Single-familysingle-family rental rentals are a niche market for landlords that can be lucrative if you have the right properties in the right markets. Fortunately, for serious rental investors, ATTOM Data Solutions has ranked single-family rental markets for 2019. There are some interesting findings on this list.

The firm analyzed 432 markets nationwide and determined that the average annual gross rental yield is 8.8 percent, up one-tenth of a percent since last year. That’s good news. So where are the highest rents?

Where to Find The Highest Single-Family Rental Returns in 2019

In over half the counties analyzed, rental returns increased from a year ago. In 2019, the highest single-family rental returns are in the following areas:

  • 5 percent in Baltimore City, Maryland
  • 9 percent in Bibb County, Georgia
  • 2 percent in Cumberland, New Jersey
  • 1 percent in Winnebago, Illinois
  • 1 percent in Wayne County, Michigan

Wayne County, Michigan is a great benchmark community since it consists of Detroit and contains a population of over 1 million residents. Other counties in the same demographic show modest gains in returns over last year. These include:

  • Cuyahoga County, Ohio with 12.0 percent annual gross rental yields
  • Allegheny County, Pennsylvania with 10.9 percent
  • Cook County, Illinois with 9.7 percent
  • Philadelphia County, Pennsylvania with 9.4 percent

Counties in the west mid-Atlantic and east midwest sections of the country seem to fare well with single-family rentals. That may be due to higher property values and lower wages, which put homeownership out of reach for many income earners. But what about the areas with lower single-family rental returns? Where are they located?

Where the Lowest Single-Family Rental Returns are Located

The part of the country with the lowest single-family gross rental returns is in the western states. Specifically, most of the counties in this category are in California.

  • 4 percent in San Mateo County, California
  • 7 percent in San Francisco, California
  • 0 percent in Marin County, California
  • 2 percent in Santa Clara, California
  • 3 percent in Kings County, New York

Brooklyn, New York, where Kings County is located, seems to be the outlier. However, that county does have one thing in common with Santa Clara County in California. Both counties have a population of at least 1 million. Other counties with a similar population and that show low potential for annual gross rental yields include:

  • Fairfax County, Virginia (where Washington D.C. is located) shows 4.7 percent potential
  • Queens County, New York shows 4.8 percent
  • Alameda County, California shows 4.9 percent
  • Orange County, California shows 5.0 percent

Where Rents Are Rising Faster Than Wages

Areas where rents are rising faster than wages could be areas to stay away from. That’s because rising rents could cause renters to seek home ownership options, but every geographic area is different. If the cost of ownership is out of reach, wage earners could still prefer renting, but they may need to downsize their quarters or cut expenses in other areas.

Rents are rising faster than wages in 236 counties, 55 percent of those studied. That includes the following areas:

  • Los Angeles County, California
  • Harris County, Texas
  • Maricopa County, Phoenix
  • San Diego County, California
  • Orange County, California

The reverse is true in the following counties:

  • Cook County, Illinois
  • Kings County, New York
  • Clark County, Nevada
  • Tarrant County, Texas

When wages are rising faster than rents, renters could seek home ownership options. Investors looking for good rental opportunities should pay close attention to this data and invest responsibly.

An opportunity zone is a federally designated low-income area targeted for investment in order to revitalize the communities and kick start the economy. Real estate developers are offered tax incentives for reinvesting capital gains into these zones. Recently, LOCUS published a report ranking the top opportunity zones in the U.S. But what does this ranking mean for real estate developers?

An Overview of Opportunity Zones

There are currently more than 8,700 opportunity zones in the continental U.S., district of columbia, and U.S. territories. The LOCUS National Opportunity Zone Ranking Report compares these zones against three primary metrics – Smart Growth Potential, social equity, and a Vulnerability Index score (SEVI).

Smart Growth Potential is a proprietary filter to help investors identify which opportunity zones take priority based on their potential to deliver economic, environmental, and social returns. This filter rests on four identifiable metrics: Walkability, job density, housing diversity, and distance to the nearest top 100 central business district (CBD). Scores range from a minimum of 10 to a maximum of 20. For social equity and SEVI, LOCUS used four variables: transit accessibility, housing, and transportation affordability, diversity of housing tenure, and the Social Vulnerability Index. Again, the minimum score is 10.

Using these metrics and the scoring algorithm, LOCUS made some interesting discoveries. Only 2% of the opportunity zones scored a 10 or higher on these metrics, 13% of the opportunity zones with Smart Growth Potential less than a score of 10 are in rural areas, and only .18% of Americans live in both a high opportunity and a high equity opportunity zone (i.e. they are walkable urban places and socially and economically inclusive).

Where are the Top U.S. Opportunity Zones Located?

According to the report, the top scores for opportunity zones among the top 30 metro areas with the most Smart Growth Potential are New York, Los Angeles, Philadelphia, and Chicago. Charlotte, San Antonio, Orlando, and Dallas received the lowest scores. The states with the highest scores include New York, California, Maryland, New Jersey, Pennsylvania, and Ohio.

According to the report, the top scores for opportunity zones among the top 30 metro areas with the most Smart Growth Potential are New York, Los Angeles, Philadelphia, and Chicago. Charlotte, San Antonio, Orlando, and Dallas received the lowest scores. The states with the highest scores include New York, California, Maryland, New Jersey, Pennsylvania, and Ohio.

The top 11 opportunity zones based on Smart Growth Potential are:

  1. Downtown Portland (CBD) – Census FIPS 41051010600
  2. Downtown Oakland
  3. Downtown Seattle
  4. Center City East in Philadelphia
  5. Inner Harbor of Baltimore
  6. Downtown Newark
  7. Downtown Portland (CBD) – Census FIPS 41051005100
  8. Downtown Detroit
  9. Journal Square in New York
  10. Downtown St. Paul
  11. Wilshire Central BID in Los Angeles

The top 10 social equity and vulnerable places with high Smart Growth Potential include:

  1. Downtown Portland (CBD)
  2. Downtown Oakland
  3. Downtown Seattle
  4. Downtown Newark
  5. International District in Seattle
  6. Downtown Sacramento
  7. Wilshire Central BID in Los Angeles
  8. Westlake in Los Angeles
  9. Campus District in Cleveland
  10. Downtown Honolulu

Top U.S. Opportunity Zones by Product Type

Product types make a difference too. New York, for instance, scored high among offices asking for rent, multifamily properties asking for rent, and retail space asking for rent. Other notable high scorers among office space include Hollywood, San Francisco Bay Area, Miami, and Seattle. Among multifamily properties, Cleveland’s Campus District, various Los Angeles neighborhoods, San Francisco, and Seattle scored high. Rounding out the top five in retail are Miami, San Francisco, Los Angeles, and Seattle.

Top opportunity zones across all product include Hudson Yards/Hell’s Kitchen in Manhattan, East Village in Manhattan, Kips Bay in Manhattan, Williamsburg in Brooklyn, Greater Flushing Queens, Brooklyn Heights, East Harlem, Central Harlem, Downtown Brooklyn, and Williamsburg South in Brooklyn.

The Four Opportunity Zone Quadrants

When scoring, LOCUS categorizes each opportunity zone as either high or low equity and either high or low opportunity, based on their scores in the associated metrics. In that regard, each opportunity may be considered to fall into one of the following four quadrants:

  1. High Equity / Low Opportunity
  2. High Opportunity / High Equity
  3. Low Equity / Low Opportunity
  4. High Opportunity / High Equity

The report contains a lot of detail on each opportunity zone with each of the metrics analyzed for each opportunity zone. It’s a great read, and developers looking for opportunity zones to invest in would do well to check it out.

An opportunity zone is a federally designated low-income area targeted for investment in order to revitalize the communities and kick start the economy. Real estate developers are offered tax incentives for reinvesting capital gains into these zones. Recently, LOCUS published a report ranking the top opportunity zones in the U.S. But what does this ranking mean for real estate developers?

An Overview of Opportunity Zones

There are currently more than 8,700 opportunity zones in the continental U.S., district of columbia, and U.S. territories. The LOCUS National Opportunity Zone Ranking Report compares these zones against three primary metrics – Smart Growth Potential, social equity, and a Vulnerability Index score (SEVI).

Smart Growth Potential is a proprietary filter to help investors identify which opportunity zones take priority based on their potential to deliver economic, environmental, and social returns. This filter rests on four identifiable metrics: Walkability, job density, housing diversity, and distance to the nearest top 100 central business district (CBD). Scores range from a minimum of 10 to a maximum of 20. For social equity and SEVI, LOCUS used four variables: transit accessibility, housing, and transportation affordability, diversity of housing tenure, and the Social Vulnerability Index. Again, the minimum score is 10.

Using these metrics and the scoring algorithm, LOCUS made some interesting discoveries. Only 2% of the opportunity zones scored a 10 or higher on these metrics, 13% of the opportunity zones with Smart Growth Potential less than a score of 10 are in rural areas, and only .18% of Americans live in both a high opportunity and a high equity opportunity zone (i.e. they are walkable urban places and socially and economically inclusive).

Where are the Top U.S. Opportunity Zones Located?

According to the report, the top scores for opportunity zones among the top 30 metro areas with the most Smart Growth Potential are New York, Los Angeles, Philadelphia, and Chicago. Charlotte, San Antonio, Orlando, and Dallas received the lowest scores. The states with the highest scores include New York, California, Maryland, New Jersey, Pennsylvania, and Ohio.

According to the report, the top scores for opportunity zones among the top 30 metro areas with the most Smart Growth Potential are New York, Los Angeles, Philadelphia, and Chicago. Charlotte, San Antonio, Orlando, and Dallas received the lowest scores. The states with the highest scores include New York, California, Maryland, New Jersey, Pennsylvania, and Ohio.

The top 11 opportunity zones based on Smart Growth Potential are:

  1. Downtown Portland (CBD) – Census FIPS 41051010600
  2. Downtown Oakland
  3. Downtown Seattle
  4. Center City East in Philadelphia
  5. Inner Harbor of Baltimore
  6. Downtown Newark
  7. Downtown Portland (CBD) – Census FIPS 41051005100
  8. Downtown Detroit
  9. Journal Square in New York
  10. Downtown St. Paul
  11. Wilshire Central BID in Los Angeles

The top 10 social equity and vulnerable places with high Smart Growth Potential include:

  1. Downtown Portland (CBD)
  2. Downtown Oakland
  3. Downtown Seattle
  4. Downtown Newark
  5. International District in Seattle
  6. Downtown Sacramento
  7. Wilshire Central BID in Los Angeles
  8. Westlake in Los Angeles
  9. Campus District in Cleveland
  10. Downtown Honolulu

Top U.S. Opportunity Zones by Product Type

Product types make a difference too. New York, for instance, scored high among offices asking for rent, multifamily properties asking for rent, and retail space asking for rent. Other notable high scorers among office space include Hollywood, San Francisco Bay Area, Miami, and Seattle. Among multifamily properties, Cleveland’s Campus District, various Los Angeles neighborhoods, San Francisco, and Seattle scored high. Rounding out the top five in retail are Miami, San Francisco, Los Angeles, and Seattle.

Top opportunity zones across all product include Hudson Yards/Hell’s Kitchen in Manhattan, East Village in Manhattan, Kips Bay in Manhattan, Williamsburg in Brooklyn, Greater Flushing Queens, Brooklyn Heights, East Harlem, Central Harlem, Downtown Brooklyn, and Williamsburg South in Brooklyn.

The Four Opportunity Zone Quadrants

When scoring, LOCUS categorizes each opportunity zone as either high or low equity and either high or low opportunity, based on their scores in the associated metrics. In that regard, each opportunity may be considered to fall into one of the following four quadrants:

  1. High Equity / Low Opportunity
  2. High Opportunity / High Equity
  3. Low Equity / Low Opportunity
  4. High Opportunity / High Equity

The report contains a lot of detail on each opportunity zone with each of the metrics analyzed for each opportunity zone. It’s a great read, and developers looking for opportunity zones to invest in would do well to check it out.

underwritingLate last year, RealtyShares, one of the pioneers in real estate crowdfunding, announced it was shutting down. Then, in January, National Real Estate Investor wrote: “In addition to understanding economic fundamentals, local markets, and the capital markets, becoming a successful real estate investor requires highly specialized underwriting, and asset and property management skills, among many others. While technology is important, it is merely the facilitator for real estate crowdfunding.”

I couldn’t agree more. Solid underwriting practices are one of the most important components for a successful real estate crowdfunding platform.

Now, I’m not saying RealtyShares didn’t have solid underwriting practices. There are a number of reasons why a business would go under, but as real estate crowdfunding matures, solid underwriting practices will become much more important to the survival of the platforms that remain.

Why Underwriting is Important to Real Estate Crowdfunding

Underwriting is an important aspect of real estate investing in general, but for real estate crowdfunding, in particular, for a number of reasons. For starters, if investors can’t trust the platform, they won’t stick around for long. Crowdfunding platforms earn the trust and respect of investors by performing due diligence on borrowers and sponsors of real estate projects.

Another aspect of this is the risk assessment process itself. While it is important to perform a risk assessment on borrowers and sponsors, it’s just as important to perform a risk assessment on the properties. It’s the properties, after all, that investors are investing in.

Underwriting is also important for the sponsor. When a sponsor approaches a real estate crowdfunding platform to ask for a loan or to offer equity in a deal, they understand they will have to prove they, and the property they are sponsoring, are worth investors taking a risk. It’s expected that not every deal will be worthy of investment. By performing due diligence, the real estate crowdfunding platform can weed out some of the competition, which increases the chances for worthwhile projects to receive funding.

What Makes for Good Underwriting Criteria?

Every real estate crowdfunding platform has its own criteria, of course, but there are some specific details that should be important to anyone in the real estate crowdfunding industry. Some of the most important criteria for assessing a lending or equity risk for the sponsor include real estate development experience, experience specific to the type of deal they are sponsoring, credit history, success ratio to development deals, and whether or not they are backing their own project.

For properties, it’s important to look at how much of the total project is the investor seeking funding for, what is the loan-to-value ratio, what is the after-repair value of the property, and is the property in a good location? One other thing to look at is the type of project it is that is seeking funding. A residential fix-and-flip project is very different than a new office development project built from the ground up.

After assessing all the risk factors and analyzing the criteria, the real estate platform should be able to justify to potential investors why a particular project, and a particular project sponsor, deserve funding. If the platform cannot do this, investors should question their underwriting practices.

What Makes Sharestates Unique Among Platforms

Sharestates is unique among real estate crowdfunding platforms because it’s founding team came from a traditional real estate background rather than from a technology background. Because of that background, we’ve developed a sound underwriting and risk assessment strategy that we use across the board on every project and every sponsor. That doesn’t guarantee success, but it greatly increases the opportunities for both investor and sponsor to see a positive return on investment.

Real estate crowdfunding is entering a very critical time in the life of our industry. The platforms that survive the next crisis will be the ones who have a solid underwriting practice in place, a strong financial position, and the ability to justify the investments it’s willing to offer investors.

Click here for a deep-dive into Sharestates’ underwriting process, including our detailed risk matrix.

Hard money loans are short-term higher-interest loans that assist real estate developers and investors acquire property and bankroll expenses related to their real estate projects so that they remain solvent, liquid, and increase their chances of success. They’re an integral part of the real estate investing process with some clear upsides and downsides.

The Pros of Hard Money Loans

There are several reasons why serious real estate investors rely on hard money loans to finance fix-and-flip projects. Here are the top benefits of hard money loans for house flippers:

l  Speed – Hard money loans can be acquired much more quickly than traditional bank loans. They do not usually require credit checks and other due diligence that causes the process to move more slowly at banks. Many hard loan lenders are able to provide money for real estate investments because their primary consideration is whether an investment is a good deal or not.

l  Flexibility – Every hard money lender has their own set of criteria to loan money for a real estate project. Most hard money loans do not come with a list of restrictions that usually beset conventional loans. For that reason, they are more flexible and allow real estate investors to change project goals midstream if necessary.

l  Leverage – Hard money loans provide tremendous leverage for fix-and-flip investors. The investor can enter a project without putting their own money at risk and remaining liquidity.

The Cons of Hard Money Loans

While there are incredible benefits to using a hard money loan for fix-and-flip real estate investments, there are some downsides. Before taking a hard money loan, do your due diligence on the loan, the lender, and, of course, the property investment.

Some downsides to hard money loans include:

l  Interest rates – All real estate investors should consider the cost of capital. Hard money loans are typically higher-interest loans because they are riskier for the lender.

l  Higher-risk – The lender is not the only person assuming a risk on hard money loans. The borrower is also taking a risk. Because the loans are higher-interest and short-term, these loans are riskier because they can lead to high financial burdens if not entered wisely.

l  Must be paid back quickly – Hard money loans are short-term loans. They are typically for 12 months or less, and the investor is on the hook for repaying the loan in the time frame specified. If they are not paid back on time, the investor may be seen as a bigger risk on the next loan and find it difficult to get a loan for their next fix-and-flip project.

Where to Find Hard Money Loans

Hard money loans are not hard to find. Banks, however, do not offer them. Years ago, local private real estate lenders were the primary source of hard money. More recently, however, the JOBS Act of 2012 has made it easier to find hard money loans online. Real estate crowdfunding platforms, marketplace lenders, and other peer-to-peer business models may or may not refer to themselves as hard money lenders, but that is, in essence, the service they are providing.

When you are ready to fund your next fix-and-flip property, be sure to conduct your due diligence on potential lenders thoroughly. Whether you get your hard money loan from a single lender or from an online marketplace with multiple investors financing your project, make sure you look at the lender’s loan history and review the terms of your loan closely. Ultimately, you’ll want to find a partner with a track record of success lending on the property type you’re interested in developing, so that you can grow together over time with more successful projects down the road.

Learn more about Sharestates track record.

When you think about luxury communities near top U.S. ski destinations, what comes to mind? For many people, names like Telluride, Breckenridge, Big Sky, and Park City are at the top of the list. But do ski properties make good investments? Today, we’ll discuss the pros and cons of investing in ski properties. Is it worth it?

Pros of Investing in Luxury Ski Properties

Ski resorts offer investors a unique opportunity. For starters, this is a luxury market, and it’s not just a luxury market. It’s a high-end luxury market. People who buy ski resorts are often buying their second home, and the thought process is typically different than it is for buying a first home.

Before you rush in on a ski property investment, you should decide what you are going to do with the property. You have several options. If it is a fix-and-flip property, you’ll need to make sure your after-repair value will leave you room for a profit. Other options such as renting the home, offering it as a timeshare property, or making it your second home could be just as lucrative in the long-term, but you must decide on your plan. Develop your exit strategy before you enter the investment.

That said, there are some distinct advantages to investing in a ski property. These include:

  • The clientele – Since you are dealing with a luxury property, and quite possibly a second home, you will be doing business with people who have a lot of money at their disposal.
  • A ready-made market – Ski properties have a built-in market. Not only are they luxury investments, but ski property buyers are in a class by themselves. According to the Mountain Resort Market Outlook by RCLCO Real Estate Advisors, mountain resort sales transactions correspond with the number of skier visits at the resort. If you invest at a popular resort, you’ll be sitting pretty.
  • Potential ROI is higher – Because luxury ski properties tend to start in the upper six-figure range, your potential ROI is higher, especially if you invest in a fix-and-flip and buy at a better-than-average LTV.
  • Predictable market – Ski resort property markets are more easily predictable than average housing markets. For one thing, it’s seasonal. If you wait to buy at the beginning of ski season, you are too late and will see more competition. Another consideration is the specific geographic location. A more popular resort lends itself to potentially higher transaction values and less time on the market. Another market indicator may be the overall state of the economy.
  • The timeshare option – Many winter vacationers do not want to own a property they will only live in for two or three months. A ski property lends itself to timesharing. In fact, there is a solid market for vacation properties that offer fractional opportunities.

In general, there are plenty of upsides to investing in luxury ski properties, but there are also pitfalls.

The Cons of Investing in Ski Properties

One downside to investing in high-end ski properties is property taxes. Higher values homes come with bigger tax burdens. If you are a buy-and-hold investor, prepare to pay a lot of real estate taxes. Other downsides include:

  • Property maintenance – If you own the vacation property, you are responsible for the upkeep. If you don’t live near the ski property, that can be a burden. You’ll need to hire someone you can trust to keep an eye on the property.
  • Association fees – Many ski resort properties are a part of co-ops, or they are condominiums. If you invest in these properties, expect to pay association dues.
  • Risky investment – High-end luxury vacation properties are risky investments. All sorts of things can go wrong. And if you lose on these investments, you could lose a lot of money. The key is to buy at the right place in the right location, and at the right time. Remember, develop your exit plan before you enter the investment.

Ski properties are great opportunities for serious investors if they have a solid business plan. Just make sure it’s solid before getting started.

Here are some properties in Park City that have been funded by Sharestates

  • Loan Amount: $2,562,000
  • Purchase Price: $2,400,000
  • Property Type: Residential
  • LTV: 80%
  • LTC: 80%
  • ARV: 58%
  • Loan Amount: $2,103,000
  • Purchase Price: $900,000
  • Property Type: Residential
  • LTV: 80%
  • LTC: 73%
  • ARV: 64%

To look at more real estate properties that Shareshares has funded or to inquire about funding your next project click below

A transitional real estate market is when the market is swinging from a buyer’s market to a seller’s market, or vice-versa. Such a market can have an impact in many areas of the real estate sector, but what does it do to the lending market?

In a buyer’s market, conditions tend to favor buyers. That means the supply of housing exceeds the demand for housing and buyers have the advantage regarding price negotiations. In a seller’s market, the opposite is true. Demand exceeds supply and sellers tend to have the upper hand. Either condition can lead to an onslaught of new mortgages, but the terms of the mortgage may change based on these market conditions to favor either the buyer or the seller. In a transitional market, neither party has an advantage in negotiations, and that can impact the lending market in different ways.

Throughout 2018, the Fed raised interest rates several times. This has created quite a stir in the markets. Rising interest rates tend to mean a slowdown in new mortgages as the cost of lending rises.

What Happens When the Cost of Lending Increases?

When it becomes too expensive for people to buy homes, they tend to rent more. As a result, that often leads to more multifamily real estate development. It can also lead to more single-family rentals under certain conditions. Real estate developers tend to borrow more money to pay for the cost of these developments, and that’s when transitional lending tends to peak. This has been the case in the development market since the foreclosure crisis. More people have opted to rent, for a variety of reasons, and developers have responded.

National Real Estate Investor Online estimated, in 2017, that the transitional lending market was at $50 billion, up from $20 billion in 2011. They also saw no reason for that to slow down and noted that the real estate market indicated more debt rather than equity for the foreseeable future. However, it is now two years later and we have watched interest rates go up several times. This change in Fed policy will likely lead to a slowdown in transitional lending as developers gauge market direction. Should home renters start to buy again, we could see a shift from debt to equity in the housing markets. What will that do to marketplace lending?

Debt or Equity: It’s Important to Know Where The Market is Headed

Home buyers and sellers should understand the current market condition and where the real estate market is headed before they decide to buy, sell, or rent. U.S. News recently published an article on what to expect from the housing market in 2019 and wrote this:

Home sellers  are also seeing growing number of alternatives to placing their home on the market. The last few years have seen growth in the number of iBuyers and similar investment companies that specialize in quick cash purchases of properties to renovate and resell them. Rather than listing their home with a broker, homeowners can sell the house directly. Platforms are debuting where larger companies facilitate the transaction by teaming up with local investors who make the purchase and renovate.

Fix-and-flips are just one market. There are also new housing development and rental markets. Home ownership went from below 63 percent in 2016 to 64.4 percent in the third quarter last year. That’s encouraging, but interest rates rising last year could result in another slight slow down. And in January 2018, new housing starts were at a 10-year high. They went down throughout the year.

In a transitional market, lending may not be at its best, but it’s also not at its worst. That means investors may have to search harder for the right deals, but they should be open to both debt and equity deals as long as they can justify potential returns against the real risks. In other words, keep an open but critical mind. 

For more information about how to fund your next real estate project click below.

When it comes to real estate, several old adages may apply to almost any market. Today’s market could be characterized as “for every downside, there is an upside,” or, “what goes down must come up.” The truth is, real estate markets, like all financial markets, move in cycles. There are times when home sales are booming and times when home sales are declining. There are times when multifamily rentals are hot and times when the market is cooling. You could say the same about commercial real estate, industrial, or any other real estate market. Today, we’re talking about single-family rentals. Ten years after the foreclosure crisis devastated the real estate industry, single-family rentals are the fastest growing market segment in real estate.

The Growth of Single-Family Rentals

The Terner Center at UC Berkeley reiterates this truth in a recently published white paper titled “The Rise of Single-Family Rentals After the Foreclosure Crisis.” In their white paper, The Terner Center stated that 3.8 million households transitioned from homeowners to home renters. By 2015, nearly one in five single-family homes was occupied by a renter, an increase of 34% in one decade. In 2006, 13.1% of single-family homes were rentals, and 31% of all rentals were single-family homes. By 2015, those numbers had risen to 16.8% and 35%, respectively. What’s causing this rise, and how long will it continue?

While the foreclosure crisis isn’t the only factor giving rise to residential rentals, it is one of the factors. Others include downward pressure of household incomes by the recession, rising student and consumer debt, and tightened credit standards at lending institutions. No matter how you slice it, families are choosing to rent, and they’re choosing to rent single-family homes.

Is There Still Opportunity to Invest?

There is plenty of evidence to suggest the trend will continue. CNBC reported in September last year that institutional investors were still in on single-family rentals. Multifamily Executive also wrote about this trend last January. The evidence is more than anecdotal. When it comes to residential rentals, there is a market for both equity and debt investment, and these opportunities can come from some interesting segments of real estate investing. At one time, the residential rental home market was dominated by cottage-industry investors while institutional investors focused on multifamily. After the foreclosure crisis, many institutional investors swept in and bought up residential homes that went into foreclosure, and they rented them out. These investors are still invested in residential rentals, which makes it a strong market overall.

When it comes to portfolio management, diversification is still the best protection from any market downturn. Investors who have not bought into the current single-family rental trend should see this moment as an opportunity. Check out the open single-family investment opportunities on Sharestates.com.

Real Estate Development Opportunity ZonesPresident Trump recently directed several federal agencies to focus on spending in certain opportunity zones in order to encourage development in those areas. What are these opportunity zones, and how can real estate developers and investors use them to increase their portfolios and take advantage of the promised tax breaks?

What is an Opportunity Zone?

Last year, Congress passed the Tax Cuts and Jobs Act, which created the opportunity zones that the president is now beginning to focus on. The idea is to encourage long-term investment in low-income communities in order to revitalize those communities and reinvigorate the economy. The program allows real estate developers an opportunity to reinvest their capital gains into such communities and projects while receiving tax benefits for doing so.

Opportunity zones exist in every state in the union, the District of Columbia, and five U.S. territories. That gives state and local governments and economic agencies incentive to help promote them, which makes sense because real estate is an intrinsically local business.

In choosing which communities to call opportunity zones, Congress established an eligibility baseline based on poverty rates and median family income but tasked state governors with nominating the individual communities to be designated for these zones. Doing it this way allowed state governors, who are accountable to the people in their states, a stake in the economic outcome of the initiative. Being closer to the ground, so to speak, governors would have better insight and deeper knowledge into the economic realities of the communities being considered.  

To learn more about opportunity zones, visit the Economic Innovation Group at https://eig.org/opportunityzones.

Who is Eligible for Tax Breaks in Opportunity Zones?

It’s important to note that tax incentives are not offered across the board for all opportunity zones. Eligibility is based on the nature of the capital used for these developments.

In order to receive a tax benefit from investing in opportunity zones, a developer must use capital gains as equity reinvestments through a special purpose opportunity fund that is eligible for the tax benefit. That’s very important because many developments use multiple streams of financing. While it is fine to use multiple streams of financing for these developments, developers must understand that only qualified capital can be used to gain access to the tax benefits.

An opportunity fund is a specific type of investment vehicle structured as a partnership or corporation. To receive the tax benefit in question, the fund must invest in eligible properties within eligible opportunity zones.

Currently, capital gains can be deferred depending on how capital is tied up in a qualified opportunity fund up to 15 percent if held for more than seven years.

How To Know Which Opportunity Funds and Opportunity Zones Qualify

The U.S. Treasury Department in conjunction with the Internal Revenue Service has issued a set of guidelines for developments on proposed regulations and guidance on the tax benefits associated with opportunity zones. Along with the guidelines, they have published a spreadsheet that lists qualified opportunity zones. Developers can also access a map of designated qualified opportunity zones in the same location. You can find these on the Community Development Financial Institutions Fund website. As the program is further developed, we should see more guidance and more solid regulations regarding opportunity funds and opportunity zones.

Opportunity funds and opportunity zones promise real estate developers tax deferrals for helping to spur development in economically disadvantaged neighborhoods all across the country. When these neighborhoods are revitalized, it should boost local economies and continue to spur development for many years to come.

To view open Sharestates investment opportunities, click here.

Capital expenditures for commercial real estate are not easy to come by. Developers should work on acquiring a positive track record in the types of developments they wish to attract capital. But they must also learn to be more agile in seeking out investments. One way to achieve this is to use crowdfunding and marketplace lending websites that give developers broader access to investors they may not reach in other ways.

Deloitte also recommends that CRE developers rebalance their property portfolios. They recommend focusing in two specific areas: Creating memorable tenant experiences and diversifying their investor base to attract higher capital investments. Those are both good suggestions.

On the first point, Deloitte recommends making use of emerging technologies such as mixed reality to give potential buyers and tenants a 360-degree immersive view of property options as well as Internet of Things, artificial intelligence, and predictive analytics.

Another practical suggestion offered in the report is to include more flexible lease arrangements such as hybrid leases where tenants can have both short-term and long-term options.

Rise of the Proptechs

Property technology companies are coming into their own. In fact, 95 percent of the respondents to Deloitte’s survey said they expect hospitality and multifamily proptech companies to have moderate to significant influence on commercial real estate development in the near future. Ninety percent expect mixed-use to be influential while 81 percent and 77 percent expect retail and industrial proptech companies, respectively, to have influence.

Interestingly, in 2014, there were 255 proptech launches globally and $3 billion invested in those companies. In 2017, there were 21 proptech launches with $13 billion of commercial investments entering the sector. Investors clearly are interested in those proptech companies that show promise.

Overall, technology allows investors and CRE developers to be more agile in the marketplace.

Non-Performing loans are loans where the borrower is at least 90 days past due in making a payment and not likely to get caught up or make additional payments on the loan. For banks, these loans have traditionally been a problem because they represent a higher default rate and lowers the profit margin of the bank on its lending practices. Of course, lending institutions in general always account for such losses and write them into their interest rates to ensure that their total lending portfolios are in the positive regarding returns. Banks have learned to sell these loans on a secondary market at a discount allowing the assignee the right to collect on the loan, if possible.

Non-Performing loans can be a problem for any type of lender, not just banks. That includes real estate crowdfunding platforms. Such loans may be a bane to the lender, but they represent a unique opportunity for investors.

The Risks of Financing Non-Performing Loans

One of the most obvious risks of financing Non-Performing loans is the failure to collect. For the original lender, selling the loan at a discount can get it off its books, and the lender can recoup some of its investment without taking a total loss. However, the loan’s purchaser then assumes the burden of collection, which can be costly and is inherently risky.

Not only is it risky to purchase a Non-Performing loan in terms of its cost to the buyer, but there are also costs associated with collecting. It can take considerable resources to chase down a borrower and convince that borrower to pay off a loan.

In terms of financing real estate Non-Performing loans, if the property is a multifamily property, the loan purchaser could be getting a property where the majority of tenants aren’t paying their rent. In that case, not only is the loan Non-Performing, but the underlying asset is Non-Performing and represents a huge liability.

Rewards Associated With Buying Real Estate Non-Performing Loans

While investing in Non-Performing loans is inherently risky, there are rewards associated with these loans that are unique to the Non-Performing loan market as a whole.

  • First, Non-Performing loans can be purchased at huge discounts. Let’s say a loan of $100,000 was made but only $25,000 has been paid back. That $75,000 in unpaid principal is a huge liability to the lending institution. An investor that buys that loan at 50% is now sitting on a potential substantial return on investment.
  • Investing in Non-Performing loans puts you in the first lien position. That means you get paid first should the borrower decide to continue making payments.
  • When you buy a Non-Performing real estate loan, you control the underlying asset. In other words, if you never receive a payment for the discounted loan you purchased, you can foreclose on and sell the property for its true value recouping your investment and a nice return in the process.
  • As financier of a Non-Performing loan, you have the option of renegotiating with the borrower and setting new terms on the loan. You can offer better terms to the borrower based on their current financial situation and turn your investment into recurring passive income.

Non-Performing real estate loans are a huge opportunity for investors who are serious about turning a discounted asset into a positive ROI and potentially a passive income that will keep your returns flowing in for years to come.

Here at Sharestates we offer Non-Performing loans as one of our programs. Click on the button below and read about what we offer.