Play Video Play Loaded: 0% Progress: 0% Remaining Time -0:00 This is a modal window. Foreground --- White Black Red Green Blue Yellow Magenta Cyan --- Opaque Semi-Opaque Background --- White Black Red Green Blue Yellow Magenta Cyan --- Opaque Semi-Transparent Transparent Window --- White Black Red Green Blue Yellow Magenta Cyan --- Opaque Semi-Transparent Transparent Font Size 50% 75% 100% 125% 150% 175% 200% 300% 400% Text Edge Style None Raised Depressed Uniform Dropshadow Font Family Default Monospace Serif Proportional Serif Monospace Sans-Serif Proportional Sans-Serif Casual Script Small Caps Defaults Done Don't count on those millennials for another homebuying boom — at least no time soon. When asked what they'd do with a $100,000 cash windfall, buying a house wasn't at the top of millennials shopping list. Spending the money on a house was tied with paying off student loans and other debts as their second mostly likely use of the money, according to a new survey by real estate investor Clarion Partners. Saving the money for a house down payment was last on their wish list, according to the survey. The new data on millennial attitudes is part of a broader study in U.S. rental property demand. About 65 percent of Americans own their homes. The rest either rent apartments or single-family homes. "Multifamily housing will likely thrive most in markets and submarkets where for-sale housing is prohibitively expensive." While Dallas-area homes sell for much lower prices than in other big-city U.S. markets on the West and East Coasts, median home sales prices in this area have gone up by more than 40 percent in the last five years, outstripping wage increases.
This piece will examine many of the common pitfalls that investors in physical properties deal with, and take a closer look at the alternative offered by real estate investment trusts (REITs) and real estate limited partnerships (LPs). What investors get wrong: Valuation and aggravation The first and most obvious evaluation of whether a real estate investment will be successful involves the economic relationship between the purchase price of a property and its capacity as a cash generator. Hassles in negotiating with tenants and the time commitment and cost involved with property management should also be primary considerations. Real estate securities as a viable alternative Real estate can be — and historically has been — an asset class capable of delivering more than satisfactory returns. Enter the real estate security, which can be simplified into two basic forms: (1) real estate investment trusts and (2) real estate limited partnerships. Publicly traded REITs are listed on the public markets and are freely accessible to any investor interested in gaining exposure to the sector. Real estate limited partnerships, or “RELPs,” also provide investors with passive exposure to the commercial real estate sector. Limited partnerships, because of their pass-through tax status, are also incentivized to distribute most, if not all of, their earnings to investors. These vehicles are true proxies for real estate, with real properties, real rents and real appreciation to boot. Investors should consult their financial adviser on the strategy best for them.
The volume of cash-out refinance loans hasn’t been this high since 2008, but experts say when put into context, there’s no cause for alarm. A blog by Washington, D.C. think tank the Urban Institute said that while on its face the growing share does seem worrisome, there is no cause for concern when you break it down. For one, home price appreciation and rising interest rates play a major role. Home values have been rising an average of 6 to 8%, giving homeowners a major incentive to tap that growing source of wealth. Second, the percentage of refinances in the overall number of mortgage transactions is the lowest it has been in years. “Refinance loans make up such a small share of total loan production – currently below 30% for Freddie Mac – so the cash-out refinance share of all loans is still within a reasonable range and below the dangerous levels of the crisis years,” the authors stated. Also, other forms of equity extraction – including HELOCs and HECMs – are not experiencing major borrower uptake. Finally, borrowers are taking less equity than before when they cash out, thanks in part to regulations limiting the loan-to-value ratio for cash-out refis. “While cash-outs make up the highest share of refinances they have since 2008, this is no reason for alarm,” the authors write. “In an environment of home price appreciation, people commonly tap into their home equity.”
In any U.S. city, living arrangements run the gamut from friends and strangers living as roommates to domestic partnerships to single-parent households to the traditional nuclear families. More than 1 in every 4 households – 27.9 percent – are made up of a single individual. According to estimates from the U.S. Census Bureau, there are 21 metropolitan areas where more than one in every three homes are occupied by individuals who live alone. While these cities do not necessarily share a single defining quality, there are some common characteristics that may help explain why residents are more likely to live on their own in these places. Living alone means footing the bill for utilities and rent – or upkeep and mortgage. For that reason, it is not financially prudent, or even possible, for many. In cities with a lower than average cost of living, fewer residents may need to rely on a roommate in order to afford housing. More: Do you live in an ideal community? Nationwide, 48.1 percent of the 15 and older population are currently married. In the majority of cities with the largest share of people living alone, a smaller than average share of the population is married.
Owning a rental property in addition to your primary residence can be a way for you to build wealth, especially if you may be averse to investing in the stock market. With a rental property, someone else pays your mortgage, and over time your equity grows. So, before you decide to invest in a rental property, consider calculating the return on your investment to see if investing in a rental property is really the deal you thought. How to Calculate the Return on Investment of a Rental Property Like any investment, you need to understand the expected return on investment (ROI). Before you can calculate the true ROI of a rental property, you have to factor in all the costs associated with holding that property, not just the purchase amount. And remember, property taxes don’t typically stay the same each year. In addition, this calculation should be done for every year you anticipate owning the property, as your return will change over time. Conclusion Rental properties can generate income, but the return on investment doesn’t typically happen right away. As with any investment, rental properties should be viewed as a long-term investment, not an instant cash cow. Paul Sydlansky, founder of Lake Road Advisors LLC, has worked in the financial services industry for over 18 years.
If house B ends up being better (as in, you bought it after the market crashed and paid less), your opportunity cost would be the money you lost that you could have made if you’d waited for house B. When you BRRRR correctly, you can end up buying an investment property with zero money down. When you buy a house traditionally, you put a hefty down payment down, then include money for closing costs and the rehab. In this case, if the market crashes, you don’t have that 50k to invest in the down market, so your opportunity cost is high. This is the reasoning behind the “fear of missing out” that keeps investors from getting started investing in real estate. If you can buy a property and recover the capital you used to buy it, what stops you from buying the next one too? In a hypothetical BRRRR deal, you would buy a fixer upper property for 60k that needs 40k of rehab work. This means you’ll have all that money to put into the next house when the market crashes. If you do this effectively, you can pull out even more money than you put in (by buying great deals and rehabbing prudently), growing your capital and the ability to invest in future properties. How do I know which market to invest in?
Institutional investors plan to dedicate more of their funds to real estate next year, continuing a trend that has been seen since 2013, according to a new research report. Global institutional investors’ average weighted target allocation to real estate is expected to tick up in 2019 to 10.6 percent from 10.4 percent in 2018, according to results of a survey administered by Cornell University’s Baker Program in Real Estate and Hodes Weill & Associates, a real estate advisory firm. “We’re still in a very low interest-rate environment and investors are still hungry for yield,” says Jim Costello, senior vice president at real estate data firm Real Capital Analytics. Real estate is also seeing strong returns for institutional investors, Weill says. In 2017, the average total return for these real estate portfolios was 9.2 percent, up from 8.7 percent in 2016. The target for 2018 is 8.2 percent, the Cornell/Hodes Weill report found. The report found that investors based in the Americas on average expect target real estate allocations in 2019 to be at 9.9 percent—flat with this year’s target. Weill says this is something he expects will continue: “If you look at conviction, the institutions in the U.S. have the least favorable view of real estate, and I think it’s driven by a general view that real estate is late in the cycle,” Weill says. But institutions based in the Americas were closest in 2018 to their targets; their actual allocation of 9.0 percent to real estate was 90 basis points shy of their target. In the Americas, 95 percent of institutions indicated they are actively targeting value-add investments compared to 50 percent that target core strategies.
The future of passive investing is facing one of its biggest tests yet. And surprisingly the challenge is coming from a handful of relatively obscure real-estate companies. Funds that track indexes are coming increasingly close to owning a majority of shares in eight property owners and managers, according to a report from Bloomberg Intelligence. That makes these companies potential bellwethers for the impact of benchmark tracking as the funds grow. “For firms with high passive ownership, you have lower reaction to company-specific news,” said Itzhak Ben-David, a finance professor at Ohio State University who’s studied the topic. Variously described by active managers as being akin to Marxism or financial weapons of mass destruction, indexed funds are poised for another year of inflows as actively managed products hemorrhage cash, data compiled by Bloomberg show. Tanger Factory Outlet Centers Inc., which owns and operates out-of-town retail parks, could be the first stock to test passive’s tipping point. Indexed funds own 46.9 percent of the real estate investment trust, which has a market capitalization of $2 billion, the data show. It’s owned by dividend strategies, funds that buy mid-cap or small-cap companies, and investors in real estate or REITs. Bloomberg Intelligence also found little correlation between Tanger’s stock price and flows into the largest fund that owns it.
If you were to ask most Americans which is the poorest state in the nation, they might say Alabama or Mississippi, with their low average incomes and concentrations of African-American poverty. So two institutions in the state, the Public Policy Institute of California and the Centre on Poverty and Inequality of Stanford University, created their own California Poverty Measure (CPM). Most of the poor have jobs: 80% of those living below the CPM’s poverty line are in households with at least one person in work. By the time they are 18, estimates Mr Flood, half the children of the Golden State will have made use of food stamps or food banks. California is not only America’s poorest state. California’s poor are far beyond that. California’s development and impact fees are about three times higher than the national average. Between 2013 and 2017 the median rent in California rose by 32%, more than twice the national average, and far above the growth in average state incomes. No wonder California has twice as many homeless people as the national average. The problem is not that the state locks up an unusually large number of people.
Legacy commercial real estate firms that spent decades focusing their investment on physical properties have begun launching venture funds to invest in technology companies, aiming to solve problems in their portfolio and bring in big returns. Most of those companies focus on commercial office and retail properties and invest in tech companies that solve problems in those sectors, but one of the nation's largest affordable housing developers is now getting into the space. Enterprise Community Partners Vice President of Innovation Matt Hoffman tells Bisnow the nonprofit plans to launch a fund next year to invest in early stage technology companies addressing housing affordability. “We would like to see the housing sector get exposed to a disruptive technology platform much like Uber was to the taxi industry or Airbnb to the hotel industry.” New York-based Rudin Management Co., a 93-year-old real estate firm with roughly 15M SF of office and residential properties under management, in 2015 launched a venture fund to invest in real estate-related technology companies. Gilbert, who also serves as chief technology officer, said the first thing Rudin looks for in a potential investment is the problem it solves. The majority of the well-funded PropTech companies focus on the commercial office sector rather than residential, Hoffman said, and the investment in multifamily-focused technologies isn't addressing the issue that Enterprise sees as its primary mission: housing affordability. The financial returns startup tech companies have the potential to generate can be as attractive to commercial real estate companies as the underlying problems they solve. Strategic Property Partners is doing that with its $3B Water Street Tampa project, a 50-acre development planned to include 9M SF of commercial, residential, hospitality, retail and other space. SPP Senior Vice President of Digital Innovation and Technology Steven Fifita said the developer is planning to utilize a variety of technologies at the development. "I think it is an evolution we're seeing in many industries, especially in commercial real estate, where it's an industry that's comfortable with investment to begin with and the notion of risk," Fifita said.