The residential real estate market has been seeing a surge in demand once again and a steady low interest rate lending market has been extending the purchasing power of individuals.
The Commercial RE markets, especially the multifamily, are benefitting from the rising prices and the increased demand from renters, pushing rents higher and the limited supply bringing back the returns into the multifamily side once again.
This is the time where the savvy and long-term investors have been taking action on their strategies and preparing their portfolios for the next 7 to 10 years. The most viable strategies are as follows:
Restructure Debt on Properties
1. Refinance your existing portfolio or holdings and lock or re-lock into low interest rates and increase or stabilize the cash flow of your current holdings for the near to mid term future.
2. Refinance your existing holdings and purchase new ventures expanding your portfolio, diversifying area, CAP rate or re-introducing lost depreciation from years of holding.
Trade Assets Up or Down
1. Sell current holdings and transfer equity into solid performing cash flow assets such as NNN or Long Term leased commercial assets.
2. Sell current holdings and trade up in area, quality, size or leverage and prepare for the next 10 years and ride the new current with new assets.
3. Sell current assets and exchange sideways and lock into stable assets with little or no market risk for security and estate planning purposes.
1. Not every market or every shift in general economy warrants a move on the investor’s behalf. Sometimes doing nothing is a good enough option to secure your own position and not to accrue any expenses in trying to trade a market.
2. Refinancing an existing mortgage and not cashing out is as viable an option as trying to find a refi for cash out. A non-leveraged good cash flow position makes surviving the next downturn or crisis much easier.
3. Know thine enemy. After years of managing and owning your assets, sometimes the comfort of knowing exactly what you are dealing with, rather than experimenting with new product or locations with varying risk or leverage, turns out to be a better response than any other.
The low mortgage rates, increased rental demand, and abundance of opportunity create a maze every investor must walk into carefully.
The lending market is stable but nervous, as the conditions are reminiscent of other optimal markets that were usually followed by some amount of discounting of good news reflecting onto valuations and stability of the value base of investment properties.
The increased rents, a direct result of housing affordability in metro areas such as Los Angeles and lack of new construction inventory, though positive can change as the general economy fluctuates and inventory from new construction in Los Angeles and other big cities rush to finish and enter the rental pool. Though many property owners have been enjoying rents rising with not much of an effort on their part, the tenant base is eyeing new construction around them and comparing quality, amenity and location on an ongoing basis.
New listings and opportunities are coming into the market on a daily and weekly basis, non-stop. Most, if not all, brokers are trying to make new decisions and find their new way in a complicated maze to meet their goals or expectations. Sometimes there is not a right or wrong with regard to the market, but more a right time that suits your planning.
This is the market where every investor—more than anything—has to plan, has to think, and has to decide what he wants to do in the vacuum that exists within today’s conditions, taking all aspects under consideration. This is a time when planning will trump instinct and conservative approaches will yield endurance for the long haul.
Markets can be volatile, they can be surprising, and they can be brutal. However, your response to them should be planned carefully, timed right and for the long term, as that is the one sure way you can outperform and get in front of them. Most important of all, you need to be involved in one aspect or another. Real estate is a market you want yourself, your family, your estate, and your future generations involved in. For the younger investors, get condos for your kids; for the seasoned generations, get condos for your grandkids. At the end of the day, it will matter if you were in the market for the ride, or you were a spectator watching it pass you by. As always, get good advice and think twice, buy once.