By Mario Navarrete.
As the year comes to a close and we all reflect on what we were able to accomplish in the last 12 months, I am filled with incredible motivation and zeal for 2019. This year showed us a robust velocity of production, innovation and long-term interest. Not only did we witness our clients grow their portfolios in leaps and bounds versus years past, but we also saw thousands of new leads a month come into the space interested to learn how they too can spark their own advancement in real estate.
Additionally, there were more record-breaking months and milestones this year than I’ve ever experienced during my 16-year tenure in real estate. In fact, as I write this we are coming off our biggest month for funded volume in the company’s history with a huge pipeline to end the year. Couple this with the notion that emerging rental markets continue to grow and more are being sparked by initiatives like the government’s new “Opportunity Zones” program, the long-term rental market continues to show unbelievable capacity and stability which bodes well for 2019.
Further, the interest in our space from Wall Street shows unprecedented promise. The last couple of weeks revealed our 7th securitization, set at over $230 million, which was over-subscribed again, letting us know that the Secondary Markets love the collateral and are impressed by the product overall. So, what should we be doing to gear-up for next year?
Let me first start by saying it is always good practice to recognize where in the cycle we are so we can plan properly for the year to come. As we look to 2019, I would encourage all investors, new and seasoned, to assess their coming acquisitions with two sets of lenses instead of one. Some of my clients are pure flippers and some are pure rental operators – I get it, we’re all creatures of habit. However, as we have all surely seen this year, margins on fix and flip properties are contracting.
When this occurs, those investors who can rent a property with reasonable cash flow in the event they don’t get the margins they want on a flip end up having a leg-up on investors during the next cycle. They are positioned better financially and are not left carrying deadweight assets in underperforming markets, aka liabilities. Yes, 2019 looks like it will be even better for investors than 2018 was.
But, as we assess the level of risk with each asset we buy in the various markets we choose to buy in, I’d rather invest in a property that I know I can either flip or rent and still have acceptable returns either way than invest in a property that would only offer me one sound exit.
In further recognizing where we are in the cycle, many seasoned investors have stated that they believe we saw the tip of the market around Q2-Q3 of this past year. To their point, we can look to the softening of the luxury real estate markets, which is typically first to feel the slow down, and we can glean from it that this notion may in fact be justified.
If they are right and the market continues to soften, there will be plenty of buy opportunities in 2019. I would suggest having your capital stack fairly liquid and your lender relations in good standing with a plan of attack for when those occasions may arise this coming year. Don’t forget: purchasing a rental portfolio may not always be the best way for you to grow your real estate holdings in this space.
With new rental construction loan options, like our Build-To-Rent Complete product which can potentially take you from start to finish and offer higher overall leverage than traditional banks can, investors are now able to ramp up the building of their rental portfolio and still make financial sense in the process.
2019 will be filled with investment opportunities and real estate will be at the forefront. Take time to strategize and come up with a plan to maximize what the year will bring. If you’re a flipper, take a little more caution next year. Watch your margins closely and remember that cash-flowing a property is better than carrying a property.
In building your rental portfolio, leverage wisely. Talk to your lender about the appropriate leverage for your portfolio as well as how best to leverage so that you can reach your goals for 2019. Different portfolios with different asset types in different MSAs will need a specialized lender, one that will tailor to the needs of your portfolio. One size does not fit all in this arena. Research more. Ask about it. Make informed decisions about your next move come January 1st.
If you would like some guidance or a resource in getting yourself geared up for the next 12 months, I’d be happy to jump on a call with you to discuss your objectives and options.
Here’s to a great holiday season and an outstanding 2019.
Our creative financing options have helped thousands of investors, financing more than 30,000 investment properties and closing over $4 billion in loans. Are you looking to explore your options? CoreVest is the leading lender to residential and multifamily real estate investors. We provide attractive long-term debt products for stabilized rental portfolios as well as credit lines for new acquisitions.