Since the markets are obviously going to crash, they reason, they will wait to buy real estate until prices plummet. Will there be another housing market crash? Lending guidelines changed overnight and builders were left with tons of inventory and no buyers. Is it smart to wait for the housing market to crash before you buy? I bought quite a few homes at the bottom of the market, but I also bought homes on the way down and on the way up. When I bought houses at their low I was assuming they would jump back up in price. If you are sitting on the sideline waiting for a crash to occur, do you have a plan for when that happens or are you just waiting? I think many people who are waiting for a crash have not thought these questions through; they just want to buy at the bottom and sell at the top. I can make a guess, but I do not base my investment decisions on whether the markets will increase or decrease. I never thought prices would have risen as high as they have, but I also would have thought the builders would have built many more homes than they have.
They are among the nearly 9,000 census tracts that have been designated Opportunity Zones by the federal government and are ripe for real estate investment. The Opportunity Zone (OZ) investment is part of a new community development program offered through the Federal Tax Cuts and Job Acts of 2017, which encourages private investment in low-income urban and rural communities. They are a unique vehicle for smart investors who want to maximize their capital gains while investing that money altruistically to rebuild and reenergize communities. Earlier this year, governors from all 50 states were asked to identify low-income or low-performing areas in need of infrastructure investment. Under the OZ program, investors can defer taxes by taking capital gains from other investments and placing them into businesses or real estate assets in the OZ. For investors who aren’t as well-versed in real estate, these funds provide several benefits: • There is less risk because the fund will invest in different assets and geographies, as opposed to being exposed to the performance of just one market. • Companies creating the funds are usually sophisticated and adept at understanding the economic and social climate for each geography, ensuring smarter investments. It can be a capital investment in a startup company located in the OZ or the development of new residential and commercial buildings. While many investors will look to place their money in funds, there are opportunities for savvy real estate investors and developers as well. But while we await guidance from the government, it would appear from the onset that this program will be mutually beneficial to both investors and the communities in which they operate.
The downturn rippled through world equity markets. Should real estate investors be worried? Yes, says Richard Barkham, Global Chief Economist & Head of Americas Research of CBRE, but only if policy makers overreact. Black Monday raised fear that the global economy was slipping into another serious recession, like that of 1979 to 1982. Interest rates were lowered and government spending was increased. Since the global economy remained in relatively good shape, the stimulus stoked inflation and fueled a property boom, particularly in the U.K. Real estate did well for a couple of years but crashed in 1989, not as a direct result of Black Monday but of the mistaken policy response, CBRE explains. The bursting of the dot-com bubble in the early 2000s was spread over three years, but the DJIA lost 27% of its value between January and October of 2002 alone. Interest rates were lowered, the U.S. moved to a zero-interest rate policy and government spending increased. Far more damaging was the housing market boom, ignited by aggressive interest rate cuts, which fell apart in 2007, continued CBRE. Bottom line: The global economy is in good shape and real estate investors should not fear a real estate crash reports CBRE.
His responses were stable cash flow with some potential for appreciation, long-term time horizon of 5 to 10 years, not tolerant of high-risk investments and his real estate experience was limited to the purchase of his single-family residence. This means that he lost out on the last five years of cash flow and appreciation, and his money suffered from five years of creeping inflation — a poor outcome. Plenty of people desire to be in real estate, but consistently fail to invest successfully. No Clear Objectives The primary reason investors I meet do not make any money in real estate is because they have not taken the time to establish specific, clear objectives. Most investors have answers for the questions I asked our representative investor above and believe that is sufficient for moving forward. Lack Of Time A real estate investment must be viewed as a business. As with any business you have clients (tenants), vendors (property managers, contractors, utility providers) and possibly employees. We constantly acquire properties for our investment funds, and a key gating factor when deciding whether to pursue a property is if we have a quality property management firm in place to run it. Inability To See The Big Picture When buying properties across the U.S. and in many different markets, there are two critical factors we look for before considering an investment: net population increase and diverse economic base. How can you tell if you are buying the right property?
Share this article In the long run, stocks have a higher return on investment than real estate. For that reason, here we’ll first use the averages for the past 10 years. The best source of primary price data for the residential real estate market is the Case-Shiller Home Price Index, a database begun by Nobel economist Robert Shiller and his associate Karel Case. If you’re looking it up online, the formal name is now “The S&P CoreLogic Case-Shiller U.S. National Home Price Index.” I’m using the index for the residential market because most individual real estate investors invest in rental housing. A return on investment calculator shows that the average annual ROI for the 10-year period is only 1.39 percent. Over a 30-year period, a time frame often chosen by retirement-minded investors, the stock market’s annual return of more than 8 percent on a $300,000 investment produces a retirement portfolio worth about $3,450,000. The residential market’s 6 percent return on the same investment produces a 30-year return of $1,720,000. But you might also consider investing in both. Index investing allows you invest in real estate without the labor and risk of investment in individual rental properties. Over the past 10 years San Francisco residential real estate — and therefore its price index — have outperformed all other regional markets.
Advances in blockchain innovation mean that the real estate sector no longer needs to rely on dusty documents and traditional sales processes, because property titles, insurance, ownership transfer and escrow processes are all moving onto the blockchain. While buying a property will not be as quick and easy as buying a book from Amazon, for now at least, the world of real estate from home buying to property investment is about to be transformed. Why change traditional house buying? With its many third parties, time delays and lack of transparency, the legalities involved in buying property will be drastically simplified with blockchain. For example, in the verification of property titles; a title record for a property could be used on the blockchain in the form of a smart contract. Smart contracts do not require a trusted third party and, when a property is bought and sold, the details are encrypted and added to the record. This is a radical new approach which is gaining momentum — being able to own units or tokens in residential real estate – and it opens up the market to people who would otherwise not be able to invest in this sector. But where does all this change leave the real-estate agents? Undoubtedly, their roles will change, but there is no sign of them disappearing any time soon. Blockchain not only will improve the current processes of buying and selling property, but it will also revolutionize our traditional attitudes towards real estate.
There's a lot of talk about Opportunity Zones. Can anyone invest in them? Investing in an opportunity zone is not for everyone, but for the right investor, it could be a once-in-a-lifetime tax break. As a result of recent tax reform, opportunity zones have emerged as a way for distressed neighborhoods to attract needed real estate development and for investors in these projects to receive favorable tax treatment. A good fund, he says, are those established by a firm or real estate developer with a track record of investing, preferably someone already working in the opportunity zone. Alternatively, investors with the time (as well as a lawyer and CPA on hand to look over their shoulder), can create their own fund, since this could reduce fees and provide transparency. Tkaczuk says there is nothing to stop an investor from registering their own opportunity fund with Treasury and invest directly into qualified opportunity zone projects. "And there could be a lot of dead-end projects." "A lot of people are planning and exploring, but investments aren't being made yet." "I think it has a lot of potential as an investment, but I approach it with a healthy dose of skepticism," says Jeffrey Levine, CEO and director of financial planning with BluePrint Wealth Alliance.
With interest in these opportunity zones increasing rapidly, the report notes, it is not surprising that, on a national level, sales of development sites in opportunity zones spiked by 80 percent in the first three quarters of 2018 when compared to the same period last year. As detailed in the report, the program will defer and reduce or eliminate taxes on capital gains invested in opportunity zones, in an effort to bolster development in these historically distressed neighborhoods. By putting their capital gains in a Qualified Opportunity Fund – which is required to have 90 percent of its assets invested in opportunity zones – and investing at least the purchase price in capital improvements, developers are able to reap significant benefits and avoid or reduce their tax payment on those capital gains. “While the increase in investment was expected – and was indeed the objective of the program – the fact that activity increased so dramatically before details of the program were even finalized is clear indication of the appetite investors have for these tax incentives,” said GFI Realty Research Analyst Justin Fitzsimmons. Market participants who have already created Qualified Opportunity Zones include RXR Realty and Youngwoo & Associates, each of which has launched a $500 million fund; Viceroy Equities, which launched the B’KOZ Opportunity Fund with a $75 million investment and plans to invest solely in Brooklyn projects Notably, the program is significantly more broad than the 1031 exchange; while 1031 exchange tax deferments only apply to investments of “like-kind” capital gains, any capital gains can be invested in qualified opportunity zones, including gains from the sale of stocks. “Many opportunity zones in New York are situated in neighborhoods that were either recently rezoned or have been pegged for rezoning. With the combined benefits of these two programs, we can expect to see developers enhance a wide range of neighborhoods in all five boroughs, which will benefit local residents and businesses alike.” Some areas poised for revitalization due to opportunity zones and rezoning include: Central Harlem and East Harlem have recently been rezoned, and are already hotbeds of development that have attracted new retail options, including a Whole Foods. In the coming years, opportunity-zone investment will likely combine with the existing new development pipeline to continue the area’s path to full revitalization. Far Rockaway – In its recent Far Rockaway rezoning, the city focused its efforts on the area’s commercial district, but Far Rockaway’s growth has extended to residential development, including several large multifamily buildings that are currently under construction. With the opportunity zone tax incentive, an increasingly strong downtown and added transportation, Far Rockaway is primed to reach unseen heights in the near term.
So, what does 2019 have in store for real estate investors? They will affect everyone, driving up costs for home buyers and creating more demand for rentals. Single-story homes will increase in value as demand rises. Millennials are finally ready to purchase their first homes despite headlines saying they “can’t afford them.” But because they are largely seeking affordability and quality of life, they are having to trade in the urban life they crave and head out to the suburbs. Investing Is A Lifestyle Many people want to be successful real estate investors. The problem is that the average person starts at the last step of the investment cycle rather than at the beginning. The property. For instance, if your personal investment philosophy were to invest for monthly cash flow, it would make no sense invest in a number of properties with an aggressive, highly leveraged debt ratio that allowed for no cash flow. As rich dad said, “Business and investing are team sports.” In order to be successful in any market, especially ones that you don’t live in, you need to have the right team. So, if you’re looking into becoming a real estate investor, 2019 could be a great time to do so.
What I've learned over my career may help you in your real estate investment journey and hopefully provide the impetus new investors need to take the first exciting step. In order to find the vehicle, you need to do your fair share of research. Find out what problem currently exists in the market or what service is lacking. People want to make sure you know what you’re talking about. After taking a few real estate classes, I decided to begin with basic residential investment. If you don’t have much experience or an extensive track record but you do have a good deal at hand, investors will come regardless. A good deal is one that makes sense, is the right price and has the potential to provide a good return on investment. So, if you’re armed with just the right tools and knowledge, you’re an honest person and, most importantly, your deal makes sense, then investors will flock to you. This step is integral to the process as it consolidates everything I‘ve mentioned so far and can be a make-or-break moment when it comes to potential investors. After a while, you might get some friends of friends to invest through word of mouth or simple marketing, and slowly but surely, you’ll begin to build your network of investors.