🌦⛄️ THE MARKET 🌪🌥 Flashcards
How are current market conditions favorable for multi family apartment investing?
- There’s a ton of short term (2-3yr) variable interest rate loans (w/high LTV ratios) issued in 2011-2021 that have received a ton of pressure from the “speed” of increase in interest rates in 2022+2023.
Also, in the past few years many multi family properties were purchased at relatively low cap rights (4-3% range) the interest hikes are killing their cashflow (many rates have doubled in the last 18 months) resulting in many owners holding properties that are losing $ every month.
Many of the short term loans are on 2-3 year loan terms, you’re going to start to see a lot of loan maturities towards the end of this year/2024 requiring these investors to refinance in a very different “interest rate environment” likely a MUCH LOWER VALUATION + LOWER LTV RATIO which is going to force these investors to either 1. Raise additional capital from their investor base to “cover” the “outstanding loan payoff” (because the property is no longer the same value as they purchased it for so the loan is much bigger than they can get with a refinance LTV wise) 2. Sell their property at a loss if their investors just want out…
This combination of factors will lead to huge opportunities for buying multi family properties for far below their market values…. Especially since many of these properties aren’t necessarily challenged from an occupancy or operations perspective and the distress is really just coming from the faulty financials/loans.
Pricing is about 15%-20% below peak pricing in many markets. Investors who can either buy deals on an all cash basis and purchase with fresh loan terms are going to find great opportunities in this sector for the next 1-2 years.
Why is now the perfect time to get into CRE and start purchasing properties?
CRE never really recovered from 2008
You’re looking at higher than ever interest rates.
Silvergate bank, Signature bank (NYC), Silicon Valley bank (CA), Credit Suisse (SWISS), all of these small and large banks are starting to fail and it’s only just begun….
A lot of your big banks are holding near 40% OR MORE in CRE assets.
The local and regional banks cannot withstand the pressure of commercial real estate: lots of offices defaulting along with the high occupancy rates in them AND the setbacks from Covid are effecting them.
Within the next 2 years (until 2025) a total of $2.9 TRILLION in CRE loans are coming due (From Morgan Stanley + BOA)…
With the increase of market values in properties and the increase of new development on apartments the existing apartments aren’t able to compete with them on top of the increase interest rates and thus their cashflow is down and their adjustable rate loans are going UP! 🫣 BECAUSE OF THIS THERE ARE MORE PEOPLE WANTING TO SELL THAN EVER…
The new apartments are growing faster than the existing apartments.
High interest rates is forcing a dry-up of credit and debt circulation simply because it’s too expensive to take out a loan to most.
What’s your highest advantage over other investors in this market?
Most sellers who’ve tried selling on the internet are dealing with prospective buyers who are attempting closing in 90 days AT BEST but mostly around 120 days!
The private lenders you have connections to are able to get you approved in as little as 7 days!
Most sellers will have had potential deals for 90-120 days just to have them shut down by underwriters and now they’re on their 2nd or 3rd “attempted buyer”…. YOU CLOSE IN 1 WEEK 😎
Why are banks at high risk of becoming insolvent/failing?
Biden made it so banks didn’t need to hold any ones deposits so they put them all into T Bonds which when the interest rates hiked they lost half their value. Now people are asking for their money back from banks (creating a run on the banks) this happens to signature bank and Silicon Valley bank but the FED bailed them out. Yet the FED recently made it clear that they will not be bailing out small regional banks but only banks that are critical to the US economy. These small and large banks won’t be able to give the money back to the depositors and will become insolvent and fail…
Why are “syndicated” deals getting hurt right now?
For the same reason all CRE is hurting right now but yet they have it the worst as the “General Partners” are having to deal with multiple capital calls from investors who want out/cut their losses.
What types of CRE have the highest percentage of seller carry back loans?
Land (RV Parks, Mobile Home Parks, etc.) and Motels
When did Fed Rates dramatically increase?
In March of 2022 the Fed rates began to increase from a steady .08 (since April 2020) to increasing to 5.08 in June 2023.
