Top REI Analyst Explains Real Estate Investing in 2024

What is happening for real estate investing in today's market, most importantly for commercial real estate, for multifamily investing. What is happening right now and what is to come is the most important question you can be asking. If you truly want to build a portfolio in real estate or scale your current portfolio, if you want to replace your income, create cash flow, that's life changing, that is the number one question you can be asking my partners and I and our team has scaled to over 100 million in assets under management. And and I promise you the one thing we say all the time is you need an analyst in your corner. You need another set of eyes, a high level commercial analyst in your corner. Our friend Jack is one of the highest level commercial analysts in the nation. And I want to break down, I want to share with you a training he just did for our internal mastermind and group he did exclusively for them. But I want to share it because it was so powerful, it was so impactful. And he shares insights into what's happening in today's market and what's expected to come in 2025 and beyond. What are we seeing? And so I want to share that with you. I'm excited. If you are somebody who wants to build a real estate portfolio that can scale and sustain in whatever market, especially in the current market, you need to watch this. This is going to be a non negotiable for you and your business. Check it out, let me know what you think. All right, God bless.

All right, thank you Jonathan for having me here. All right, today I'm going to talk about, you know, the real estate investment market update for Q3 2024. But before that I really want to take a recap of what we talk about in Q3 2023 in Columbus, Georgia, our annual meeting for Broad room members. So 2023, I mean at that time I was really about, really worried about the market, really concerned about what's going on in the market. And I believe in the past 18 months that's the worst period of time ever since 2008 for real estate investors. And I listed a bunch of data to show everybody what the market looks like. It was terrible and everybody was concerned about future and I was expecting 24 will be a little better. But let's take a recap of what, what I mentioned at that time. So at that time, you know I, what I've seen was sales volume in real estate market dropped dramatically across the country, across different sectors, across different geograph locations, Southeast, west and everywhere in a major market tertiary Market, secondary market, and essentially there's no strong market in this nation at that time. And foreign Investment also declined 45% year over year in Q1 2024. That made a condition even worse because when the domestic investment was really bad and there's no foreign investment, that means the market was really lack of liquidity and the investors has no way out, there's no way to exit their investments even though they knew their loans were coming due. And that created a lot of problems on the market. At the debt side. The number also looked very terrible at that time. And it was noted there were $1.2 trillion of outstanding commercial real estate. Debt was potentially in trouble. And with 6, 6 $32 billion of debt maturing from 2024 to 2026. So you can see 2024 was actually expected to face the most maturities of the market maybe since 2008. That's really horrible. Especially market rate is still really high. And these operators, they just have no way out, they have no way to refinance it, they have no way to sell their property unless they are willing to take a loss. And they have no way to recapitalization because it's not really a good market. So it was really terrible year and everybody was, was really, you know, not really optimistic about the market at all. And 2024, my expectation was it's going to be the toughest year, you know, for real estate investors since 2008 because it has most of the commercial real estate loans coming due and partially due to back in 22 and 23 and interest rate has already been very high. And these operators, they have no way out. So they negotiated for a lot of extensions to extend their loans for one or two years. And so you can see a lot of, you know, a lot of loans coming due for 2024. And if, if the Federal Reserve they don't lower their rate and what's going to happen is a lot of loans mature in 2024, they're likely to default. And 2025, 2026, you can, there are still a lot of loans coming. If there is no continued decrease on the interest rate, a lot of these loans, a lot of these assets will have no way out. The only, the only thing waiting for them is, is to accept a default that will cause a huge volatility to the market. So I was expecting the Federal Reserve will lower the rate in 2024 to make sure a softer landing for the US economy. Otherwise it's going to cause huge trouble for the US Economy then on Wednesday they really announced a really big good news for all real estate investors. They, they made a big announcement that they will cut the rate by 50 bips. It's really good news for everybody because usually, usually they usually cut 25 bips at a time. It's very rare to see them cut 50 bibs at a time. That means they're really concerned about, you know, what's going on here as well. And so they're waiting to make such a big cut at one time. And I personally also expect a further rate cut, you know, maybe before the end of this year or early next year and expecting the market volume to pick up in early 2025. So I guess for everybody here who has not done any deals, hasn't been really productive in the past 18 months, I'm expecting early 2025 will be a good year, would be a good time for acquisitions to pick up. So just be patient and you know, track the market and track the industry and see the market, what's going on and you know, buy the properties at the right time. Right. This is, you know, snapshot of what agency loan industry look like currently. So if you get a 5 year long or 710 year long, your own rate will range from 5 and 5 and a half percent up until 5.8%. That's what current rate is. If you get a bank loan, I'm expecting a, you know, 150 to 250bps spread above the agency debt loan. Maybe for a lot of investors here, you guys want to secure debt from bank loan instead of agency loan or somewhere more sophisticated investors, you look into agency debt and this is a good snapshot or the current interest rate look like. But with the announcement of 50bps rate cut, I'm expecting this long the all in rates for agencies debt will go down to you know, low fives to mid 5% this year by the end of this year and maybe next year with, with another rate cut. Hopefully the oiling rate will go down to high four to low five and then it will go back to the 201718 level. So then I'm at that time, I'm expecting some sort of, you know, risk investment volume to kind of pick, pick up at that time. All right, so let's talk about, you know, how the rate cut will impact your transactions. So obviously if they announce a rate cut it will directly or indirectly reflect it on the mortgage interest rate. And if investors see a, you know, lower interest rate that will allow them to do more deals or then increase, increase the liquidity in the markets because obviously all the cash flows generated from the property will, goes to one your investors, to the lender for mortgage, mortgage debt service, three sponsors, operators. That's you know, that's why I do the deals. And then if interest rate goes down a little bit and then there will be less money goes to the debt service and obviously you'll have more money to investors and to yourself. So right now I've seen a lot of people submitting your, your deals to the, to the platform which I'm outlining every day. I was expecting everybody to take on a deal with 8 and a half percent cap rate because I know for a lot of you you will need to raise the money from, from your family members, from your friends and you have to pay them 8 and a half percent to 9% preferred returns. So that's why you need to buy a deal with the much higher at high, high, you know, cap rate at 8 and a half percent even though the market cap rate could be 6 and a half to 7%. But in order to have enough cash flow to pay high prefer returns at the current interest rate environment, you have to buy this deal at high cap rate such as, you know, 8% or something like that. But when interest rate gets lower and then that means you will spend less money on that service and the remaining cash flow to investors will be higher. So then you can, you know, potentially accept a lower cap rate for a deal which means you can bid for a little higher price and reduce the bid. That's a spread and more deals will potentially happen. And that's how interest rate change will affect your deal volumes and the way you do deals. So I really recommend you from now since I haven't seen, you know, the 50 basis rate cut as reflected on mortgage rates, but I'm expecting it will happen in a very near term, maybe in the next one or two months. So I really recommend you take a look at the deals that you have passed on because you thought it was too expensive that time and maybe you know, re underwrite these deals and, and maybe come up with think, you know, think about different scenarios and think about interest rate is going to go down by 50bps or so and to come up with a new valuation with these properties. And then at the time you see a mortgage rate goes down at, you know, 25, 50, you can immediately jump on and submit an offer and get this deal. That was my recommendation for everybody to re underwrite some of the deals. But I know industry is a very important component for you to make your decision to make a real estate investment decision. But that's not the only factor that could affect the valuation of your property. We also need to look at the fundamentals of the market. Highly recommend you if you're. A lot of people are kind of thinking about, you know, either going into a new market because you don't see too many opportunities around you or something like that. But real estate investment is really, really a kind of, kind of local investment. You got to focus on the area and price or location that you are familiar with when you enter a new market. And you, you know, please don't think that you know everything. You can apply the experience you have by investing your local area to a new market. That that's going to be a big mistake you can make. So for instance, a lot of people saying hey Florida Sun Belt, it's a really good market because a lot of people will be down there. But another problem is now there are massive supply here. So I really highly recommend you when you enter into a market, look into the fundamental of where's the market in this area. Say take a look at the, you know, net population inflow and then take a look at the surprise data in this area and then do your math to find out the supply and demand trend and make your final decisions. It's really, really important. Not just kind of move up your purchase price, move up your offer price because the interest rate. So yeah, make sure look at the fundamentals in any local area. But overall multifamily, the multifamily housing market still be very strong because this is still considered to be the most stable market for raised investment. And it's better than office, better than, you know, retails in terms of generating risk adjusted returns, especially for retirement. But obviously definitely multifamily is housing market is the best market for everybody to do their investments. All right, so in terms of the supply, demand and the demographics, there are some challenges right now to local multifamily, I mean national multi family operators. The most challenging thing that a lot of people haven't kind of look into, which I think is the growth of expenses. So historically when people underwrite, you know, multifamily deals and people tend to look at the T12 numbers or historical T, you know, last two, three years of expenses and incomes and project out their future expenses based on the historical expenses and then project out with a 2, 3% increase or things like that. But that's not the case anymore for, for most of the markets and especially for payroll labor costs and pay and for Insurance costs I've seen, you know, recently, especially during the last two years, I've seen over 50% increase on insurance only in Florida or some of the coastal markets. Plus the flat insurance. It's, it's easily, you can easily see a double or 200% or 1% or 200% increase. Our insurance expenses people a lot of time people tend to be very optimistic about their investments and trust the sellers financials and project their expenses out. Maybe just assume a 2% increase for the future. But I really highly recommend you especially for these non controllable expenses like insurance and property tax and things like that. You got to do a more deep analysis before you can come up into a conclusion. So for instance for insurance you don't know what's going to happen, but you see a low number from T12 financials and I highly recommend you to request an insurance quote from an insurance agent to avoid some really bad things going on or you see a really high number before you close this deal. So I have a good friend, he was buying a property in Florida, he's really confident about the property. He wanted to just deal and then he put hard money, he offered a hard money from day one as he was really confident. Something really go, something went wrong and insurance quote, he's ready to close the deal. He got outlanders lined up, you know, everything's ready. Then he got a insurance quote back, told him it's going to be $3,000 per unit per year and that was a big deal and they couldn't do this deal. He was in a really tough situation because he didn't look into, you know, these controllable expenses seriously before he put hard money and he trusted status financials, things like that. So right now anyway, for multifamily underwriting I would highly recommend you to take a deep look into the expenses, especially these control expenses that's happening across the country.

Hope that was impactful for you. We preach all the time, get someone in your corner like Jack that can break down your deals, that can do a deep dive on each individual deal that you have. He is actually over our underwriting team that we have for our students. So if you want to be a part of a high level group that is focused on scaling each other's portfolio and you want to have an underwriting team in your corner that you can shoot your deals to, Jack is your man. Jump in REI accelerator or book a call and let's see if it's even a good fit. But check out the link below and we'd love to connect with you and see if that might be a good fit for you. We'd love to help you scale your portfolio in multifamily and commercial real estate, especially in today's market, because it's a good time to be investing. All right. God bless. Have a great day.