What do most people think of when they think of South Florida? First off, there’s the weather. In south Florida, it’s typically warm year-round with average temperatures between 74-77 degrees, which makes it a wonderful place for people who love being outdoors. According to CBS Local Miami news, South Florida has seen a crush on new buyers during the pandemic. So much so, it has created a seller’s market with many getting top dollar for their properties. People from the Northeast in high-tax areas are prime targets to make South Florida their new home. The new tech scene and cybersecurity scene in South Florida are also attracting young people to consider a move to South Florida. There’s an influx of European and South American buyers. According to CBS Local  Miami news, they’re all competing with local buyers who are moving from urban high rises to the suburbs.

As reported by Forbes, with an open economy, fewer masking requirements, relatively low COVID-19 case counts, a booming remote work scene, stable politics, and no state income tax, it would be easy to think that South Florida’s recent real estate boom could have been predicted. Like everything over the course of the pandemic, it all happened so fast. South Florida realtors and developers also have learned to be leery of the bubbles since they know what it’s like on the other side. Also cited by Forbes, South Florida’s real estate resurgence has all the signs of a boom that’s here to stay for a while as the country’s other major metropolises like Manhattan and San Francisco struggle with long-term re-pricing in the other direction.

With the real estate market on the rise in South Florida, Sharestates has seen more interest in real estate loans in the sunshine state. For example, Sharestates recently funded property in Boca Raton, FL. Boca Raton is a city on Florida’s southeast coast, known for its golf courses, parks, and beaches. With a multitude of amenities such as golf, tennis, racquetball, polo, swimming pools, spas, beaches, gyms, and restaurants, Boca Raton has been consistently highly ranked for fitness and leisure. Sharestates funded a private loan on a residential (1 unit) property. The borrower acquired the subject property as a “fix & flip”. Once rehab is complete, the borrower plans to sell the property. Here are some pictures of the property before and after renovation. 

Before Renovation: 

After Renovation:

  • Loan amount – $1,347,000
  • Loan Purpose – Construction 
  • Property Type – Residential
  • LTV – 70%
  • Rehab Budget – $1,245,380

Another property that Sharestates recently funded is located in North Miami Beach, FL. North Miami Beach is strategically located midway between Miami and Ft. Lauderdale International Airport. Sharestates funded a private loan on a multi-family unit. Check out some of the stunning before and after renovation pictures.

Before Renovation:

After Renovation:

  • Loan amount – $760,000
  • Loan Purpose – Bridge 
  • Property Type – Residential 
  • LTV – 80%

 

To learn more about Sharestates or inquire about funding your next real estate project please click below.

When people think of Newark, New Jersey it doesn’t often bring back sweet memories. The most populous city in the state of New Jersey is most often associated with urban blight following riots that occurred back in 1967. In the span of a few decades, New Jersey’s premier city went from an economic driver to a struggling urban area. Nonetheless, this city of over 280,000 continued to be one of the country’s major air, shipping, and rail hubs, and today with billions of dollars in development projects underway Newark is staging a comeback.

The Patch reports that despite the COVID pandemic, the ball is still rolling for several real estate projects in Newark neighborhoods that deserve a breath of fresh air. There are neighborhoods with high rates of foreclosures and many underwater properties worth less than what’s owed on them. There are also abandoned and deteriorated properties, vacant lots, and few affordable housing choices. Nonetheless, The New York Times reports that just fifteen miles from the heart of Manhattan, Newark’s downtown commercial district has successfully lured housing developers, a Nike factory store, a Whole Foods Market, and the corporate headquarters for Audible, Amazon’s audiobook and podcast service. The New York Times also reports that in the last five years, more than 3,500 units of affordable housing have been built or are underway, much of it outside downtown, city records show. Newark sold almost double the number of abandoned parcels at auction in 2020 as it did in 2019, and the average price of land — none of it downtown — was about 30 percent higher. Between 2015 and 2020, major crimes, including murder, robbery, and assault, plummeted by 40 percent. Once the governor made construction an essential business, developers did not hesitate to get back to business. Even during a pandemic, Newark pushed forward.

Newark has long been an area that Sharestates has viewed as ripe for growth and development, and the company has formed many strong relationships with developers in this market as a result. Over the past few months, we have funded developers dedicated to rehabbing the city of Newark one property at a time. 

Here are just a few projects that were recently completed or currently in the works. The first project was a Fix and Flip loan of a multifamily property. The Borrower acquired the property to add value by rehabilitation. Rehab is now complete, and the units are now being leased out to tenants. Upgrades to the property included new kitchens for all 6 units, bathroom remodels for all 6 units, a new HVAC system, paint throughout, and new flooring. Here are some before and after images of the completed project.

Before: Fix & Flip Loan

After: Fix & Flip Loan

  • Loan amount – $508,000
  • Loan Purpose – Construction 
  • Property Type – Multifamily 
  • LTV – 80%
  • Rehab Budget – $129,000

The next project we recently funded has a total of 20 units. Here are some images of the properties in the portfolio.

Rental Portfolio Loan Properties:

  • Loan amount – $2,577,000
  • Loan Purpose – Cash-out 
  • Property Type – Residential 
  • LTV – 70%

To learn more about Sharestates or inquire about funding your next real estate project please click below.

New Jersey happened to be one of the hardest-hit states early on during this pandemic, but since the governor of New Jersey declared real estate an essential business last year, Northern New Jersey has seen a lot of prospective buyers looking to move out of New York City for greener pastures across the Hudson.

Paterson specifically has struggled to retain its prominence as an important American city, despite having an array of largely untapped resources. Paterson is uniquely positioned to capitalize on several key assets, such as the glorious Great Falls of the Passaic River; the high concentration of beautiful beaux-arts buildings downtown, and its 13-mile proximity to New York City; as well as its rich history as the birthplace of the U.S. Industrial Revolution.

The Patch cited that both sellers and buyers can benefit from the current real estate environment. Buyers are able to stretch their budget with the benefit of record-low interest rates. Sellers, on the other hand, have an abundance of new buyers looking, a stabilizing local economy, and limited housing inventory available going into the spring 2021 market. 

Movers consider Paterson for its affordability and transportation infrastructure, including an NJ Transit Main Line commuter rail service to Hoboken located in Downtown Paterson. Sharestates has made many strong connections with real estate developers in Paterson over the past six years, and now that the real estate business is getting back to normal we have seen an uptick in lending in the Paterson area. According to Zillow, there are now 200+ homes for sale, ranging from $95K to $699K as of this article’s posting. Paterson has affordable housing stock compared to the greater metropolitan area with a diverse arrangement of multi-family, townhomes, condominiums, and single-family housing units available to buy, rehab, rent, refinance and repeat.

Here are some of our recently funded projects:

  • Loan amount – $2,000,000
  • Loan Purpose – Bridge 
  • Property Type – Residential 
  • LTV – 58%

  • Loan amount – $3,240,000
  • Loan Purpose – Cash-out 
  • Property Type – Land 
  • LTV – 65%

Experience Paterson living in a completely new and improved building will be a seven-story luxury housing complex built on the vacant lot that used to hold the Paterson Armory. This community is located on Market St in the Eastside area of Paterson. Prominent developer in Paterson broke ground on this 138-unit housing project in August 2020. Rents will run between $1800 – $2300 . According to The Paterson Times The New Paterson Armory will have on-site parking, amenities like a pool, gym, rooftop deck, and a first-floor restaurant. Also cited by The Paterson Times mounds of concrete and bricks from the old Paterson Armory were visible on the vacant lot on the corner of Market and Pennington Street. These are the materials that are from the historic armory itself, they’ll be integrated into the building. So that historic past, that legacy of the older days of Paterson, will be permanently enshrined in the future of the building itself.

  • Loan amount – $2,400,000
  • Loan Purpose – Bridge 
  • Property Type – Purchase 
  • LTV – 40%

To learn more about Sharestates or inquire about funding your next real estate project please click below.

Like many other industries, real estate has been turned upside down by the COVID-19 pandemic. Before the virus interrupted everyday life as we knew it, the Long Island housing market was operating at a pretty above-average rate. According to Libn, in 2019 a record $15.8 billion worth of homes were sold on Long Island. That year’s 29,053 closed home sales were the most in recent memory, even surpassing the boom years of the mid-2000s. But even though there happens to be a pandemic, Long Island has still seen tons of homes sell in 2020. According to The Real Deal, the record-breaking number of transactions for the quarter have depleted inventory, contributing to rising prices and bidding wars. Long Island — including Nassau and Suffolk counties  — had 9,942 home sales from October through December. That was a big jump from the 7,611 homes that sold over the same period in 2019. The median price of a home that sold in that area was $525,000. Sellers are getting way over the asking price since people seem to be leaving Manhattan for Long Island. With people being in quarantine they have realized that having a backyard is better when kids are involved and wealthier NYC residents are flocking to The Hamptons.

ABC News reported Nassau County Executive Laura Curran explaining another reason that home sales have surged: pent-up demand as showings finally reopened post lockdown. Prices island-wide are up 5.55% in Nassau County. And along the North Shore, that number jumps to nearly 9%. Experts say millennials are driving the new wave — those on the older side, in their 30s, with families, but still looking to get out and enjoy eating and shopping. “And these walkable, vibrant downtowns are a real key to that,” Curran said. “That’s what young people are looking for.” But aside from the fear of COVID and the ability to work remotely, officials say the recent surge in gun violence in New York City may be what’s sealing the deal. Since record-low interest rates are helping more people qualify for home loans, it’s resulting in a very hot real estate market. Also according to The Real Deal Median home prices in Suffolk and Nassau counties hit record highs in November. Suffolk County’s median sales price was $472,500, up 18.4% from November 2019. That trend appears to be continuing, as pending sale prices were up 16 percent year-over-year. The number of sales was 19%  higher. Both counties came to a standstill during lockdowns starting in March but quickly recovered in the months when restrictions on real estate activity were lifted.

Sharestates has experienced a surge in lending recently. Since restrictions for construction have lifted, borrowers are also getting back to business. They are seeing their opportunities increase and Sharestates has recently funded some exciting projects on Long Island in return. 

Recently funded Sharestates projects in Long Island: Syosset, Long Island

Syosset is located on the North Shore of Long Island. The school district in Syosset is ranked as one of the top districts in New York State making this a very popular area for young families.  Another reason why Syosset is so attractive to families is that it’s only 27 miles away from NYC making it a very commutable town. This property is a 1 residential/1 medical unit property. The borrower is acquiring the property to add value. When the rehab is complete, the property will be leased out to tenants. The borrower plans to refinance into a conventional loan after rehab is completed. 

  • Loan amount – $547,000
  • Loan Purpose – Bridge 
  • LTV – 75%
  • ARV – 64%

Roslyn Heights, Long Island

Roslyn Heights is another beautiful town located on the North Shore of Long Island and is approximately 22 miles from NYC. Living in Roslyn offers residents a suburban feel and most residents own their homes. There is a mix of young professionals and retirees that call Roslyn home. The public schools in Roslyn are highly rated, making it another attractive town for young families. This property is going to be a complete tear-down and ground­ up construction of a new single ­family residence. After finishing the project, the property will be leased out.

  • Loan amount – $910,000
  • Loan Purpose – Construction 
  • LTV – 70%
  • ARV – 65%

For more information on properties we have funded or for more information about our loan programs click below.

Over the last twelve months, Sharestates has noticed an increase in loan applications and closings for properties located in the city of Newburgh in Orange County, New York. Newburgh is a diverse city located in the Hudson Valley with a population of 28,177 people as of 2019. In the recent press, The New York Times describes Newburgh as, “Discontinuous, dynamic and detailed, Newburgh changes from block to block. It is historically, economically and architecturally kaleidoscopic.”

According to Realtor.com, the median list price of a home in Newburgh in January 2021 is $275,000 with an average of 105 days on the market and a median rent price of $1,540. Newburgh contains many value-add opportunities for real estate developers. Since the early days of the COVID-19 pandemic, there has been a surge of New York City residents looking to move out of the city into more suburban and less populated areas. Orange County, New York saw the second-largest increase in year-over-year sales.

https://patch.com/new-york/ossining/hudson-valley-residential-buying-spree-ends-2020

Sharestates Real Estate Activity in Newburgh/Hudson Valley

Sharestates has funded 34 Newburgh loans to date for a total funded volume of $13,483,000

  • 14 of the loans funded were for residential properties
  • 16 of the loans funded were for mixed-use properties
  • 4 of the loans funded were for land deals
  • Average loan size: $396,559
  • Average loan to value (LTV): 70%
  • Average renovation budget: $1774,794
  • Average after repair value (ARV): 54% or $3,911,167

Residential Recently Funded in Newburgh

The first residential project presented below closed on January 6, 2021. The borrower acquired the property with the intent to “fix and flip” the units. The loan is for 18 months. The renovation includes demolition, flooring, electrical, plumbing, stairs, windows, insulation, decking, framing, bathroom fixtures, and more.

  • Appraised value: $135,000
  • Loan amount: $232,000
  • LTV: 80%
  • After-repair value: $375,000
  • ARV: 62%
Pre-construction exterior appearance
Post-construction rendering

The next recently funded project by Sharestates is a mixed-use (2 residential & 1 commercial units) real estate loan. The borrower acquired the property with the goal to “fix and flip” the property. The borrower has a renovation budget of $179,500 which includes everything from stairs, plumbing, electrical, doors, painting, trash removal, windows, plumbing fixtures, bathroom accessories, and more.

    • Appraised value: $250,000
    • Loan amount: $292,000
    • LTV: 80%
    • After-repair value: $450,000
    • ARV: 65%
Pre-construction exterior appearance
post-construction rendering

If you have a project that you would like to submit to Sharestates for consideration, click here. Sharestates is now funding loans in 46 states Nationwide.

Sharestates CEO, Allen Shayanfekr, was interviewed by Kilgour Williams Capital for their webinar CanLend – Lending in the COVID World. Since the declaration of the COVID-19 pandemic, Sharestates has remained active as one of the leading marketplace lending platforms. In this webinar, Allen Shayanfekr discussed how the private lending industry has responded to the COVID pandemic as well as his predictions for what lies ahead for the industry.

Introduction to Sharestates – Lending in the COVID Era – Short-term Residential Mortgages Panel

Sharestates CEO Allen Shayanfekr introduces the Sharestates company.

How Did Covid-19 Impact the Sharestates Business?

What were some of the first changes made to the company in the wake of the COVID-19 global pandemic?

How Did Covid-19 Impact Sharestates Borrowers?

How were Sharestate’s real estate borrowers impacted by COVID-19?

What Support Has Sharestates Offered Their Borrowers During the Pandemic?

Allen explains how Sharestates supported their clients through 2020.

How Have Collateral Values Been Impacted by Covid-19?

How have loan and asset values been impacted in 2020?

How Has the Foreclosure Moratorium Impacted Real Estate Lending in New York?

How have loan and asset values been impacted in 2020?

When Did Real Estate Construction Open Back up in New York?

How did New York’s construction open back up and is it still open?

At What Point Did Sharestates Resume Lending in 2020?

When was Sharestates able to open up loan programs again?

What Were The Changes To Sharestates’ Underwriting Guidelines in 2020?

How did Sharestates’ underwriting guidelines tighten during the pandemic?

How Did Investor Appetites Change in 2020?

What happened to Sharestates’ retail and whole loan buyers last year?

Is Now a Good Time To Invest?

What does the real estate investment market look like? Is now a good time to invest?

What Do The First Two Quarters of 2021 Look Like For Sharestates?

What are Sharestates’ plans for the first half of 2021?

What Does The Typical Sharestates Loan Profile Look Like?

What is the average LTV, asset classes, and more?

What Will Commercial Real Estate Look Like Going Forward?

How does Allen predict the industry will perform over the next few years?

What Does the Real Estate Investing Landscape Look Like in 2021?

How does Allen predict the industry will perform over the next few years?

What Are The Key Lessons Business Owners Should Take Away From the Pandemic?

What lessons did COVID-19 teach the Sharestates team?

Recently, Sharestates CEO Allen Shayanfekr was interviewed by Peter Renton on the Lend Academy Podcast. The conversation covered topics ranging from Sharestates origin story, the company’s response to COVID-19, and the company’s plans moving forward.

 

 

 

To read the entire transcript click here.

Sharestates Origin Story

Peter Renton: It’s been four years since we last chatted on the show and I know a lot has happened, but maybe before we get started, for those listeners who don’t know Sharestates, why don’t you just share how you describe the company today.

Allen Shayanfekr: Sure. Sharestates is a business purpose mortgage loan marketplace platform so we, essentially, have created a marketplace for borrowers and real estate speculators. They fill online, submit loan applications, handle their loan application, and loan sourcing needs digitally. Once that loan is actually underwritten and closed by our system, we then make that loan available via our investor marketplace to both whole loans institutional investors as well as individual retail investors and smaller institutions for syndicated investments.

Sharestates’ Response to COVID-19

Peter Renton: There is a lot of unknowns and we don’t know about stimulus and all that sort of thing. So, I’m curious about, you know, what you did internally staffing-wise because obviously you went down pretty dramatically in originations and maybe just tell us how you managed the staff and like what sort of furloughing you did. I was listening to this interview where that said you really…..you shifted a whole bunch of people and you said you didn’t have to lay off that many so tell us about that.

Allen Shayanfekr: We had pre-COVID 135 people on staff. We ended up letting go of approximately 25 people, it’s not an easy decision at all and it’s something that we really tried to hold off on doing for several months. We didn’t do it as quickly as some other companies did, meaning generally not lending companies, but eventually, we had to make that difficult decision. As far as the rest of the staff, what we tried to do is to save as many jobs as possible and just transitioned them to different departments.

Sharestates’ Plans for the Future

Peter Renton: As you look to 2021, I’m sure most of us are looking forward to a new year, to have 2020 behind us, what are you excited about, what are your goals for the business towards the next year.

Allen Shayanfekr: We have a couple of exciting initiatives. Aside from continuing to grow our core business, we have plans to launch an NPL, non-performing loan marketplace, recognizing that there will be defaults that will happen as a result of the COVID pandemic, there will be a need for certain lenders and aggregators to have to offer those. We’re targeting November or December for the launch of our NPL marketplace, it’s really built as a full end-to-end automated service for buyers and sellers to interact through an organized platform, streamline the process for selling the non-performing loan and hopefully get better execution for the seller and then separately from that, we’re also starting a business purpose loan servicing platform.

Sharestates’ CEO Allen Shayanfekr partnered with AlphaFlow’s CEO Ray Sturm to discuss their outlook for the private lending industry. For the complete interview, click here. For your convenience, we’ve broken the video down by the topics of the discussion below.

Executive Leadership Outlook with Sharestates Featuring AlphaFlow

Brief company bios.

How has AlphaFlow Been Managing Since 2020 Began? And More Specifically Since COVID-19?

How has COVID-19 impacted business at AlphaFlow?

How Has Sharestates Been Managing Since 2020 Began? And More Specifically Since COVID-19?

How has COVID-19 impacted business at Sharestates?

Did Being “Ahead of the Curve” on Tech And Building Your Own Platform Pay Off During COVID-19?

How did a tech-focused mentality position Sharestates for longterm success?

What Is The Genesis Of AlphaFlow? Why Did You Start Investing With Sharestates?

How did the concept of AlphaFlow come about?

What Was The Genesis Of Sharestates? How Did It Eventually Evolve Into An AlphaFlow Partnership?

How did the concept for Sharestates come about?

What Has Changed At AlphaFlow Since Launching Five Years Ago? What Has Changed Since COVID-19?

How has AlpaFlow changed since first launching?

How Will Private Lenders Change To Become More Stable Post-COVID-19?

How do capital markets impact the overall stability of Sharestates?

Will Small Lenders Start To Raise Funds?

What is Sharestates’ plan to continue sourcing diverse capital?

How Does This Recession Compare To The Recession of 2008-2009?

How does today’s market downturn compare to the great recessions according to Ray Sturm?

What Does This DownTurn Look Like For Sharestates?

How has this market downtown impacted Sharestates?

AlphaFlow’s 2020 Outlook. When Do They Plan On Returning To The Office?

When does Ray anticipate a return to the office?

Sharestates 2020 Outlook? When Do They Plan On Returning To The Office?

When does Allen anticipate a return to the office?

States are beginning to re-open their economies, albeit some will move slower than others. The weather is warming and optimism is on the rise. While some business sectors—such as retail and tourism—are still suffering from the sudden downturn and the economic lockdown, others saw a surge as a result of the COVID-19 pandemic. Now that we are beginning to re-open the economy, will real estate return to its former state of glory? If it does, real estate professionals around the country may have opportunity zones to thank for it. Here are some ways opportunity zones could pull real estate back up again.

A Brief on Opportunity Zones

Opportunity Zones were created when Congress passed the Tax Cuts and Jobs Act of 2017. In short, these zones were designated as economically distressed zones that provide specific tax benefits to real estate developers in order to revitalize these areas and spur economic development. You can learn more about opportunity zones here.

Fix-and-flip investors have been operating in distressed neighborhoods for years, and fix-and-flip lenders have funded them. The opportunity zones legislation opened the door for alternative lenders to get in on the action. As a result, it opened the door for other real estate developers, including commercial and new construction developers, to operate with more confidence in those areas. Many of these new players were barely getting started, or were in the middle of huge projects, when the coronavirus pandemic hit and the economic lockdown began to implemented. It left their projects in limbo. The question is, will they, or can they, recover?

Opportunity Zone Deadline Extensions

In March, President Trump declared every state, the District of Columbia, and four U.S. territories major disaster areas. According to Polsinelli, these disaster areas will extend important deadlines for qualified opportunity zone investments.

The two deadlines affected are:

  • The 31-month deadline for spending cash or other financial assets held by a qualified opportunity zone under the working capital safe harbor plan; the extension is for an additional 24 months.
  • Capital received from the sale of a qualified opportunity zone fund; the extension is for 12 months to reinvest the funds in order to count them in the fund’s 90 percent asset test.

The working capital safe harbor extension can be used for qualified opportunity zones in any federally declared disaster area. That means real estate developers and investors in virtually every state could have some relief with this extension. There may be limitations, so Sharestates recommends you get your tax advice from your tax advisor and legal advice from your attorney. Nevertheless, these extensions could provide welcome relief to some opportunity zone investors.

Is Real Estate Development on the Road to Recovery?

While there are some signs of certain sectors of the economy beginning to open back up, there is still a lot of uncertainty surrounding the economy and COVID-19. For instance, researchers still are not sure how the virus will respond to warmer weather or whether it will return in the fall. Furthermore, will opening the economy cause a resurgence in cases even though many states are beginning to flatten the curve? These are some of the unknowns.

Despite the unknowns, state government is beginning to develop plans that allow people to get back to their normal lives. These include continued social distancing measures, mandatory face masks, and enhanced business practices such as reduced shopping hours, limits set on customers per square foot, and limits on how many cash registers can remain open at one time. The idea is to mitigate the effect of the virus and limit its spread while people are allowed to continue their normal routines as much as possible. The question is, will any of this allow the real estate markets to recover and, if so, how quickly?

One sector of real estate that has taken a huge hit is commercial real estate. CBRE predicts a long recovery. That’s possible since office leasing has slowed, the retail sector has slowed, and certain commercial industries such as travel and tourism have come to a halt.

The Motley Fool reports that rents were down initially, particularly right after lockdowns were implemented and in cities where shelter-in-place orders came early on. However, in April, they started going upward again. That’s likely due to the stimulus legislation that was passed as renters began to receive their direct deposits toward the end of the month. Some employers are also beginning to let at least some of their employees start work again, and unemployment insurance has some workers opting to remain at home instead of returning to work. So paying the rent isn’t as big an issue as it was. 

If the virus threat continues, however, unemployment and economic stimulus packages will taper off. Some employees could find themselves out of work permanently as businesses shoulder the burden of lower profits due to limited operations. Renters may want to renegotiate rent agreement with their landlords or seek smaller rental units. Ultimately, the rental market will likely recover faster than other areas of real estate, especially if some homeowners end up losing their homes.

In Michigan, commercial developers and construction will be resume operations, with some restrictions, on May 7. Other states are beginning to open up, as well. Still, lost revenue from ceasing operations will be a factor in how quickly the construction sector can recover.

Invesco portfolio managers predict three areas of real estate that will likely recover more quickly than others. These include:

  • Logistics
  • Offices
  • Multifamily

Multifamily certainly has the potential to come out of the COVID-19 crisis more quickly than other real estate sectors. With office space, leasing is more likely to recover more quickly than new construction. The logistics sector also has high potential because even online retailers and digital businesses need warehouses and transportation centers. That need is not going to go away. However, it’s possible that the sector could adapt to a new reality post-pandemic.

How Opportunity Zones Could Play a Part in Recovery

Since opportunity zones provide tax benefits for developers and real estate investors, recovery from the pandemic could lead to more real estate professionals to seek these benefits. It’s likely that new opportunity zone projects will focus on sectors that recover more quickly, and since the focus is on economic development in distressed areas, multifamily investment seems like a likely candidate for new investment. 

It also seems likely that new projects could focus on smaller spaces, and new and creative ways to look at new construction and development could also arise to facilitate “the new normal.”

In terms of total recovery, the picture is going to look different for each real estate sector and for each geographic region. Some will recover faster while others struggle. Investors will have to scrutinize every opportunity and be discriminatory in which deals they fund. Due diligence will likely require more nitpicking for a while.

interest ratesFix-and-flip investors take great care in buying properties. The BRRRR process involves some math. To ensure a profit on the back end, you have to buy right on the front end. That means calculating purchase price and rehab costs to figure total investment and comparing that to expected sales price at the completion of the project. Investors generally look at loan-to-value (LTV) ratios and after repair values (ARV) to determine whether a project is a good investment or not.

Another strategy called Buy, Rehab, Rent, Refinance, Repeat (BRRRR) is emerging in the real estate investing marketplace. It’s not new, but it does offer some advantages to a straight fix-and-flip strategy. Let’s discuss those.

 Buy the Right Property at the Right Price

There are two types of fix-and-flip projects that fit into the BRRRR strategy. One is where the investor goes into the project knowing in advance that he will rehabilitate the property and convert it into a rental property, adding it to his buy-and-hold portfolio. In that case, the investor must calculate expected rents and determine if it will lead to cash flow, or determine if there is potential equity after holding for a few years. If property values go up, he can sell the property later for a nice return.

The other type of fix-and-flip project that might end up in a buy-and-hold portfolio is one that was intended to be sold immediately after repairs, but a change in market conditions has caused the investor to change his strategy to buy and hold mid-stream.

In either case, buying the property at the right price is essential to getting the return on investment expected.

Rehabilitate the Property

Whether you intend to flip the property or convert it to a rental, the rehab part of your project is very important. You don’t want to spend too much money on the rehab or it will eat into your profits. On the other hand, you want to ensure the property is functional after the repairs have been made. If possible, you want to focus on repairs that also add some value to the property, which is very important if you intend the sell the property later.

Rent to the Right Tenant

In a typical fix-and-flip project, immediately after the rehab phase of the project you’ll move into sales mode and try to find a willing buyer as soon as possible. Holding properties cost you money. However, if you are transitioning to a buy-and-hold strategy, then you’ve got to turn the property into a revenue generator as soon as possible. That means you need to find a tenant as soon as possible.

You want to do this before you refinance because most banks don’t want to refinance a property that isn’t occupied. Having an occupant will increase your chances of refinancing.

Refinance to More Favorable Terms

In order to refinance, you need to ensure you have some things in place first. For starters, you’ll need an appraisal.

As soon as you have tenants in place, make sure they know an appraiser will be stopping by to look at the property. You don’t want to surprise them. After you get your appraisal, interview a few banks and compare terms. Find out if the bank offers cashouts. If not, you want to find another one. The cash out is very important in the BRRRR strategy because it reduces your risk. Secondly, find out how long the bank’s seasoning period is. In other words, how long do you have to own the property before you can refinance it?

Seasoning periods are important because if you get stuck in a high-interest loan for long, it will slice into your profits. You want to get your interest down as soon as possible.

Repeat and Profit

When you find a strategy that works, you want to repeat it. Many buy-and-hold investors find that they like the BRRRR strategy and continue to implement it into their portfolios. There are several ways to do this:

  • Go all-in – Some fix-and-flip investors convert to the buy-and-hold strategy completely. There are advantages and disadvantages to doing so. If you go all in, you’ll have a large portfolio of properties in your inventory that could be difficult to sell later if the market turns. It could also lower your liquid cash reserves as your capital will be tied up in properties. On the other hand, flipping produces short-term returns and higher capital reserves, which translates into more money for buying properties.
  • Half and half – More popular than going all-in is the half-and-half method. Some fix-and-flip investors convert every other property into a buy-and-hold property. In effect, they flip one then hold one. That way, they can keep the short-term returns coming in while building their buy-and-hold portfolio.
  • Create your own mix – Maybe you’d prefer to flip 60 percent of your portfolio, or one-third buy-and-hold matches your risk tolerance better. Creating your own strategy can also make you feel like you have more control.

The Benefits of the BRRRR Strategy

In a rising market, it’s usually better to buy and hold. The downside is, it is difficult to time the market. There is no fail-safe way to know the best time to sell. That’s why many BRRRR strategy investors use a 5-year benchmark. They buy, rehab, rent, refinance, and repeat, and in the fifth year, they put the property up for sale.

Using this strategy means you’ll always have properties on the market after the fifth year. If you buy your properties wisely, even in a market hostile to sellers, you could see returns on these transactions.

It’s still important to buy right. Using the same LTV formula you use for fix-and-flip properties will keep you on the right track. If it works for flipping properties, it should also work for your buy-and-hold strategy. The snag will be if you can’t find a renter during the rent phase. If that happens, you can still flip the property and aim for buy-and-hold on the next one.

Since real estate investing often means buying properties at a discount and selling them at full market value, the buy-and-hold strategy gives you an advantage, especially in a market where property values are on the rise. If the rental market is up and home sales are down, it’s also a good time to take advantage of the monthly cash flow that owning rental properties brings. However, you don’t want to get yourself in a bind by holding onto too many properties at once.

Be sure to calculate the costs of refinancing before you make a purchase. Lenders generally finance no more than 75 percent of a property’s value. If you aim for a 70 percent LTV, that gives you some wiggle room. Sixty-five percent is even better.

Banks also charge a refinancing fee. On top of that, you’ve got to pay for the appraisal, title work, and loan processing. It will be worth it if you can cash out your initial investment. That way, you have none of your own money tied up in the project while earning residual income. In the meantime, you can build equity. If you start with 25-30 percent built-in equity, you could be sitting on a gold mine.