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MAR-APR 2023 | THINKREALTY.COM
MULTIFAMILY TRENDS Jeff Roth
HOT 2023 MARKETS Daren Blomquist
AFFORDABLE HOUSING Neil Timmins
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Key to Finding Hot Markets BY MARCO SANTARELLI
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Key to Finding Hot Markets Investors should be aware of several housing trends that will likely play out.
by Marco Santarelli
D espite fears of a looming recession, the U.S. housing market is expected to gain momentum in the coming years. The country’s population is growing and the economy is expanding, which should result in increased demand for home purchases. However, one of the biggest factors affecting home prices in 2023 will be the interest rate environment. The good news is that most experts don’t expect mortgage rates to rise much, if at all, in 2023. Still,
monthly mortgage payments are predicted to be roughly 28% more than last year and twice as high as they were in 2021. To put things into perspective, monthly mortgage payments were almost three-quarters bigger in October 2022 than they were in 2021. Hopefully, during the first half of 2023, we will see inflation come down and get more clarity about what is happening with the economy. Whether home prices will drop in 2023 and by how much depends on who you ask.
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RISING PRICES Prices are expected to rise during the next decade. As more people move into cities and seek housing options, demand will outpace supply and prices will continue to increase. In many areas, real estate prices have doubled or even tripled during the past decade alone. FORECLOSURES AND EQUITY Foreclosures are very low, and the majority have equity. According to ATTOM, less than 1% of homes are in foreclosure, a fraction of the 4% of properties in foreclosure at the height of the 2008 housing crisis. Of the homes that are in foreclosure, 93% have equity. Because of that, a homeowner who is behind on mortgage payments could sell the property and potentially walk away with cash. There is basically little chance of a repeat of 2008. MIDSIZE MARKETS The midsize markets, which experienced smaller price hikes and less of an affordability crisis than others, will experience the most gain in home sales and listing prices in 2023. Because of the high cost of real estate, buyers from the Northeast and the West lead the list of people looking for inexpensive homes outside their current area. THE NORTHEAST The Northeast leads the way in cross-market house shopping, with 69% of homebuyers looking at properties in other markets, notably from pricy markets like New York and Boston. In the West, which includes equally costly metros such as San Jose, San Francisco, Los Angeles, and Seattle, 66% of homebuyers looked at properties in other markets. HOUSING SUPPLY According to the National Association of Realtors, a healthy housing market typically has a supply of four to five months. In November, the country had a 3.3-month supply of homes. That puts us in a mild seller’s market. HOMEOWNERSHIP RATE The homeownership rate in America is expected to hold steady, ticking down to 65.7% in 2023. The average homeowner’s equity is expected to increase by $25,650. Those in lower-cost areas of the country may benefit even
Home prices should largely hold in 2023, and price appreciation will either be constant or show a little uptick, depending on the market. There will be no large price gains this year, and it is highly unlikely you will see property values “crash” across the country. Some markets will see price declines, however, (e.g., Seattle, Austin, Utah, and Phoenix) because of the massive boom during the pandemic. You likely won’t see most of these markets drop back to their pre-COVID price levels though. Keep an eye out for the following housing trends. DEMAND FOR HOUSING NOT DYING In every market, there’s a growing demand for housing and commercial real estate. Depending on who you ask, experts believe there is a nationwide housing shortage of between 2 million to nearly 6 million newly built homes.
INVESTOR REVIEW :: 3
FIVE “HOT MARKETS” FOR 2023
INDIANAPOLIS, INDIANAPOLIS For a few years, the lack of available inventory in Indiana’s housing markets was a major concern. The state witnessed a boom during the last two years of the pandemic. As mortgage rates rose in 2022, fewer buyers entered the market, resulting in a slowdown; however, Indiana’s housing market continues to outperform the national average. HOUSINGTRENDS.COM SCORES Wealth Phase = Yes | Market Score = 72 | Rent Growth = 58
CAPE CORAL, FLORIDA Cape Coral is a city in Southwest Florida, sandwiched between the ocean and Fort Myers. It is the second-largest city in Florida and the largest city between Tampa and Miami. It is home to more than 204,000 residents. According to the U.S. Census Bureau, the Cape Coral-Fort Myers metro area has had one of the greatest percentage growth rates in the country during the last several years. Cape Coral was ranked seventh among major metropolitan areas in percentage growth from 2010 to 2018, with a 22% increase over that time period. HOUSINGTRENDS.COM SCORES Wealth Phase = Yes | Market Score = 98 | Rent Growth = 99
MEMPHIS, TENNESSEE The low cost of housing and steady growth in Memphis make it an attractive market for investors. The Memphis metropolitan statistical area is the region’s second-largest after Nashville. Fifty-five percent of the Memphis population rents, compared to 34% of the U.S. population, making rental property investing a viable option. Memphis is great for jobs, transportation, and overall living. HOUSINGTRENDS.COM SCORES Wealth Phase = Yes | Market Score = 72 | Rent Growth = 40
JACKSONVILLE, FLORIDA During the last decade, the total cumulative appreciation rate in Jacksonville has been 148.5%, placing it in the top 10% nationally. This amounts to an annual average gain of 9.53%. The median price in November 2022 was $325,000. Steady population growth in Jacksonville provides the perfect market for real estate investors. Jacksonville is the largest city in the state of Florida and the largest city by area in the contiguous U.S. The Jacksonville metro area is the 40th largest in the country and the fourth largest in the state of Florida, behind the Miami, Tampa, and Orlando metropolitan areas. HOUSINGTRENDS.COM SCORES Wealth Phase = Yes | Market Score = 93 | Rent Growth = 94
MONTGOMERY, ALABAMA Montgomery, Alabama, is a good cash-flow market due to the strong demand for rental housing. This is not entirely due to the eight or more colleges and universities in the city. The cost of living in Montgomery is lower than the U.S. average. Montgomery has seen its job market increase by 1.1% during the last year, and future job growth in the next 10 years is predicted to be more than 30%. HOUSINGTRENDS.COM SCORES Wealth Phase = Yes | Market Score = 62 | Rent Growth = 31
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affordability, supply and demand. You can monitor local housing trends across the country at HousingTrends.com. •
more when people from higher-priced markets relocate to lower-cost areas, driving up prices.
Marco Santarelli is an Inc. 1000 entrepreneur, investor, author, and Broadway producer. He is the founder of Norada Capital Management and Norada Real Estate Investments (the largest nationwide provider of turnkey cash-flow investment property). Santarelli’s mission is to help 1 million people create wealth and passive income and put them on the path to financial freedom. He is also the host of the top-rated podcast “Passive Real Estate Investing,” which has released more than 500 episodes to date.
DEMAND DRIVES PRICE As demand increases, so does the price of real estate. That’s why it’s important to be aware of trends in each local market and make sure you buy or sell at the right time. Market fundamentals play into those trends, as does
INVESTOR REVIEW :: 5
Midwest Multifamily Market Trends Here’s why investors are taking a serious look at the Midwest.
by Jeff Roth
W ith so many hot markets (literally and figuratively) in the news (e.g., Arizona, Texas, and Florida), why are investors taking a serious look at the Midwest? An article in the Multi-Housing News by Beata Lorincz, published Sept. 5, 2022, entitled “The Midwest is Attracting Record High Capital. Here’s Why,” offers some compel- ling reasons. NO. 1 LACK OF EXCESS SUPPLY. “The lack of excess supply has kept vacancy rates stable in all the Midwest’s major cities,” Lorincz writes. NO. 2 12% YEAR-OVER-YEAR RENT GROWTH. Additionally, year- over-year rent growth reached about 12% in the Midwest in 2022, according to Jeff Lamott, managing director at Northmarq who was interviewed for the article. NO. 3 RECORD HIGH CAPITAL COMPETING. Further, record high capital is competing for Midwest multifamily investments, Lamott said. He explained that competition is strong from private equity and national syndicators looking to deploy capital in the Midwest. NO. 4 STRONG CASH FLOW AND MORE AFFORDABILITY. Lamott also noted that investors are attracted to the Midwest for the returns and are getting priced out of the coastal and gateway markets.
Michigan, Ohio, Indiana, Kentucky, and Illinois, reflecting more than $2.5 billion in transactional volume. Their website is www.incomepo.com, and they can also be found on YouTube. QUESTION Greg, why the Midwest? Greg: The Midwest is one of the best places to invest money in multifamily. Rent growth is steady and jobs are plentiful. The Midwest typically has good cash flow, unlike coastal states throughout the U.S. QUESTION What trends did you notice in the markets you serve in 2022? Greg: Although my firm focuses on multifamily brokerage throughout the Midwest, my territory is southeast Michigan. Interest rates and cap rates are up. The market is starting to slow in the multifamily arena, as there is a disconnect between buyers and sellers. Cap rates were at 4.5%-6% at the begin- ning of the year and are now at 6%-7.5%, which is up 150 basis points. Rental rates in suburban locations are still holding steady, while tertiary markets are starting to see some stress from both the economy and delinquencies. WHAT IS FORECAST FOR THE MIDWEST MARKET IN 2023? QUESTION What are you forecasting for 2023 in the areas you serve? Greg: While transactions may slow in the first quarter of 2023, due to the
NO. 5 INVESTOR-FRIENDLY PLACE TO DO BUSINESS. Finally, “many developers still find acquiring land in the Midwest easier than in Gateway markets, with the permit process for a building to go vertical done in a timelier manner,” Lorincz writes. The accompanying graph from Real Capital Analytics is from 2021, but it shows apartment transaction volume growth in different markets. We can see Detroit, Indianapolis, and Columbus are popular with investors. The Midwest is a stable place to invest, with solid demand for housing and strong cash flow. It offers an investor-friendly place to do business compared to some of the hotter markets in the country. WHAT IS HAPPENING IN THE MIDWEST MARKET AT THE END OF 2022? To find out what is happening right now in the
Midwest market, I interviewed Greg Coulter, the founding managing member
Greg Coulter
of Income Property Organization (IPO), a privately held multifamily brokerage headquartered in Bloomfield Hills, Michigan. Over the past two and a half decades, IPO has sold more than 1,500 multifamily properties throughout
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MARKET-LEVEL APARTMENT TRANSACTION VOLUME GROWTH IN 2021 ONE-YEAR PERCENT CHANGE AND TWO-YEAR PERCENT CHANGE Source: Real Capital
where we see the distressed assets coming online in 2023. QUESTION What behaviors are you noticing with buyers right now? Greg: They believe it’s going to be 2009 all over again. I don’t foresee the market collapsing because the fundamentals are still good, but the bears are out of hibernation. QUESTION On the topic of “hot markets,” is there anything that I did not ask that I should have? Greg: If you are looking for garage sale pricing, then you may see it in secondary markets over the coming year. The top-tier market owners will just hold and sit on the sidelines. MULTIFAMILY INVESTING IN THE MIDWEST REMAINS A SOLID CHOICE The Midwest is a solid choice for multifamily property investing because it has stable vacancy rates, plentiful jobs, rent growth, strong cash flow, and is a mostly investor- friendly place to do business. Investors have noticed, and a record level of capital is competing for opportunities in the Midwest as they are getting priced out of coastal and gateway markets. Recent increases in interest rates have pushed up cap rates and slowed transactions, which is expected to continue into 2023. If you are looking for deals, focus on secondary and tertiary markets rather than the top-tier markets in the Midwest the second half of 2023. •
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GREATER SAN FRANCISCO
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PITTSBURGH
TWO-YEAR % CHANGE
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DETROIT
GREATER MIAMI
HARTFORD
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GREATER NEW YORK CITY
SEATTLE
GREATER SAN FRANCISCO
CLEVELAND
PITTSBURGH
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interest rate effects on capitalization rates, we still see the long-term viability of the market as very strong. You may need to pan more dirt to find the gold at the bottom of the pan in the coming year. We see investment sales declining in the first two quarters of 2023 by as much as 50%. If interest rates settle in the first quarter, then we
see sales picking up the second half of the year. QUESTION What behaviors are you noticing with sellers right now? Greg: Sellers in good markets are living in the past. In tertiary markets, there is fear about the future of court systems and delinquencies. These markets are
Jeff Roth is the founder of Arbor Advising, a real estate consultancy in Ann Arbor, Michigan, dedicated to growing and securing your wealth. They
help clients invest, buy, and sell in Michigan. You can contact Jeff at jeff@arboradvising.com, or www.arboradvising.com or subscribe to the weekly newsletter at www.arboradvising.com/subscribe.
INVESTOR REVIEW :: 7
SEO Keyword Volumes in the Hottest Real Estate Markets Incorporate SEO tactics on your website to build your portfolio and gain investors.
by Jenifer Calandra
O ne of the nation’s largest mortgage lenders, Rocket Mortgage, released a list of the 18 hottest real estate markets in the country. It’s no surprise which cities made the list, including Phoenix, Arizona; Austin, Texas; Aurora, Colorado; Nashville, Tennessee, Indianapolis, Indiana; and Las Vegas, Nevada, to name just a few. Although this type of list may be a no-brainer to those well-versed in the real estate industry, if you’re local, you can put this knowledge to good use in new ways.
Enter search engine optimization. It’s how you’ll organically drive potential investors or sellers to your website so you can grow your portfolio. Best of all, it’s one of the most budget-friendly ways you can enter the digital marketing world. WHAT IS SEARCH ENGINE OPTIMIZATION? At its most basic, search engine optimization is a digital marketing strategy in which you take steps to ensure your website ranks on the first page of search engine results based on meaningful keywords your
target audience uses to find you. This is generally achieved through on-page content, such as webpage copy and blog posts. Technical SEO (e.g., URLs and metadata) and off-page SEO (e.g., backlinking and native content) are also important and rely heavily on keyword research to ensure they work effectively. HOW DO I CHOOSE KEYWORDS TO TARGET? Conducting keyword research is the only way to determine the value of keywords. And because
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15% of all Google searches use unique search terms, research is a continuous process. You must then incorporate these important words into your content. Don’t forget about location keywords (e.g., city or neighborhood names) for your local SEO efforts. Keyword volume is measured by the total number of searches conducted for a word or phrase. The lower the keyword volume, the less often the phrase is searched. However, even low-volume keywords can be helpful to include in your copy, particularly if they are those that are not difficult to rank for. Popular keywords with high search volume tend to have higher ranking difficulty. In the digital marketing industry, these low-difficulty, moderate-volume words are called “low-hanging fruit keywords.” HOW DO LONG-TAIL KEYWORDS DRIVE TRAFFIC? As your audience is close to purchasing your product or service, they’re more likely to use long-tail keywords in their searches. Long-tail keywords are multiple words strung together into a phrase and are so specific they should drive traffic straight to your website. For example, the keyword “furniture store” should provide search results for every online or nearby furniture store. However, “Fort Lauderdale European import furniture store” narrows down the possible results with such specificity, the audience finds what they’re looking for. LONG-TAIL KEYWORDS BY SEARCH VOLUME FOR REAL ESTATE INVESTING The same goes for real estate investment-related searches, and
● Real estate investment Denver (volume: 170 searches per month) Find long-tail keywords related to real estate investing in your market by using tools like SEMrush, Moz, or the Google Ads Keyword Planner. Don’t forget about those easy-to-target “low-hanging fruit” keywords as you write copy, update your metadata, and improve your overall search engine optimization on your website. Even the lowest search volume keywords can make a big difference in website traffic and rankings when incorporated into a content strategy. SEO AGENCIES CAN HELP TOO If search engine optimization sounds too complex or your agency doesn’t have time to dedicate to the effort, partnering with a digital marketing firm can help you secure the top spot in search engine results pages. Which ad agency delivers the best SEO? It’s most likely one that appears at the top of the list in your search, of course. •
if you’re in the hottest real estate markets in the country, people are certainly looking for them. Nationally, there are thousands of searches for real estate investing and other related keyword phrases. Some of them include: ● real estate investing (volume: 18,100 searches per month) ● how to invest in real estate (volume: 12,100 searches per month) ● real estate investing for beginners (volume: 12,100 searches per month) ● real estate investments (volume: 8,100 searches per month) Of the possible long-tail keywords associated with the top 18 hottest real estate markets in the United States, the most-searched are from Austin, Texas, and Las Vegas, Nevada: “Austin real estate investment” and “Las Vegas invest real estate,” respectively, with a volume of 640 searches per month each. Other popular long-tail search phrases include: ● Phoenix real estate investing (volume: 170 searches per month) ● Indianapolis real estate investing (volume: 140 searches per month) ● Real estate investing San Diego (volume: 170 searches per month)
Jenifer Calandra’s decade of marketing experience in a range of industries gives her a unique perspective on strategy. A professional writer by trade, Calandra
crafts the story of your brand to engage with your target audience in her role at iFocus Marketing. Learn more at ifocusmarketing.com.
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Hottest Real Estate Investing Markets for 2023 Foreclosure auction data provides a view of which real estate markets are most popular with investors and which markets are potentially most profitable for investors.
by Daren Blomquist
D ata from the fourth quarter of 2022, with the housing markets in the throes of a slowdown, helps shed light on which markets investors think will withstand the continued slowdown
expected in 2023 and which markets provide the biggest potential discount cushion to hedge against such a slowdown. The most popular markets for investors are those in which the
sales rate at foreclosure auction in fourth-quarter 2022 was furthest above its pre-pandemic level in fourth-quarter 2019. These are markets where investors are still willing to buy a high percentage of
Boston, MA
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HOTTEST REAL ESTATE INVESTING MARKETS FOR 2023
MOST POPULAR MARKETS Here are the top 10 hottest markets based on each of those two criteria among 60 U.S. metros with the most foreclosure auctions occurring in fourth-quarter 2022, according to data from Auction.com. With a couple of notable exceptions, real estate investors flocked to middle-America, safe-haven markets in the fourth quarter of 2022. The market with the biggest increase in sales rate in fourth-quarter 2022 compared to fourth-quarter 2019 was the Quad Cities (Davenport, Moline, Rock Island, and Bettendorf),
distressed properties, anticipating that local housing trends will hold up well enough in 2023 for them to realize a healthy return when they resell or rent the rehabbed homes. The most potentially profitable markets are those in which investors purchased the furthest below estimated “as-is” property value in fourth-quarter 2022 relative to pre-pandemic purchase
property with cash and without an interior inspection. A transparent auction marketplace like Auction.com leverages real- time, competitive bidding to reveal each property’s true, risk-adjusted market value, limited only by the foreclosing lender’s credit bid: the minimum amount the lender is willing to sell the property for, capped at the total debt owed. These are the markets where investors have the biggest cushion to realize healthy returns in 2023, even if local housing trends represent a headwind for their resale or rental exit strategies.
discounts in fourth-quarter 2019. A discount below that
estimated value may be seen in the foreclosure auction context since buyers are taking on a significant risk in purchasing a distressed
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straddling the Iowa-Illinois border. The foreclosure auction sales rate of 55.6 percent in the fourth quarter of 2022 in the Quad Cities was up 38 percentage points from the 17.2 % level in fourth-quarter 2019. Other middle-America markets in the top 10 for biggest foreclosure auction sales rate increase in fourth-quarter
which saw a 31-point increase in sales rate, and Miami, which saw a 21-point increase in sales rate.
2022 included Milwaukee, Wisconsin; Peoria, Illinois; Louisville, Kentucky; St. Louis, Missouri; and Baton Rouge, Louisiana. The sales rate in fourth-quarter 2022 was up at least 20 percentage points from fourth‑quarter 2019 in all these markets. Two notable exceptions to the middle-America theme were Boston,
MOST POTENTIALLY PROFITABLE MARKETS Nationwide, real estate investors purchased foreclosure auction
TOP TEN MOST POPULAR MARKETS
Q4 2019 FORECLOSURE AUCTION SALES RATE
Q4 2022 FORECLOSURE AUCTION SALES RATE
CHANGE (POINTS)
METRO AREA
Davenport-Moline-Rock Island IA-IL Boston-Cambridge-Newton, MA-NH Milwaukee-Waukesha-West Allis, WI
17.2% 43.0% 31.2% 23.7% 38.5%
55.6% 74.4% 60.5% 51.3% 65.6% 32.4% 47.4% 47.7% 67.2% 65.3%
38% 31% 29% 28% 27% 26% 24% 24% 22% 21%
Peoria, IL
Louisville/Jefferson County, KY-IN San Juan-Carolina-Caguas, PR
6.7%
St. Louis, MO-IL Baton Rouge, LA
23.7% 24.1% 45.1% 44.4%
Richmond, VA
Miami-Fort Lauderdale-West Palm Beach, FL
Mississippi River
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TOP 10 MOST POTENTIALLY PROFITABLE MARKETS
Q4 2019 FORECLOSURE AUCTION SALES RATE
Q4 2022 FORECLOSURE AUCTION SALES RATE
CHANGE (POINTS)
METRO AREA
Los Angeles-LongBeach-Anaheim, CA Minneapolis-St. Paul-Bloomington, MN-WI Riverside-San Bernardino-Ontario, CA San Francisco-Oakland-Hayward, CA
14.1% 40.6% 17.0% 22.7% 24.3% 20.9% 25.5% 18.4% 24.7% 26.2%
37.7% 60.9% 36.4% 40.6% 41.7% 35.6% 39.5% 32.3% 37.3% 38.4%
24% 20% 19% 18% 17% 15% 14% 14% 13% 12%
Jackson, MS
Birmingham-Hoover, AL
Portland-Vancouver-Hillsboro, OR-WA Boston-Cambridge-Newton, MA-NH
Nashville-Davidson-Murfreesboro-Franklin, TN
Knoxville, TN
average purchase discount of 22% in fourth-quarter 2019. But investors were able to build in a bigger discount cushion relative to pre-pandemic levels in many markets. At the top of that list was Los Angeles, where the average
foreclosure auction purchase discount in fourth-quarter 2022 was 24 percentage points higher than in fourth-quarter 2019. Other West Coast markets in the top 10 in terms of increase in foreclosure auction purchase discounts relative to pre-pandemic levels included Riverside-San Bernardino, also in Southern California; San Francisco; and Portland. Seattle came in just outside the top 10, at No. 11. Remaining markets in the top 10 were Minneapolis-St. Paul; Jackson, Mississippi; Birmingham, Alabama; Boston, Massachusetts; Nashville, Tennessee; and Knoxville, Tennessee. Boston stands out for making both top 10 lists, both in terms of investor popularity and in terms of potential profits. •
properties at an average discount of 17.2% below estimated “as-is” market value in the fourth quarter of 2022, according to Auction.com data. That average discount was 7 percentage points higher than the
Daren Blomquist is vice president of market economics at Auction.com. In this role, Blomquist analyzes and forecasts complex macro and
microeconomic data trends within the marketplace and industry to provide value to both buyers and sellers using the Auction.com platform.
INVESTOR REVIEW :: 13
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Child’s Play Fun and imaginative children’s rooms have the ability to be the most memorable room in any house!
by Michele Van Der Veen
P arents often bring their children with them to view potential new homes. Seeing their child get excited about a room that could become theirs is an important part of the buying experience for many parents. So, as a seller, why not have some fun and create a child’s room for all to remember? Helping parents and their children feel more connected to the home by creatively staging a kid’s room can help you sell your investment faster. Although not all homebuyers have children, there are ways to decide ahead of time whether designing and
staging a child’s room will pay off for you in the end.
assess whether the neighborhood is geared toward families. Doing just these things will often give you an idea about the chances of buyers with children looking for a house in your area. The more information you can drum up before you start designing a child’s room, the better off you will be. For many parents, living in a kid-friendly neighborhood is first on their list. If you discover that your investment is in a kid-friendly neighborhood, chances are the time and money you spend designing a room for children will pay off. Let the fun begin!
UNDERSTANDING YOUR BUYER
As with any renovation, figuring out your buyer is a must—and that will take a little investigative time on your part. Driving around to see whether there are nearby schools and parks should be your first step. You can also drive around the neighborhood after 3 p.m., when kids are usually home from school. Additionally, talking with neighbors will help you
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memorable. Committing too much money to a child’s room on items such as wallpaper can backfire, considering how wallpaper and similar features are often a matter of personal taste. Wallpaper, in particular, can be expensive and also difficult to remove if your buyer does not love it. Also consider designing the child’s room with more neutral colors. That helps make the room appealing to more children. A neutral color scheme can also help potential buyers see the room as part of the overall look and style of the home. Many buyers tend to like a more cohesive look throughout the home, so big, bold kids’ colors like lime green or purple may appeal to parents, even though children may think they are great colors!
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minds by taking a little extra time to build a room around a creative theme. A bed, some chalk paint, and imagination will help you create a room that will take potential buyers and their children back in time to perhaps the days of the Gold Rush or help them reach into the future with a theme centered on space. Designing a child’s room for a renovation does not mean adding expensive wallpaper, built-ins, or other costly features. It just means letting loose and approaching the project with a childlike mind in order to create something fun and
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THE SKY’S THE LIMIT — WITHIN REASON
Potential kids’ rooms are often just a blank slate consisting of four walls, a couple of windows and a door. The sky’s the limit as to what you can create. For really next to nothing, you can transform a bare room into an adventure. Appeal to children’s
INVESTOR REVIEW :: 15
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rooms are best left simple in design. By giving the room a theme—Western, beach, space, etc.—children can fill in the blanks and use their imagination to create the rest of the story, making the room more personal. “ENLARGES” A HOME A child’s room is the one room in the home where just through design you are able to add multiple beds, making a house feel much bigger. Being able to show a room that appears to accommodate more people is always a plus. Staging bunk beds, twin beds, or perhaps even two full- size beds conveys that more people can comfortably inhabit the room. FAMILY APPEAL Designing a room that appeals to children plays to your benefit in many ways. As mentioned, when all family members can see themselves living in the home, it makes the buying decision easier. With that said, bringing children to view a home can be distracting and difficult for some parents, and they will cut their visit short. But having a room decorated for children can actually help buy the family some
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KEEP IT SIMPLE Try to keep the theme of the room simple. Rooms with simple themes that appeal to a child’s imagination create excitement and are easy to remember and talk about. A room designed around a theme usually will cost you less to design.
Themed rooms require very few design items to appeal to a child—or anyone for that matter. By guiding the design through a theme, the theme takes over and makes a bold statement. From Western-themed to beach-themed or even to space‑themed rooms, children’s
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extra viewing time. Buyers who spend more time looking at a home have a greater chance of buying it. Children who discover a room with furniture their size, chalkboards, and stuffed animals will often be entertained as the rest of the family looks around more of the property. Being able to take a better look at the home instead of feeling rushed has a positive effect on most potential buyers. Additionally, when children see there’s a room in the house with their name on it, so to speak, they feel more included in the house- shopping experience. It is surprising just how much children have to say about a house when they like what they see too! Although most investors don’t buy an investment home with the intention
buyers choose the home because it suits the whole family. The end goal is to create a great child’s room and a great place for the whole family to call home. •
of creating a child’s room out of one of the bedrooms, it’s worth your while to consider doing so. Finding ways to reach more buyers, encouraging your buyers to spend more time viewing the home, showing the home can sleep more, and creating a memorable home for the whole family to talk about are all positive reasons for considering designing a child’s room in your next renovation. Over the years, a child’s room will undoubtedly change more than any other room in the house as children grow. That is but one reason why investing lots of money into a child’s room is not the name of the game for many reasons. Still, providing a view into what a fun and exciting house you’re offering for all potential buyers, even the little ones, will help
Michele Van Der Veen is host of Good Day segments, including Flip It, Decorate Like a Designer, and Stage to Sell. She started her career in real estate investing more than
30 years ago. A published author, Van Der Veen has been recognized and featured in international magazines for her unique approach to interior design. Acquiring a formal education from the Interior Designers Institute of California, her experience stems from building custom homes to flipping more than 100 homes and working in commercial real estate development alongside her father at a young age. Not afraid to push the limit on her own designs and investments, Van Der Veen will often be heard reassuring her team about her decisions by saying “Don’t worry, we are the comps!” For more on Van Der Veen’s work or to contact her, visit iHeartHomescorp.com.
INVESTOR REVIEW :: 17
America’s Last Stand at Affordable Housing As the need for affordable housing grows, mobile home communities can be a solution.
remain on more stable footing for pricing and affordability.
CONSUMER PAIN POINTS Whether talking about mid-sized markets or Sun Belt states, it’s not all sunshine for potential renters and homeowners in 2023. There are at least five areas of concern for the average Jack who rents or Jill who owns: NO. 1 HIGHER INTEREST RATES: In December 2021, a buyer could expect a 3.1% interest rate on a 30-year fixed mortgage. In December 2022, that same buyer is looking at a 6.33% rate for the same terms. A top concern for many buyers is inflation, and additional interest does not help. Affordability is also a major concern for buyers. The average monthly mortgage payment (assuming a 20% down payment) has increased by 107% since 2019.
by Neil Timmins I f you read articles, listened to podcasts, or attended confer- ences about real estate in 2022, you likely heard a lot about the “Sun Belt markets” and “sunshine states” as the hottest places to buy and sell last year. The U.S. Sun Belt is a moniker for states in the Southwest and Southeast. Phoenix, Raleigh, Austin, Jacksonville, Charlotte, Nashville, and Tampa were all Sun Belt cities Quicken Loans predicted to be among the “18 Hottest Housing Markets in the U.S.” last year. The trend toward warmer markets will continue in 2023, according to
PWC, who list their top five cities in 2023 as Nashville, Dallas/Fort Worth, Atlanta, Austin, and Tampa/St. Petersburg. The national housing and economic correspondent for USA Today, Swapna Venugopal Ramaswamy, proposes that mid-sized markets will reign in 2023 due to low inventory and rising interest rates. Danielle Hale, the chief economist for Realtor.com, states that because mid-sized markets like Grand Rapids-City of Wyoming, Michigan, and Louisville, Kentucky, “did not overheat during the [COVID- 19] pandemic housing frenzy,” they
NO. 2 INFLATION OUTPACING WAGES: A growing number of
households are “priced out of the for-sale market” according to a 2023
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PWC report. Renters who want to own are climbing an uphill battle toward saving for a down payment. Ninety-nine percent of U.S. cities saw rents increase last year, with 75% seeing double-digit rent raises. Although average wages are up 23% in the last five years, rent growth has far outpaced these gains at more than 36.9% in the same period. NO. 3 SWOLLEN HOME PRICES: Home prices surged because of the pandemic. The Mortgage Bankers Association (MBA) reports that mortgage applications are at their lowest in 25 years. Buying power is down for families across the board. In 2019, a family needed an income of around $52,000 to purchase a median-priced home with a monthly payment of $1,220. Today, that number has shot up to almost $100,000, with a monthly payment increase of an additional $1,000. NO. 4 LOW INVENTORY: Multiple offers over list price. Full cash offers. Packed open houses. 2022 was a seller’s market. Although the market
is normalizing, there is still not enough inventory to match demand, which has kept prices elevated. Rick Sharga, executive vice president of market intelligence at ATTOM Data, says the 3.3-month supply of homes on the market “is about half of what we’d like to see normally.” NO. 5 INVESTORS AND INSTITU- TIONAL BUYERS: Tim Henderson for Pew reported that “Investors made 29% or more of the home purchases last year in Arizona, California, Georgia, Texas, and Nevada, and investor purchases doubled or more from 2020 for Florida, Nevada, Vermont, and Washington.” Increasing activity from investors (small and institutional alike) has contributed to rent hikes and diminished affordability in Sun Belt markets. These concerns vary depending on the market, but the theme remains the same: Homeownership and renting grow increasingly expensive. Given these factors, there is one particular kind of investment property we will be keeping an eye on in 2023.
LAST STAND AT AFFORDABLE HOUSING: MOBILE HOMES Almost 18 million people, 5.6% of the U.S. population, call a mobile home “home.” The Manufactured Housing Institute (MHI) reports that in 2021, manufactured housing accounted for 9% of new, single-family home starts. Because the average sales price of a new manufactured home (without land) is just $108,100, mobile homes are an affordable alternative for many Americans. Mobile homes are a hot market to watch in 2023 because they meet a real need in the market (affordable housing), and they present a variety 2. Asymmetric financial returns 3. Relative low cost of acquisition 4. Reduced maintenance 5. Value-add rich environment 6. Limited supply, with restrictive barriers to building Andrew Keel notes three big names who invest heavily in the space: Warren Buffett through his company Clayton Homes (largest of investment upsides: 1. Recession resistant
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and upkeep to avoid overhead costs. Instead of a coat of paint and new lights, a park might need utility upgrades, road repairs, or decent landscaping. Derelict parks are a disservice to the residents and the broader community. With professional management and ongoing capital improvements, residents can see a dramatic increase in their quality of life and the parks are situated to thrive for the long term. Investors get rewarded for capital improvements with higher lot rents, an enhanced asset, and a stabilized community. A post on SMK Capital Management’s website notes that on average, apartment accommodations are “30%-60% more expensive than living in a mobile home.” Americans who have a need for affordable housing are undersupplied. The pool of potential residents is large, but only around 10 new mobile home communities are built a year. Restrictive zoning surrounding the construction of new parks makes it difficult to build, so the supply is largely restricted to what exists. Recession and high inflation are top of mind for Americans, and the need for affordable housing grows. Many mobile home communities across the country can fill that need. With the necessary management, operations, and improvements, mobile home communities can be transformed into a great place to live for residents and a home run for investors. •
manufactured housing producer in the U.S.); billionaire Sam Zell who founded Equity Group Investments; and Blackstone Group, which has acquired large amounts (notably $550 million in 2021) of mobile home investments. While institutional investors have grown more interested in the mobile home space, the fractured nature of the market makes it especially attractive for nimble investors. THE HOT UGLY DUCKLING In 2020, the total transaction volume for manufactured housing “was around $4.2 billion,” according to a report from JLL’s capital markets group. Although mobile homes fall outside the “core four” of commercial real estate (office, industrial, retail, and multifamily), they have the financial returns to match or outperform traditional investment assets. Mobile home communities have historically performed well in recessions and with “cap rates often over 10%, and cash-on-cash returns
of 20%,” Frank Rolfe (who with his partner, is the fifth largest mobile home park owner in the U.S.), argues they have the “highest yields in commercial real estate.” Savvy investors know that investing in mobile home communities is not about owning the units; it’s about the land underneath. In most cases, the unit is owned by the resident, who pays monthly to lease their pad. If you are just buying the land, your cost to acquire is relatively low, and repairs and maintenance are limited to the upkeep of the park rather than for each unit. Mobile home communities are a value-add rich environment. According to a September 2022 article by Paul Moore in The White Coat Investor, an estimated 85%-90% of mobile homes belong to “mom-and-pop” investors who often run these communities with minimal structure. These operators may own a handful of parks, but they largely neglect to provide sufficient maintenance
Neil Timmins is an author, investor, and educator. After spending years investing in houses and $300 million in transactions, he graduated to investing
in commercial real estate. Now he educates others on how to do the same. Neil’s first book “Unicorn Hunting for Real Estate Investment Companies: The Complete Hiring Funnel” was released in 2021. He hosts the popular podcast “Real Grit.”
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Expanding Your Real Estate Investment Portfolio in an Evolving Market Finding a lending partner that understands your specific goals and vision can help you grow in any market.
by Rob Chiusano
T he unprecedented fluctuations in the real estate and mortgage lending markets have led to uncertainty for many real estate investors. Although some investors have temporarily exited the market, savvy real estate investors are expanding their portfolios by using flexible and diverse loan products. Understanding your options is the first step to creating more value and long-term income in your real estate investments. SPECIFIC LOAN TYPES AND ADVANTAGES Mortgage loans can be complex and challenging to obtain for real estate investors due to the intricacies in their personal or business financial position. Often, traditional mortgage loan options do not meet the needs for real estate investors. But successful real estate investors have pivoted to more flexible loan options that are specifically designed for experienced investors. Whether you are a veteran real estate investor focusing on Condotels, short-term or long-term rentals of 1–4-unit residential properties, there are loan options that can position you to continue to grow your portfolio in a volatile market: ● Cash Flow Loan. Qualify for a loan using the property’s rental income only. A Debt Service Coverage Ratio (DSCR) loan allows you to tap into a growing market without tapping into your investment portfolio reserves. These loans work for short-term rentals like Airbnb/ VRBO but are also widely used for certain multi-unit properties or condos. ● Cash Out Refi. Take cash from a current investment property and reinvest it in new properties to continue to develop your overall strategy to grow. Home values have never been higher, so it may be wise to tap into your equity to grow your portfolio. ● Jumbo Limits. Most of these loan programs offer increased loan limits. In a competitive market and
increased home prices, qualifying for loan amounts up to $3 million gives you a competitive advantage with sellers.
TITLE POSSIBILITIES Another benefit of nontraditional real estate investor loans is the ability to have the property’s title vested in an LLC or corporation. Many investors with a multitude of properties often prefer to keep the title in their business for various reasons. HOW TO TAKE ADVANTAGE Finding a lending partner that understands your specific goals and vision can help you grow in any market. Working with loan officers that have years of successful experience in nontraditional real estate investor loans will provide you with the support and knowledge you need to expand your portfolio. Arc Home is a Non-QM mortgage lender specializing in real estate investment loans. Contact us at (888) 294-7881 or visit us at www.archomedirect.com/page/think-realty to get started. •
Rob Chiusano, NMLS ID 8696, is Arc Home LLC’s Investment Loan Sales Manager. Rob has over 30 years of experience helping real estate investors grow their portfolio through a variety of innovative loan solutions. To learn more, contact 888-294-7881.
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Booming Markets for Self-Storage Real Estate Self-storage has continued its streak as a high-performing commercial real estate asset class.
by Ryan Gibson F rom 2009 to 2018, self-storage facilities outperformed office, industrial, retail, and apartments. This sector’s stellar track record doesn’t mean self-storage is a sure bet anywhere. Data points such as unemployment rate, average household income, population and income growth, and net migration all help indicate whether a market is primed for a new or enhanced facility. Here are eight hot markets, spread across three states, that demonstrate strong potential.
DENVER AND COLORADO SPRINGS, CO The Mile High City has experienced rapid growth over the past few years. Denver not only is the No. 1 location in the country for STEM jobs but also has become a top destination for professionals working from home. These workers descended on the city as part of a nationwide migration away from densely populated areas on the East and West coasts. These factors illustrate why, in 2022, Denver was named the sixth-fastest-growing city in the country.
To the south, Colorado Springs also scores high points for growth. The Milken Institute ranked it among the best-performing cities of 2022, citing its high employment rate and the presence of top military, aerospace, and software companies. Well-established employers help determine a market’s long-term viability. Regions that demonstrate steady performance in the job market attract workers, who then fuel increased demand for housing and storage.
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influx of residential units and an increased demand for self-storage.
A LOCAL LENS Regional employment, income, and population statistics all play a critical role when determining whether a self-storage facility will be viable; however, they do not provide the complete picture. An area may boast strong economic growth but have a saturated self-storage market. Or the population may be booming, but a particular site could lack the visibility it needs to be successful. While some markets may check every box on your list, others outperform in some and flag in others. Once you understand regional positioning, local housing and employment trends can provide a more focused lens. New housing may directly translate to increased demand for storage, especially when developers concentrate on smaller apartment units that will leave residents short on space. According to the Self Storage Association, one in 10 Americans currently rent a storage unit, a clear sign the market is not slowing down. By contextualizing regional demographics with a deep knowledge of local market dynamics, you can determine whether your self-storage facility can help fill the growing demand. In doing so, you can build a business plan that will withstand the volatility of today’s economic landscape. •
THE TEXAS TRIANGLE There is a reason that 13 Spartan Investment Group portfolio properties are located in Texas. Its population is bested only by California. From July 2018 to July 2019, Texas added more residents than any other state. During the pandemic, people flocked to its four largest metropolitan areas: Austin, Dallas–Fort Worth, Houston, and San Antonio. Austin can claim the most substantial economic growth of any metropolitan area in the country, and its net migration rate is among the highest in the U.S. Strong migration trends indicate that a market is actively attracting new people, thereby increasing demand for goods and services. A quickly growing population exacerbates storage demand, especially where competition for housing is high. In the next five years, Houston is projected to outpace most metropolitan areas in population growth. In 2021, the city reached record numbers for job growth, sending unemployment back to pre-pandemic levels. Stable local employment is arguably the most significant factor in establishing whether a market can maintain its vitality and growth. As home to an array of Fortune 500 companies, including ExxonMobil and American Airlines, and as a regional hub for financial services, information technology, telecommunications, transportation and defense, Dallas– Fort Worth is one of the most diverse economies in the nation. San Antonio, meanwhile, has one of the highest concentrations of military facilities in the United States. Although military bases do not typically match the rapid job growth of the private sector, they offer a steady source of employment and a near-constant influx of transplants.
KANSAS CITY, MO-KS AND WICHITA, KS The gross domestic product (GDP) of Kansas City is more than $142.5 billion, having grown by nearly 40% in the last decade. The median income in the region has skyrocketed
during the past 20 years. This is thanks, in part, to the major
companies with headquarters in the city. These include American Century Investments, Garmin, and one of the largest freight shipping companies in the world, YRC Worldwide. Southwest of Kansas City, Wichita is the No. 1 aerospace manufacturing metro in the U.S. and recently secured the top spot for digital service job growth. The presence of major employers in the health care industry and military means it boasts steady employment rates and population growth. As Wichita’s downtown undergoes a major $1.5 billion renovation, expect to see an
Ryan Gibson is the president, chief investment officer, and co-founder of Colorado-based Spartan Investment Group, a privately held real estate
investment firm specializing in self-storage. He is responsible for investor relations and capital raises for projects. Gibson has organized more than $200 million of private equity for Spartan and has extensive experience managing the development of Spartan projects in challenging markets. To connect with Gibson directly, email ryan@spartan-investors.com.
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