According to a Freddie Mac sponsored article at National Real Estate Investor online, small apartment communities consisting of five to 50 units house up to 70 percent renters. Still, the majority of multifamily financing goes to larger multifamily projects. Thanks to private lending, this can change.
7 Ways Private Lending Can Help Small Multifamily Projects
It’s difficult for small multifamily projects to receive funding because banks are not financing as many projects as they used to, have implemented stricter risk management controls, and prefer to finance larger projects where income earned from interest is more justifiable based on the cost of capital. Still, that does not leave developers of small multifamily projects in the lurch. Here are seven ways small multifamily projects can benefit from private lending.
- Access to capital – The most obvious benefit is access to capital that might not otherwise be available to small project developers. Since bank lending has practically dried up, unless you personally know the lender, small developers must seek capital elsewhere. Private lending is an open door.
- More diversified lending base – Through marketplace lending platforms, small multifamily project developers have access to a more diversified lending base. Instead of seeking capital from one source, the borrower can receive capital from multiple sources even while proving their risk worthiness to only one source. Due to this nature of private lending, these loans are often easier to obtain.
- Better terms – Borrowers often get better terms from private lenders. That’s partly because private lenders often don’t have the huge overhead and underwriting expenses that banks and institutional lenders have. There is also a lot of competition among private lenders now to fill the gap in lending for small developer projects. That competition means better terms for the borrowers.
- Faster access to capital – Whether seeking capital for a ground-up development, a mezzanine loan to keep a project afloat, or seeking capital for another level within the capital stack, real estate developers can gain access to much needed capital faster from private lenders. This capital is typically taken from stocks, mutual funds, certificates of deposit, and similar investment vehicles. Therefore, it’s more accesible. When acquired through a marketplace lending platform, many private lenders keep a minimum amount of money in their account on such platforms in order to fund projects quickly.
- Lenders are able to finance smaller amounts – Institutional lenders usually have minimums. Borrowers seeking capital below a lender’s minimum requirement will be denied outright. Your chances of obtaining a loan are nil before you apply. Private lenders, on the other hand, typically will lend smaller amounts. That makes it easy, and a perfect match, for small multifamily development projects.
- Private lenders will often take a personal guarantee – If your risk profile is bad, or you have bad credit, private lenders will often loan on the basis of a personal guarantee. If a developer can back their loan by proving they have cash to cover the loan amount in the event of default, obtaining a loan from the private lender is fast, easy, and comes with no strings.
- Private lenders are more flexible – Many private lenders are also more flexible in their terms and repayment options.
If you are a developer working on a small multifamily project and are seeking financing for that project, your best bet is seek a loan from a private lender or marketplace lending platform.
Landlords, multifamily developers, and investors in rental properties would do themselves a favor to take a look at what apartment renters actually want in a property. After all, your profits are directly tied to your ability to deliver on those expectations. An annual survey by NMHC and Kingsley Associates, and reported by National Real Estate Investor Online, has the answer for you.
For starters, the number one feature renters want is central air conditioning. That might not be a huge surprise, but did you know they’d rather have on-site child care than a fitness center?
There are other interesting results, as well.
What Renters Are Willing To Pay for Creature Comforts
While knowing what apartment renters want is one thing, knowing how much they’ll pay is quite another. According to the survey, 95 percent want air conditioning and are willing to pay a $40.98 per-month premium for it. The 94 percent who want soundproof walls are willing to pay $37.94 per month. The will rate for a garbage disposal is $27.09 per month. Ninety-two percent of respondents said they want a garbage disposal.
Ninety-one percent of apartment renters want reliable cell reception, but only 85 percent want a swimming pool and controlled access. They’ll pay $44.78 more in rent per month for on-site child care, $38.86 more for valet parking, and $30 more for reliable cell service.
What Apartment Renters Are Not Interested In
What they don’t want is just as interesting as what they do. Sixty-nine percent are definitely not interested in co-living spaces. Sixteen percent said they
“probably” would not be interested. Twelve percent said it depends on price, and four percent are definitely interested.
For voice-activated technology, 66 percent are not interested versus 34 percent that are.
What Apartment Renters Wanted in 2018
The same survey was conducted in 2017, asking what apartment renters wanted for 2018. The results may surprise you.
Eighty-two percent wanted fitness centers if they don’t use them. In fact, 41 percent said they rarely use them. Nevertheless, renters were willing to pay $31.75 per month for the opportunity to stay in shape.
Two years ago, renters wanted package lockers. Fifty-seven percent were interested or highly interested. Forty-seven percent reported receiving at least three packages per month.
Outdoors, four out of five apartment renters wanted a patio or a balcony in 2018. Two-thirds were interested in shared outdoor spaces and common barbeque grills. Almost half noted a playground or community dog park on their list of desired amenities.
One area renters two years ago had in common with those today was the lack of interest in smart technology. Only 14 to 17 percent said they wouldn’t rent an apartment if it didn’t have a smart thermostat, smart lighting, or smart locks. They were willing to pay $30 per month extra for them, however, if an apartment had those features.
What Does This Mean For Rental Investors Today?
It’s one thing to know what renters want, and don’t want, but it’s another thing entirely to deliver on it. When it comes to changing apartment amenities to meet the demands of renters, investors should consider a few things first:
- What are the local desires of renters in your area? This is important because geographical differences can play a part in renter expectations.
- Will the cost of changing amenities result in a return on investment enough to make it worth your while. This is where you’ll have to do that math.
- This information illustrates that renter desires change rapidly. Two years is not a long time. Do you really want to convert that fitness center into a child care center only to find out two years from now that renters want a fitness center? What will you do with all that equipment in the meantime?
The bottom line is, you’re in business to make money. If you’re developing from the ground up, it makes sense to build for today’s expectations. If you’re buying an apartment built with amenities from two-year-old expectation, it might not be worth the expense to convert your amenities. Do your own due diligence and do what is best for your pocketbook. That goes for investors in marketplace properties, too.
There is a lot of hype around blockchain technology, so it’s nothing new to see an article that plays on that hype. What is interesting, however, is when you see decentralized real estate predictions like the one made by Garratt Hasenstab, a real estate developer, in a recent Forbes article.
Hasenstab made this prediction in 2018, but he still stands by it. In his words, “by 2025, the majority of global real estate investments will be issued as tokenized asset offerings (TAOs) and held as cryptoassets, specifically security tokens, just like traditional securities but traded peer-to-peer without financial intermediaries.”
That’s a pretty bold statement. But could that happen?
Introduction to Decentralized Finance
There’s no doubt that blockchain technology, and distributed ledger technology, is changing the world of finance. Some big companies are investing billions of dollars into development in this nascent new field. According to PwC, blockchain technology is only of moderate importance to the real estate industry in 2019. Of 13 technologies identified as disruptors this year, it’s ranked 12th in terms of importance.
Still, six years is a long time. A lot can happen between now and 2025. And new technologies have a way of advancing rapidly once they catch on. For that reason, I’d say real estate investors and real estate developers alike should start performing some due diligence today on how blockchain technology can change the way they do business.
One area where there is huge potential is in what they call decentralized finance. It’s the buzzword of the year and simply refers to using blockchain technology to deliver peer-to-peer transactions more efficiently.
State of the Dapps (decentralized applications) lists more than 50 dapps in the property category. DeFi Rate states that the total locked value of assets in decentralized finance has gone from $0 to $513 million in the last year. That’s some stellar growth.
Decentralized Real Estate Investing
While there is good evidence to believe that the future of real estate investing will involve decentralized finance and blockchain technology, the future hasn’t arrived yet. At the heart of decentralized real estate investing is the peer-to-peer business model, or what has come to be called marketplace lending. It’s taken a decade to solidify the business model and maintain the respectability of the traditional investment sector, but online real estate investing has become its own asset class. If blockchain technology is the future, it will be because platforms like Sharestates formed the backbone that made it possible.
For developers, the benefit to marketplace lending is you can get access to much-needed capital from funding sources not traditionally available to you. When you can’t get a bank loan, equity or debt financing is available from accredited investors willing and able to move your project forward.
For investors, marketplace lending offers higher returns on short-term investments that have been fully vetted by the platform. You spend less time on due diligence and more time managing your investments.
Marketplace lending isn’t going anywhere any time soon. Blockchain technology may improve the efficiency of the markets, but until it fully takes root, you might as well spend your time pursuing the deals where the deals are being made. And right now, that’s on marketplace lending platforms like Sharestates.
Million Acres recently ran an article discussing the pros and cons of P2P lending in real estate investing. The advantages listed include easy borrowing, low-interest rates, and low origination and closing fees. These are certainly advantages to investing in real estate through P2P lending platforms, but the article fell short of listing some of the best benefits. One reason may be that it targeted borrowers and left the benefits to lenders untouched.
Let’s discuss a few more benefits to real estate investing through P2P lending, those for borrowers and lenders:
Pros to P2P Lending for Borrowers, Developers, and Real Estate Deal Sponsors
While deal sponsors, borrowers, and real estate developers can often get better deals through real estate P2P lending platforms, not to mention the convenience of applying for loans more easily, there are other benefits to using a P2P lending platform to obtain a loan or to finance a deal. Here are three more benefits:
- Financing a real estate project can be structured as either debt or equity, so flexibility is key. Instead of taking out a loan, which you have to pay back, you can offer equity to your funders in exchange for their capital. In this case, it isn’t P2P lending so much as equity crowdfunding;
- Whether your financing is structured as a loan or debt, you are not tied to a single entity as your funding source. These platforms exist to allow multiple parties, individuals and institutions, finance real estate projects they believe in;
- Another benefit of using a P2P lending platform, or marketplace lending platform, is the speed of delivery for the capital you seek. If you apply for a loan through a bank or traditional lender, the application process could take a couple of weeks, and it could be several more before you see your money. With platforms like Sharestates, you can get access to financing in days.
The Benefits to P2P Lending for Real Estate Investors
Developers and deal sponsors are not the only ones who benefit from P2P lending. Project funders also benefit. Here are three ways investors benefit from using real estate lending platforms:
- Portfolio diversification. If you’re a serious investor, you’re likely invested in several different asset classes. P2P lending can be another asset class to help you diversify your portfolio.
- Multiple deals to choose from. With P2P lending platforms, you can spread your investment across multiple properties on the same platform. You are also not limited to debt or equity capital structures. You can invest in both, further diversifying your portfolio.
- It saves you time. With P2P lending and real estate investing platforms, there’s no need to drive neighborhoods to find properties to invest in. You can find suitable properties at your fingertips already vetted by real estate investing experts. Sharestates’ 34-point underwriting process ensures that deals you are presented with meet the strictest standards including LTV, potential ROI, and deal sponsor experience and track record. That means you can fund more deals in a shorter period of time while increasing your return on investment.
P2P lending, marketplace lending, and real estate equity crowdfunding have been around long enough to have a track record. Investors are earning respectable returns on good properties across a spectrum of choices including deal structure, type of property, and geographical location. We have officially entered a new age of real estate investing.
Last month, a historic home in Ponte Vedra Beach, California went up for sale. The Milam Residence, designed by architect Paul Rudolph and built-in 1961, is a beautiful real estate work of art. The asking price is $4.445 million.
The list price is the least of the problems for the seller. There are people who can afford it. The issue is the home design.
Featuring four bedrooms and four baths, it also has a guest house and a very spacious courtyard, a useful feature for entertaining. The building encompasses more than 10,000 square feet on a 2.11-acre lot and includes an in-ground swimming pool as well as a three-car garage.
While these are all great features, the problem with unique real estate designs like this is that such properties are difficult to sell. Just ask any real estate agent.
The reason this home may not sell quickly is that most home buyers want to be able to design their homes to suit themselves. If a house design is already so unique that adding a homeowner’s personality doesn’t make it any more unique or personable, then it’s likely to attract a lot of eyeballs but not as many wallets. Even architectural beauty is in the eye of the beholder.
Mesa Vista Ranch: $250 Million Worth of Beauty
If you’ve been keeping up with the news, you may have heard that legendary Texas oil tycoon T. Boones Pickens passed away last week, at 91. Pickens was known for his flare. He left behind a beautiful ranch in Pampa, Texas, on the block for $250 million. It’s been listed for almost two years.
The ranch sits on 100 miles of land and features an airport with a 25,000-square-foot hangar, a wedding chapel, 20 lakes, four houses, a 400-square-foot building just for guns, a tennis court, a golf course, and an 11,000-square-foot dog kennel. It’s an amazing piece of property, but will it ever sell?
The jury is still out on the Texas panhandle property, but I suspect it will remain listed for a few more years. There are only a handful of people who can afford a $250 million piece of real estate, to begin with. And, as stated before, the uniqueness of the property itself leaves little room for the next landowner to make it their own.
The Property Listing Reality: What’s Good for Traditional Real Estate is Good for RECF
Selling real estate follows the same general principles whether we’re talking about listing on the MLS or listing through a real estate crowdfunding portal. If a property is going to sell, it’s got to sell on the merits of what is in demand. For that reason, real estate developers should pay attention to the trends in real estate, what home buyers are interested in, and what the market will bear.
By the same token, investors looking for a good deal would do their portfolios a favor by studying the market. What are homebuyers buying? What are developers building? Where is the market headed? These are the questions you should be asking.
A real estate crowdfunding platform that isn’t asking the same questions of the market is probably one that you should steer yourself away from. It’s important that the platform offer deals that are in concert with the supply and demand wave of the market. A home may be beautiful by aesthetic standards, but if it’s too impractical for the average homeowner, it likely isn’t a good investment.
Sam Dogen is a millionaire. What makes him different than other millionaires is the age at which he retired–34. Even more startling than that, he now regrets retiring at such an early age.
One of the reasons he regrets retiring so early is that he could have researched career opportunities in other sectors. As a finance professional, he could have written his ticket anywhere. He could have taken a risk on a new startup or continued climbing the career ladder at Fortune 500 companies. Instead, he retired.
To put things into perspective, Benjamin Franklin retired at age 42. Franklin’s second career was largely public. He parlayed his experience as a publisher into stints as a political mover, diplomat, inventor, scientist, postmaster, and writer. Had real estate crowdfunding existed in colonial America at the time, he might have tried his hand at that too. His interests were quite varied.
As speculative as that is, that’s precisely what Dogen said he should have done instead of retiring. Specifically, he stated, “I could have leveraged my interests in real estate and technology to start a real estate crowdfunding company–or, at the very least, join one.”
Joining one would have been less expensive in the long run and more lucrative in the short term.
Why Real Estate Crowdfunding Makes For Great Passive Income
Real estate crowdfunding has been around for about a decade now. Returns on investments average between 8.5 percent and 19.1 percent. Equity investments tend to offer higher returns, but they’re also riskier. These results are dependent, however, on the types of real estate investments, one puts one’s money into and the platforms where investments are held. While no platform can guarantee results, real estate crowdfunding has proven itself to be a solid asset class.
One of the key benefits to real estate crowdfunding is diversification. If you’re a serious investor, you likely already have capital tied up in certain assets. You might have investments in stocks and bonds, commodities such as gold and silver, and maybe even physical real estate. Among some investors, cryptocurrencies are popular. Real estate crowdfunding offers another asset class to help investors diversify their portfolios, and it can act as a hedge against downturns in the stock and commodities markets. These are some of the reasons investors seek passive income through real estate crowdfunding.
Of course, passive income works for anyone who is currently retired, planning retirement, or simply trying to supplement their income. As passive income, it offers serious private investors solid returns and awesome deal opportunities.
Don’t Retire Yet: There’s Money To Be Made
Just as Benjamin Franklin didn’t put all of his eggs in one basket, I wouldn’t recommend you do that either (and there were fewer baskets for eggs in the 1750s).
When it comes to retirement, it doesn’t happen on its own. Planning is required. Putting one’s money to work in any investment means spending time to perform some due diligence on that investment. In the case of real estate crowdfunding, it also means performing due diligence on the platform. Investors should be prepared to judge each platform by its management team, its underwriting practices, and the quality of its deals. When you decide to invest in real estate through any crowdfunding portal, that money becomes a part of your retirement portfolio, and when it comes time to retire–at whatever age you happen to be at the time–you’ll have one more passive income account to draw upon to live your life of Riley.
Before 1990, if you wanted to invest in real estate someplace other than where you live, it was a huge risk. You either had to spend hundreds or thousands of dollars to travel to the location where you were considering investing just so you could get eyes on the property or you had to trust someone close enough to the property, to be honest with you and email you photographs of the property that you hoped weren’t Photoshopped. Today, long-distance real estate investing isn’t nearly as risky. Here’s why.
7 Practical Reasons Long-Distance Real Estate Investing is a Charm
BiggerPockets podcast co-host David Greene wrote an article detailing seven reasons why long-distance real estate investing isn’t risky. Here’s a summary of his talking points:
1. The Internet makes real estate research easy and accessible. You can do practically all of your due diligence online without proprietary information from professionals involved in the transactions.
2. Finding rent estimates is easy. Greene recommends emailing a landlord of a property listed on Craigslist and asking about the rent. In fact, you can email several landlords in a city you’re interested in investing in to get a good idea of rents in the area or search for aggregate reports published by brokerages that operate in the area.
3. Confirming property condition is a cinch. It’s common practice today to perform video walk-throughs on properties and post them online. Everyone in the industry is doing it.
4. Online reviews allow you to check reputations. Yelp, Google, Yahoo!, and other online review sites keep people honest.
5. You can research real estate agents on Zillow. If you’re trying to sell a property from a distance, you’ll need someone local to show the property to potential buyers. Zillow can make your search for an agent easy.
6. Pictures are posted online to make it easy to see what you’re getting into.
7. You can find your own comps at places like Zillow, Trulia, and Realtor.com. No longer do you have to rely on an agent to run MLS comps. You can perform your own comp research by checking on list prices of similar properties nearby.
Due Diligence: Perform Your Own, Or Trust a Marketplace
None of this is to say that you’re off the hook in performing due diligence. Just because information can be found easily online, doesn’t mean you shouldn’t think like an investor. Your job is to find reasons not to invest in a property, so don’t just accept the rosy picture that listings and online photos show you. Dig a little deeper and get the real scoop.
If you do a lot of investing in one area, even if it’s long-distance, try to find someone you trust in that area who understands your investing criteria and get them to screen the properties for you. That person, called a bird dog, can meet with agents on your behalf, take photos with their smartphone, and perform preliminary research that is biased toward information relevant and important to you as an investor.
Checking comps at popular real estate portals may help you better understand a particular market, but it shouldn’t be used to determine ARV and LTV. You still want to do the math and base it on real, verifiable data.
Finally, the eighth reason long-distance real estate investing isn’t as risky as it used to be is because of online marketplaces like Sharestates vet properties, sellers, borrowers, and property sponsors for you. A platform with solid underwriting and risk assessment procedures help investors find good deals and, in many cases, put their own skin in the game. If you perform your due diligence on the platform, online real estate investing can be fun, lucrative, and help you diversify your portfolio for short-term and long-term gains.
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.
The May 2019 Fannie Mae Housing Forecast indicates a growing trend in new housing starts and existing home sales. The forecast doesn’t show where these homes are located, but it does show there is room for optimism in each real estate market. The question for investors is, what kind of neighborhood makes the best investment? Should you put your money to work in urban, suburban, or rural markets?
Where Are People Choosing to Live?
It can be difficult to discern trends in a mixed environment. On the one hand, President Trump’s Opportunity Zones could create opportunities in urban markets where many of these zones are located. On the other hand, millennials are beginning to buy their first single-family homes and are looking at suburban areas. Not only that, but movers are migrating from metro areas to the suburbs. These trends are happening as the market transitions from declining home sales into an upmarket trend and mortgage rates are creeping upward.
Another thing affecting real estate markets is the aging baby boomer generation. The second largest living generation is retiring, downsizing, and moving into 55+ communities.
Fannie Mae points out another trend in non-traditional home ownership–manufacturing housing communities. These can be non-profit communities, government-owned communities, or resident-owned communities, and they can exist in urban, suburban, or rural housing markets. What makes this attractive for some home buyers is the cost of ownership is often lower.
As you can see, all of the environments offer some benefit to the home-buying demographics. Seniors moving to retirement communities can choose one in an urban area, a suburban market, or a rural setting. The same goes for single-family buyers of any generation and those on the lower end of the economic scale have good choices in all markets too.
So Which Real Estate Market Should You Invest in?
Knowing where people want to live is only a part of the equation in determining what makes a good investment. It says something about demand, but it says very little about the actual math of the investment. As an investor, you should analyze home-buying trends, but also neighborhoods and communities and the property values. Choosing a good investment is as much about your own values as it is your investment strategy. If you know rural markets well, or a specific rural market, you might find better opportunities there than in an urban setting.
This goes just as well for real estate crowdfunding opportunities. Look for investments that provide a return based on sound risk assessment principles, but invest in what you know. If you understand multifamily markets and feel comfortable with those types of investments, there are plenty to go around. If you feel more comfortable with single-family homes or fix and flips, then put your money in those investments instead.
A good real estate crowdfunding platform will have a diversity of opportunities. As an investor, your task is to find the right opportunities for you. You can start by determining your values: What is your risk tolerance, do you prefer urban markets over suburban and rural, and do you like specific demographics of housing consumers? Are you more familiar with single-family, multifamily, or commercial real estate?
Once you narrow down your real estate investing interests, your investment style, and your values, begin looking for opportunities. When you make these judgments, don’t just focus on the potential returns. Also look at the cost of acquisition, holding costs, and property taxes. How much can you endure?
In January, National Real Estate Investor published an article that began with a look at the S&P 500 through the third quarter of 2018 and ended on a high note with a positive outlook for alternative investments in general and real estate investing in particular. Has anything changed since then?
Actually, the S&P 500 has rarely been better. In fact, 79.3% of 29 reported companies have exceeded analyst expectations. Not only that, but the Dow and Nasdaq are just both just 1.6% below their recorded highs. Stocks are aiming for the skies.
But hold onto your hat because analysts are now predicting a slight turnaround.
Bull or Bear Market in 2019?
Markets are hard to predict. In times of volatility and rapid change, they can turn on a dime. Today, analysts are concerned about the global economic outlook and what might happen with China. An American Express study found that chief finance officers have a positive outlook overall, but not as positive as a year ago. That’s good news, but it’s not great news.
The International Monetary Fund recently reported it expects a pullback on global economic growth. Instead of growing 3.5 percent as forecasted in January, the IMF expects the economy to grow just 3.3 percent. That’s a far cry from a recession, so there’s no need for alarm. However, it does indicate that confidence is waning.
Stocks had a good first quarter, but with these outlooks, the rest of the year might not be as good. They could still be good, just not as good. In other words, I don’t see a bull or a bear.
Why Alternative Investments Aren’t Cooling
Regardless of what happens in the stock market, alternative investments like real estate should remain a part of your portfolio. If the market turns sharply down, you’ll be glad you invested in real estate. You might even complement it with commodities and other alternatives.
If the stock market takes an upward turn, you’ll still want diversification, and real estate is usually a good bet. Commercial real estate will likely be the best bet for a market upturn because when company stocks do well and businesses are in expansion mode, they tend to invest in real estate. The big question is whether you should invest in development or rentals.
Marketplace Lending is a Safe Bet for Transitional Markets
I’d say we’re still looking at a transitional market, not just in real estate, but also in stocks. In fact, the entire economy seems to be in a transitional mode. How long it will take to make the full transition is anyone’s guess.
With marketplace lending, you can bypass the ownership dilemma. You cut out holding costs, and it’s easier to move your money around if it isn’t tied up in a physical investment. There’s nothing wrong with owning properties, especially if they’re appreciating in value, of course. On the other hand, if you need a quick exit strategy due to the unpredictable nature of the markets and their potential for quick turnaround, then fractional ownership on a short-term loan or real estate development can help you gauge where the market is headed long term and allow you to shift your asset mix if the need arises.
At the end of the day, private investors would do well to maintain a good mix of alternative investments, including real estate, and rely on crowdfunding platforms for short-term investments and to keep some of those assets liquid. Whichever way the market ends up turning, you’re more likely to come out smelling like a rose.