New Era of Real Estate Investment

The New Era Of Real Estate Investing - A Simpler Path To Building Wealth.

https://finance.yahoo.com/amphtml/news/era-real-estate-investing-simpler-122557672.html#amp_tf=From%20%251%24s&aoh=16615542914200&referrer=https%3A%2F%2Fwww.google.com

Real estate is one of the greatest wealth-building assets of all time, providing stable returns through all market cycles. However, investing in real estate through traditional means is becoming increasingly difficult.

The housing shortage has made it more difficult to find investment opportunities and surging home prices along with recent interest rate hikes have further limited the access to real estate investments.

While this may seem like a death blow to many investors' dreams of becoming real estate moguls, a growing number of retail investors are becoming landlords through a more affordable and efficient strategy: fractional real estate.

The real estate investment platform Arrived Homes, backed by Amazon.com Inc (NASDAQ: AMZN) founder Jeff Bezos, is one of the fastest-growing providers of fractional real estate investments. The company offers securitized shares of income-producing single-family rentals through SEC-regulated offerings.

The company caught the attention of many high-profile investors during its seed round, attracting investments from Jeff Bezos through his Bezos Expeditions fund, Salesforce.com Inc (NYSE: CRM) founder Marc Benioff through Time Ventures, former Zillow Group Inc (NASDAQ: Z) CEO Spencer Rascoff and Uber Technologies Inc (NYSE: UBER) CEO Dara Khosrowshah

By utilizing Regulation A+, the platform can offer property ownership to non-accredited investors with investment amounts ranging from $100 to $10,000 per property.

Real estate investors receive quarterly distributions from their share of the rental income and later realize gains through the price appreciation at the end of the target hold period.

One of the most overlooked benefits, however, is the tax advantages that come with owning equity in investment real estate. Since real estate depreciates, the actual cash distributions received each year are often more than the taxable income.

Fractional ownership isn't just limited to single-family rentals. Accredited investors are able to own shares of multi-million dollar commercial real estate assets and even major ground-up developments.

The real estate platform RealtyMogul has private equity offerings for commercial properties, like multifamily, industrial, office and self-storage, with minimum investments starting at $35,000. Annualized returns on realized investments through the platform have averaged about 17%.

See also:

Browse private equity real estate investments with Benzinga’s offering screener

Have $100 to invest? Here are three ways you can start investing in real estate today

Fractional Real Estate vs REITs
Real estate investment trusts (REITs) have long been the popular option for passive investors to gain exposure to real estate, but this type of real estate investment is still vulnerable to stock market volatility.

For example, the leading single-family rental REIT Invitation Homes Inc’s (NYSE: INVH) share price is down roughly 20% so far in 2022, while its real estate portfolio, rental revenue and funds from operations (FFO) have increased and its net debt has decreased.

Fractional real estate, on the other hand, has very little correlation with the stock market. This means that overall investment returns are typically more predictable and stable.

The lower volatility does come with a trade-off, however. Since shares of fractional rental properties aren’t traded on a stock exchange, liquidity options are typically more limited. There aren’t many options yet for secondary trading, whereas shares of a publicly traded REIT can normally be sold instantly during trading hours.

If one of your investment goals has been to start investing in real estate, you can now find available properties and become a landlord in minutes without having to get pre-approved for a mortgage or get into bidding wars with other home buyers.

Looking at UK perspective

 

Interest rates might dampen house prices – but investors would be foolish to ignore this builder.

https://www.yahoo.com/news/interest-rates-might-dampen-house-050000617.html

A house price crash is not guaranteed to take place over the coming months. Certainly, factors such as rising interest rates and a cost of living crisis are likely to act as a drag on the housing market because of their negative impact on affordability.

But assuming that these circumstances are certain to prompt an early 1990s or late 2000s-esque slump in property prices could be a grave mistake.

After all, rapidly falling commodity prices that ease today’s rampant rate of inflation could lead to a far less hawkish monetary policy that supports house prices. Even if interest rates do continue to rise, some prospective buyers may even be encouraged to lock in lower rates.

In Questor’s view, trying to predict the short-term outlook for the housing market is pointless. There are simply too many variables that could affect prices but cannot be accurately forecast.

However, there are opportunities for long‑term investors to take advantage of current downbeat market assumptions. Housebuilders such as Barratt Developments, for example, trade on extremely low valuations that do not appear to factor in their growth potential over the coming years.

The stock currently trades at about six times forecast earnings. This suggests that investors are assuming that extremely difficult trading conditions that will cause a vast deterioration in its profits are ahead.

While that may or may not prove to be accurate, the long‑term outlook for housebuilders is upbeat. There is, and has been for many years, a fundamental imbalance between property demand and supply. For example, England’s population increased by about 390,000 a year between 2010 and 2020. Over the same period, just 135,000 new homes were built annually.

It is impossible to say whether the recent rate of population growth will persist. Likewise, planning rules could tighten or loosen depending on the government of the day. But the premise that a multi‑decade supply/demand imbalance can quickly, or easily, be corrected is flawed in this column’s view.

Moreover, while major housebuilders hold vast land banks in what is essentially an oligopolistic industry, there is unlikely to be a wave of new development that boosts supply over the coming years – unless it is accompanied by house price rises. Barratt spent more than £1bn on land last year and aims to have an owned and controlled land bank of four and a half years. Further information on its recent performance will come with full-year results due on Sept 7.

Even if there is a housing market downturn, the company’s £1.3bn in net cash will give it the financial means to survive. It could even capitalise on lower land prices to further boost its long-term profit potential. It may also wish to make further acquisitions following the recent £250m spent on land sourcing specialist Gladman Developments should asset price falls present opportunities to buy rivals or complementary businesses at attractive prices.

Undoubtedly, there are threats to Barratt’s future profits. The company’s cladding bill recently rose by about £400m, while the Government’s new 4pc Residential Property Developer Tax will cut the profits of all major housebuilders. Meanwhile, rising input costs and an increasingly downbeat economic outlook remain threats to the industry’s prospects.

However, in Questor’s view those risks are more than adequately priced into the company’s valuation. Its shares have fallen by 35pc since the start of the year. They are down by a similar amount since we first tipped them in January 2020. In doing so, they have heavily underperformed the FTSE 100 index.

With favourable industry supply/demand dynamics, solid finances and a strong market position, the long‑term prospects for the shares are extremely positive. Weak investor sentiment prompted by fears of a housing market bust could hold them back in the short run. Those who can look beyond current uncertainty are likely to be richly rewarded in future years.

Questor says: buy

Ticker: BDEV

Share price at close: 486.9p

Housing market slower but no major price drops yet

 

Rising home prices and mortgage rates have made it next to impossible for many Americans to afford a home. And, even though the market is starting to show signs of cooling, many prospective buyers will remain on the sidelines for now.

https://www.cnn.com/2022/08/08/perspectives/housing-market-mortgage-rates/index.html

Although they have fallen slightly from the 5.81% peak reached earlier this year, mortgage rates have nearly doubled since the start of the year. Combined with rising home prices, the mortgage payment for the nation's typical home is up by roughly 60% from a year ago, dragging housing affordability down to a 15-year low in June.

That means an increasing number of people are being priced out of the market, especially in some of the nation's most expensive areas. Sales of existing homes fell 14.2% in June from a year before and have fallen on an annual basis in each of the last 12 months, according to Zillow data, indicating a drop in both supply and demand.

For now, there are enough people who are still able to afford a home that prices continue to rise, but there are clear signs the market is starting to rebalance. Home value growth, for instance, is slowing. And while homes that have recently gone under contract have done so very quickly compared to historic norms, the time that the typical home spends on the market is starting to rise from record lows, according to Zillow data. More sellers are also cutting prices.

Many potential buyers who have been stuck on the sidelines are likely cheering this slowdown and hoping prices might fall enough for them to jump back in. But that is unlikely, at least on a grand scale.

While rising mortgage and interest rates chill demand, they also chill supply. Residential construction, which tends to be highly responsive to changes in interest rates, has pulled back in recent months — limiting supply and pushing home prices up. Housing starts fell 6.3% in June from a year ago, and while total home construction permits are up slightly from last year's levels, permits associated with single-family homebuilding fell 11.4% in June from last year's levels.

Declining new construction has long been a leading indicator of economic malaise. And while we can't fully see the future, one thing remains crystal clear: A persistent housing deficit does not bode well for housing affordability in the United States. A key reason homes are so expensive in the first place is that the country is 3.8 million homes short of meeting housing needs.

It's not just new construction that's being slowed by higher mortgage rates. Potential sellers are pulling back from listing — 8% fewer new listings came on the market in June compared to the same month in 2021, according to Zillow data. If a potential seller expects housing demand to fall and their house to sit on the market longer, they become less likely to list in the first place. Nearly a fifth of homeowners surveyed by Zillow earlier this year with no plans to sell cited financial uncertainty as a reason. And with 71% of sellers buying at the same time, and likely facing a much higher mortgage rate than the one they currently have, the idea of trading up — or even downsizing — is much less appealing.

For those trying to get on the housing ladder, all of this means buying won't get notably less expensive for the foreseeable future. Instead, this market transition only suggests that those who can still afford to buy a home are getting a little breathing room.

To truly ease America's affordability crisis, we need to build more housing at all price points — especially entry-level.

Zillow research has shown there is broad support for duplexes, triplexes and accessory dwelling units throughout residential neighborhoods — even among homeowners. Adding units generally helps keep prices down, and these types of homes especially tend to be more affordable than single-family homes.

In addition, loosening single-family zoning restrictions — which prevent homes from being built — could yield millions of additional homes. At the federal level, expanding and passing new tax incentives to build or rehabilitate affordable housing — like the Low-Income Housing Tax Credit and the Neighborhood Homes Investment Act — can also help.

Struggling Americans shouldn't be left cheering for a crash that ultimately won't get them any closer to homeownership. There's no better time for policymakers to help homes of all types be built faster

Markets with up prices & down price

 

If you wet your beak in the real estate biz, there’s a good chance this already feels like a personal recession. Spiked mortgage rates—which saw the average 30-year fixed rate jump from 3.1% to 5.3% this year—have pushed the U.S. housing market into its swiftest plunge in activity since 2006. Home sales and home construction are both falling—fast. And layoffs have already hit big-name real estate firms like Redfin and Compass, as well as mortgage departments at financial firms like JPMorgan and Wells Fargo.

https://fortune.com/2022/08/01/housing-markets-where-home-prices-fall-and-rise-2023-2024-housing-forecast/

Housing economists have a name for what we’re seeing now: a “turned-over” housing cycle. That means the housing expansion, which started back in 2011, has been replaced by a downward slide. That said, just because housing activity is falling doesn’t guarantee that house prices will also fall. On paper, the housing crash of 2008 is an anomaly. Historically speaking, house prices are incredibly sticky. Home sellers cling to the price they have in their head for as long as possible. Even during most recessions, house prices go higher—not lower.

As the housing cycle “turns over,” it’s only logical to ask if the housing market is headed for another historical anomaly, i.e. falling house prices, or the historical norm, i.e. rising house prices.

To find out, Fortune reached out to Moody’s Analytics to get access to its latest proprietary housing analysis. Researchers at the financial intelligence firm calculated how house prices are likely to shift in 414 regional housing markets between the fourth quarter of 2022 and the fourth quarter of 2024.

The finding? Among the nation’s 414 largest housing markets, the Moody’s Analytics forecast model predicts that 210 markets are poised to see house prices decline over the coming two years; 204 markets are poised to see house prices rise over the coming two years.

Moody's Analytics forecast model predicts that The Villages in Florida is poised to see the biggest drop in house prices. Between the fourth quarter of 2022 and the fourth quarter of 2024, Moody's Analytics predicts, home prices in The Villages will fall 12.8%. Not too far behind, are Punta Gorda, Fla (-11.4% forecasted home price decline); Spokane, Wash. (-9.4%); Cape Coral, Fla.(-9.4%); Ocala, Fla. (-9.3%); Lake Havasu City, Ariz. (-9%); Fort Lauderdale (-8.6%); Reno (-8.2%); Missoula, Mont. (-7.7%), and Palm Bay, Fla. (-7.6%).

Most of these markets at risk of falling house prices are also the very places that saw the most home price appreciation over the past two years. Now they're simply more vulnerable to a homebuyer revolt. Meanwhile, markets in Florida, where homebuilding soared during the pandemic, are now at an elevated risk of oversupply. If Florida homebuilders can't offload their unsold homes, it could lead to a temporary oversupply.

Among the 414 markets analyzed by Moody's Analytics, Albany, Ga., is predicted to see the biggest jump in house prices over the next two years. Between the fourth quarter of 2022 and the fourth quarter of 2024, Moody's Analytics predicts, home prices in Albany will rise 9.8%. Just behind Albany are Casper, Wyo. (8.0% forecasted house price growth); New Bern, N.C. (7.6%); Rocky Mount, N.C. (7.3%); Augusta, Ga. (7.2%); Hartford (7.1%); Columbus, Ga. (6.6%); Farmington, N.M (6.5%); Valdosta, Ga. (6.4%), and Danville, Ill. (6.3%).

The pandemic housing boom saw the U.S. housing market go from, historically speaking, an affordable housing market to a historically unaffordable market in just 24 months. At the end of the day, that's the main reason 210 markets are vulnerable to falling home prices.

Every quarter, Moody’s Analytics does an analysis to determine if home prices in regional housing markets can be supported by underlying economic fundamentals like local income levels. The last reading wasn't pretty. Through the first quarter of 2022, Moody's Analytics estimates, national house prices are “overvalued” by 24.7%. That means U.S. house prices are now the most detached they've been from fundamentals since the housing bubble.

The pandemic housing boom saw the U.S. housing market go from, historically speaking, an affordable housing market to a historically unaffordable market in just 24 months. At the end of the day, that's the main reason 210 markets are vulnerable to falling home prices.

Every quarter, Moody’s Analytics does an analysis to determine if home prices in regional housing markets can be supported by underlying economic fundamentals like local income levels. The last reading wasn't pretty. Through the first quarter of 2022, Moody's Analytics estimates, national house prices are “overvalued” by 24.7%. That means U.S. house prices are now the most detached they've been from fundamentals since the housing bubble.

Moody's Analytics isn't the only firm predicting that some regional housing markets could see falling house prices. Among the nation's 392 largest markets, CoreLogic estimates that 98 markets have a "high" or "very high" chance of seeing falling house prices over the coming year.

But even if some regional housing markets see falling home prices, it doesn't mean we're headed for a nationwide bust. Neither Moody's Analytics nor CoreLogic predicts a national home price decline. Unlike 2008, this time around homeowners are in better financial shape. Not to mention, the shady subprime mortgages that nearly brought the financial system to its brink in 2008 have been outlawed.

Bill McBride, author of the blog Calculated Risk, tells Fortune he believes that pandemic boomtown markets like Phoenix and Boise—where home prices soared around 60% during the pandemic—might see home values decline by around 5% to 10% over the coming year. But that wouldn't be the end of the world, McBride says.

"So what? You’re still up 50%," McBride says.

Want to stay updated on the U.S. housing market? Follow me on Twitter at @NewsLambert.