may be in. Though most instances do not end in a financial reward, the intangible benefit of doing right by people is what makes us truly proud of what we do.” True to their backgrounds in compliance and military planning, from day one they fully embraced the proven HVA process and focused on execution and operational flexibility. “In our first year, we concentrated on wholesaling and a few quick flips to establish a good cash base, giving us the ability to shift to building a rental portfolio, which we did,” Tim said. “We have completed 55 deals since we started, and we currently have 13 cash flowing single family rentals in suburban neighborhoods with good school systems. Today, we are concentrating more on fix-and-flips until interest rates cool down but are looking forward to getting back to growing a substantial, long-term portfolio to provide lasting financial prosperity for our family.” The Swartz’s Crystal Ball When asked what 2024 has in store for their business, Tim and Melissa are quite optimistic. Columbus, Ohio, is a very competitive and very hot real estate market and it is the fastest growing metro area in the United States. The housing supply remains historically tight but is also very profitable. Tim elaborated by stating, “Interest rates will come down but not nearly as low as we’ve enjoyed in recent years. At least not any time soon. However, Columbus will do just fine and there will continue to be strong growth in prices.” Melissa added that they are boosting their ad spend this year to bring in even more opportunities. She is especially optimistic because “we are all in now.” Tim left his job in June 2023, and they are both now 100% focused on the real estate business. Advice from an Expert “Our advice for anyone getting started in real estate investing is simple.” • Always do what you say you are going to do and do it with integrity. • Have confidence in yourself. • Be humble. Homevestors What exactly does it mean to be a HomeVestors® business owner? Owning a real estate business is life changing and naturally comes with risks! When you become a HomeVestors business owner, you get immediate access to motivated seller leads, financing resources for qualifying purchases and repairs, one-on-one coaching with your local Development Agent, proprietary software for analyzing properties and deals, and access to a nationwide network of coaches and peers. Your house-buying business is yours and you run it as your own venture with a focus toward your individual business goals. If you are interested in a franchise, call 866-249-6932, email Sales@homevestorsfranchise.com or visit www.homevestorsfranchise.com. Each franchise office is independently owned and operated.
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Invigorating America’s Housing Market
Some Proposals for Consideration By David Howard This year’s State of the Union address featured a number of proposals designed to invigorate America’s housing market. Most notable among the proposals: » A two-year mortgage relief credit of up to $10,000 for first-time homebuyers » A one-year tax credit of up to $10,000 for homeowners who sell a starter home to owner-occupants » Up to $25,000 in downpayment assistance for first-time homebuyers » An expansion of the Housing Choice Voucher program for low-income renter households » An expansion of the Low-Income Housing Tax Credit enabling the construction of more units of affordable rental housing While the Administration deserves credit for its efforts to offer a real and constructive path forward to address the challenges facing America’s housing market, the political environment presents a high hurdle for any of the proposals to become law. Although the Administration is clearly attempting to strike a balance between the supply and demand sides of the housing equation, much of the emphasis is on the latter. So, in the interest of putting forth policy ideas that have the potential to drive housing development and investment, and in the process support SFR renters, owners, and builders, following are proposals for consideration: Allow the GSEs to Participate Fully in SFR Financing Activities Currently, Government Sponsored Enterprises (GSEs), primarily Fannie Mae and Freddie Mac, are restricted by their regulator, the Federal Housing Finance Agency (FHFA), from providing financing for owners of more than 10 one-to-four-unit investment properties. Placing an arbitrary restriction on who can and cannot access a preferred source of capital makes for bad policy. FHFA’s restriction only applies to SFR owners while allowing unfettered access to multifamily owners, regardless of size. Given the GSEs are charged with providing “liquidity, stability, and affordability” to the U.S. housing market it makes little economic — or intellectual — sense to exclude SFR owners merely because they are deemed to be “large.” At the very least, parity between the SFR and multifamily markets ensures the GSEs are better able to serve a broader, more diverse, universe of renter households and families. Expand the Use of the Low-Income Housing Tax Credit to the SFR Market Currently, the Low-Income Housing Tax Credit (LIHTC), exists almost entirely to enable the production of multifamily units, even though single-family rental homes of between one and four units account for nearly 40% of the nation’s rental housing. LIHTC provisions are notoriously complex, especially so for owners and developers of single-family rental housing. Adapting LIHTC to the needs of the SFR market could be an effective way to expand the stock of much-needed affordable rental housing. Make Workforce Housing More Attainable by Supporting Build-to-Rent Development and Investment Build-to-Rent (BTR) single-family housing is ideally suited to meet the workforce housing and economic development needs of communities large and small. BTR housing is often designed to attract residents with a need for more space than can typically be found in a standard multifamily building. But because workforce housing by definition is not “affordable housing,” policy incentives to spur development and investment are more limited. Making tax credits available for BTR projects can serve a useful purpose in expanding the stock of quality, well-located, BTR single-family workforce housing. Incentivize SFR Owners and Developers to Embrace ‘Green Building’ Practices Residential energy use accounts for approximately 20% of greenhouse gas emissions in the United States. With nearly 20 million single-family rental homes throughout the country, the opportunity for environmental and energy policy is substantial. Expanding the use of targeted tax credits and other tools to encourage the participation of SFR owners can likely have an immediate and lasting benefit. Promote Homeownership through Lease-to-Own Programs Single-family rental housing can serve as an important step on the path to homeownership. Government policy can play an important role in facilitating the transition to homeownership by offering tax credits and other incentives to encourage formal lease-to-own agreements between residents and SFR owners.
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Home Investor Share Inches Higher
Small Investors are Gradually Regaining Their Market Share By Thomas Malone The high U.S. home investor share seen over the past two years nudged up higher to close out 2023. In December, the share of single-family purchases that were made by investors hit 28.7%, an all-time high in CoreLogic’s data that dates to 2010. This was a clear rise over the Fall share and raises the possibility that the share could rise above 30% in early 2024. Figure 1 shows the share of home purchases made by investors since January 2019. In 2019 and 2020, the investor share never went above 20%, but in 2021 this share leaped up, and investors have made roughly a quarter of all single family purchases in each year since. Though the investor surge began in the low interest rate environment, it has persisted throughout all interest rate increases, and is not showing anything that would indicate it will return drop back below 20% soon. Figure 2 illustrates the number of U.S. home purchases made by investors and non-investors through December 2023. All these numbers are well below the levels investors purchased at in the previous 2 years, where investors made more than 100,000 purchases in each month. Notable in Figure 2 is the large drop in owner-occupied purchases, down about 200,000 purchases a month from the levels seen from 2020 to 2022. This is our earliest snapshot of how different types of buyers might react to rates above 7% and shows an early sign that investors may be the more resilient group. Small investors make up most of the market Figure 3 shows that throughout 2023, mega-investors (those that own 1,000 or more properties) and large investors (those that own 100 to 999 properties) have each held market shares of about 10%. Medium investors (those that own 10 to 99 properties) made up about 35% of the market, and small investors (those that own 3 to 9 properties) were the remaining 45%. Though we are seeing an uptick in investor share, this is masking what is really a cold market. Flippers are buying at rates that are well below their pre-pandemic levels, and large/mega-investors have stopped their spending sprees. Small investors are gradually regaining their market share, but still are only buying at their pre-pandemic levels. Interestingly, it may be the low rates of 2020-22 might be bringing new ‘Mom and Pop’ investors into the market. The low rates of this period let a huge number of existing homeowners refinance their mortgage to more favorable terms, raising the chances that they rent out their existing home when they move, rather than sell. This is happening while rising rates and prices push potential first time buyers who cannot make a down payment back to the rental market.
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Has the American Dream Changed?
More Americans Placing Higher Value on Renting than Home Ownership By Entrata Staff Entrata, a leading AI-enabled multifamily industry operating system, announced The New American Dream report, which found that the American Dream is changing as more people are renting by choice and not because they can’t afford to own a home. In fact, 20% expect to be lifelong renters, an increase of 33% percent from 2021 (15%). This further highlights a clear evolution in consumer psychology as home ownership is no longer perceived as the only path to obtaining the American Dream. “Today’s apartment residents are reshaping the traditional American Dream to fit what’s most important to them, including flexibility, prime amenities offered in their communities and the ability to live life on their terms,” said Adam Edmunds, Chief Executive Officer of Entrata. “Many renters no longer see the need to be tied to a home and a mortgage when apartment communities provide everything they need. Experiences seem to be at the core of the new American Dream and renters are making the most of them.” The New American Dream For many apartment residents today, not all roads to the American Dream lead to homeownership, instead, they’re increasingly expecting to rent for the long haul as they invest in other areas to build their quality of life. Emphasizing this further, the report found that 41% of renters say their American Dream has nothing to do with homeownership. This is in large part because renting offers flexibility and freedom that fits their lifestyle and finances. Highlighting this further, 66% of renters say renting fits their current lifestyle more than owning a home and 23% of renters like the location flexibility renting gives them. Renting: It’s Not Just About the Money The outdated notion that renters are either too young or financially unable to buy a house is a thing of the past. Today’s renters are well-established and confident in their professional position. As a matter of fact, 33% of renters say they could afford a home that meets their needs in 2024, and 25% of renters with a strong credit score (above 750) never want to stop renting. Renting also offers flexibility and freedom that fits their lifestyle and finances: » 66% of renters say renting fits their current lifestyle more than owning a home. » 23% of renters like the location flexibility renting gives them and 17% like the financial flexibility of not being tied to a mortgage. Entrata found that 46% of renters have the financial means to pursue their hobbies and 65% are happy with the direction of their career, with 73% seeing a path to pursue their career goals. Additionally, 35% say being a renter gives them more career opportunities than being a homeowner. A majority of renters (63%) even feel they have a similar or better quality of life than their parents at a similar age. With credit card debt skyrocketing and rainy day funds plummeting, renters are prioritizing other financial goals over saving for a home: » 56% of renters say they’re prioritizing paying off debts right now rather than saving and 43% prefer to have their savings in investments and retirement strategies that are easy to liquidate rather than real estate. » More than a third (36%) of renters prefer to invest in retirement than save for a home. » Nearly three-quarters of renters (74%) are spending their discretionary money on experiences like dining, international travel, and entertainment (e.g. concerts, sporting events, etc.). For more information about Entrata and its technology, please visit www.entrata.com.
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