Economic transitions can be smooth, rocky, or somewhere in between. This year, I’m going with in between. Recent trends in real estate investing should have investors looking at more data, not less, getting creative with their investments, and sticking with the absolute best opportunities. But how do you know what those opportunities are and how to find them? I’ll admit, it isn’t easy. Let’s start by evaluating three current trends developing in the markets.
House-Flipping Market Softens
ATTOM Data Solutions published a report that shows the flipping rate has increased and is now at a 9-year high while return on investment for flippers is at an 8-year low. That’s not really anything to be alarmed about. In Q1, 7.2 percent of all home sales were flips compared to 5.9 percent in Q4 2018. That’s a big leap.
By the same token, average ROI was down almost 10 percentage points year over year in Q1 and registered at 38.7 percent. That’s the cost of acquisition versus the cost of sale. I don’t know about you, but that sounds like a decent ROI. A lower gain is still a gain.
The report also showcases 11 markets where real estate investors doubled their flipping ROI. Those include Pittsburgh, Flint, Shreveport, Scranton, and Knoxville.
Increased Competition Among Hard Money Lenders
According to the American Association of Private Lenders, the number of hard money lenders operating today is around 8,300. That’s an increase of 40 percent since 2016. What that says to me is a respectable demand curve. Lenders don’t jump into a dry pool.
On the other hand, more private lenders mean less business for each. Loan volume for home flippers was $20 billion last year. That’s 37 percent more than in 2016.
What this spells for house flippers looking to get a loan to finance their deals is a comfortable shopping environment. Look around for the best deal because it looks like the lending market, saturated with lenders, is a borrower’s market.
High Net Worth Investors to Increase Real Estate Portfolios
The third trend developing is that high net worth individuals (HNWI) are expecting to increase their real estate investments this year. Based on a survey, 53 percent of HNWI plan to make two to four direct real estate investments this year. Last year, only 33 percent made that many real estate investments.
Along with that trend, 47 percent of HNWI would like to allocate more than 20 percent of their investment portfolio in commercial real estate. This includes multifamily, industrial, office, hospitality, retail, and real estate funds.
Seventy-nine percent of the HNWI surveyed said they invest in real estate online. Certainly, the rise of online real estate investing can account for some of these trends. If you ask me, real estate investing is looking pretty good right now despite the increase in competition.
Lenders and Borrowers, Do Your Due Diligence
Whether you’re looking to borrow money for an investment or lend money to an investment, be sure to perform your own due diligence. The market has many moving parts. Both borrowers and lenders should not overlook real estate crowdfunding platforms, however, if you do invest through an online portal, be sure to choose one wisely. Technology may streamline expenses for the platform, but it doesn’t guarantee experience, know-how, ethical behavior, or sound underwriting practices. Your best bet is to choose a platform with a track record.
If you’re looking to invest in real estate online, choose a platform with a minimum of the following:
- At least four years in business
- An executive team with real estate experience
- Solid underwriting practices with transparency about the process
- A solid track record with few losses for investors
If you take a hard look at Sharestates, you’ll see it meets all of these criteria and more.