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Bridge Loans vs. Capital Raising: Which is the Better Option for Your Multifamily Investment Firm?

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Multifamily Investment Firm

If you’re a multifamily investor, you know that finding the right financing can be a challenge. Two common options are bridge loans and capital raising, but which one is the better choice for your investment firm? In this blog post, we’ll explore the pros and cons of each option and help you determine which one is right for you. What is Multifamily Investing? Multifamily investing is the process of investing in properties with multiple units, such as apartment buildings, townhomes, or condominiums. Investors can purchase these properties and earn passive income through rental payments from tenants. What is a Bridge Loan? A bridge loan is a short-term loan that is typically used to finance the purchase of a property or to bridge the gap between the purchase of a new property and the sale of an existing property. These loans are usually secured by the property itself and have higher interest rates than traditional loans. Pros of Bridge Loans for Multifamily Investing Fast funding: Bridge loans can be approved quickly, allowing investors to move quickly on properties and secure deals. No prepayment penalty: Bridge loans typically don’t have prepayment penalties, allowing investors to pay off the loan early and save money on interest. Flexible repayment terms: Bridge loans often have flexible repayment terms, allowing investors to customize their repayment schedule based on their cash flow needs. Cons of Bridge Loans for Multifamily Investing High-interest rates: Bridge loans often have higher interest rates than traditional loans, which can add up quickly. Short-term financing: Bridge loans are typically short-term loans, with repayment periods ranging from six months to three years. High risk: Because bridge loans are secured by the property itself, investors run the risk of losing the property if they’re unable to repay the loan. What is Capital Raising? Capital raising is the process of raising money from investors to finance a multifamily property. Investors can contribute money to a project in exchange for a share of the profits. Pros of Capital Raising for Multifamily Investing No interest payments: When investors contribute money through capital raising, there are no interest payments to make. Long-term financing: Capital raising can provide long-term financing for multifamily properties, allowing investors to hold onto the property and earn passive income for years to come. Diversification: Capital raising allows investors to diversify their portfolio by investing in multiple properties with different levels of risk. Cons of Capital Raising for Multifamily Investing Time-consuming: Capital raising can be a time-consuming process, requiring investors to find and pitch to potential investors. Limited control: When investors contribute money through capital raising, they often have limited control over the management of the property. Sharing profits: Investors who contribute money through capital raising must share the profits with other investors. Which Option is Right for Your Multifamily Investment Firm? Ultimately, the decision between bridge loans and capital raising depends on your investment goals and your current financial situation. If you need fast financing and are willing to take on a higher level of risk, a bridge loan may be the best option for you. If you’re looking for long-term financing and want to diversify your portfolio, capital raising may be the better choice. Regardless of which option you choose, it’s important to work with a qualified team of professionals, including attorneys, accountants, and financial advisors, to ensure that you’re making the best decisions for your investment firm. With the right guidance and support, you can build a successful multifamily investment portfolio that generates passive income for years to come.

Top 12 Multifamily Investing Predictions for 2023

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multifamily investing

The multifamily investing industry has experienced significant growth over the past few years, and 2023 is expected to be no different. However, several factors may affect the industry’s growth, such as interest rate hikes, bank failures, and lower returns. Despite these challenges, there are still many opportunities for investors to capitalize on in the coming year. Here are the top 12 multifamily investing predictions for 2023. Continued Growth in Demand for Multifamily properties The demand for multifamily properties is expected to continue to grow in 2023, fueled by factors such as demographic shifts, urbanization, and a preference for rental properties among millennials and baby boomers. 2. Interest rate hikes will impact investment decisions Interest rate hikes are expected to continue in 2023, which will impact the cost of borrowing for investors. However, even with higher interest rates, multifamily properties are still expected to provide attractive returns compared to other asset classes. 3. Bank failures may create opportunities for investors The banking industry is facing several challenges, including rising interest rates and increased regulatory scrutiny. This may lead to bank failures, which could create opportunities for investors to acquire distressed multifamily properties at a discount. 4. Increased competition for prime properties As demand for multifamily properties continues to grow, there will be increased competition for prime properties in desirable locations. Investors may need to be more creative in their search for investment opportunities. 5. Focus on value-add properties With increased competition for prime properties, investors may shift their focus to value-add properties that require renovations or improvements to increase their value. 6. Greater emphasis on technology and automation Technology and automation are becoming increasingly important in the multifamily industry, with investors using data analytics to identify investment opportunities and automate property management tasks. 7. Greater focus on sustainability and energy efficiency Sustainability and energy efficiency are becoming more important in the multifamily industry, with investors and tenants alike looking for properties that are environmentally friendly and energy-efficient. 8. Lower returns than in previous years While multifamily properties are still expected to provide attractive returns compared to other asset classes, returns may be lower in 2023 than in previous years due to increased competition and rising interest rates. 9. Increased regulatory scrutiny The multifamily industry is facing increased regulatory scrutiny, particularly in areas such as tenant rights and rent control. Investors will need to stay up-to-date on regulatory changes to ensure compliance. 10. Opportunities for savvy investors Despite the challenges facing the multifamily industry, there are still many opportunities for savvy investors to capitalize on in 2023. By staying informed and being creative in their approach, investors can find the best deals and achieve attractive returns. 11. The Potential Impact of BRICS Countries Creating a New Payment System on the U.S. Economy The BRICS countries (Brazil, Russia, India, China, and South Africa) have been discussing the creation of a new payment system that would reduce their dependence on the U.S. dollar. If this system were to come to fruition, it could have a significant impact on the U.S. economy as the U.S. dollar is currently the world’s primary reserve currency. A reduction in the use of the U.S. dollar could result in a decreased demand for the currency, leading to a devaluation of the dollar. The devaluation of the U.S. dollar could result in inflation and a rise in the cost of imported goods, which could negatively affect the U.S. economy. Additionally, a weaker dollar could make U.S. real estate a less desirable investment to foreign buyers, which could lead to a slowdown in the U.S. real estate market. However, it is important to note that the impact of the creation of a new payment system by BRICS countries is uncertain, and it is unclear whether it will actually come to fruition. 12. The importance of Building Digital Credibility Online reviews, such as Google reviews, can be crucial for investors as they can influence potential tenants or customers’ decisions on whether to choose one property or business over another. A high volume of positive reviews can also reflect the quality of the operator’s management and, in turn, attract potential investors. Investors may also use online reviews as a tool to gauge the overall satisfaction of tenants or customers in each of their properties. By regularly monitoring and responding to online reviews, operators can address any concerns or grievances promptly, improving the overall reputation of the property. Conclusion The multifamily industry is expected to continue to grow in 2023, but investors will face several challenges, including interest rate hikes, increased competition, and regulatory scrutiny. However, by staying informed and being creative in their approach, investors can still find opportunities to achieve attractive returns in the coming year.

AI Investment Tools: Game-Changing Solutions for Real Estate Investors

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Artificial intelligence (AI) technology is now playing a pivotal role in transforming the multifamily housing market. This cutting-edge technology is improving efficiency, maximizing investor returns, reducing costs, and enhancing the overall tenant experience. As such, AI technology is changing the game for Real Estate Investors , passive investors, deal sponsors and operators as well as developers designing and constructing new community developments. Bear in mind, we have no relationship or conflict of interest in presenting these tools, they are simply programs we have witnessed emerging in the space and certainly new AI tools are coming online daily. Your own due diligence in use of any of these tools is advised. CONSTRUCTION AND DEVELOPMENT In construction and development, AI is improving efficiency by streamlining processes such as scheduling, budgeting, and project management. AI-powered construction management platforms such as Smartvid.IO provide easy access to critical insights, enabling developers to make more informed decisions and avoid potential delays. Another type of tool to expect more of is automated design and planning based on tracts of land, and what can be built. Should you build single-unit and ground floor only? Where might parking lots fit? Instead of replacing architects, these technologies can augment efforts and help move projects along faster with inspiration. For instance, one such tool is called ArchiGAN, which is a generative stack for apartment building designs. LEGAL AI technology is also changing the legal landscape for real estate. AI-powered legal services can help property owners and investors streamline their legal documents, such as leases, purchase agreements, and legal due diligence. Newly trained LLMs can even pass the Bar exam, and as an example, “DoNotPay” claims itself as “The World’s First Robot Lawyer”.  As a matter of fact, if you are searching for “Best AI Legal Tools 2023”, you will find an emerging industry that can save you money but should not replace your human legal team. However, services such as AI-powered contract review platform LawGeex allow legal teams to spend more time on higher-level work, reducing the time and cost of legal services. Again, for clarification, people and organizations should always consult with a qualified attorney before making decisions based on the information in this post or using any of the tools referenced herein. ANALYSIS AND DECISION MAKING AI technology makes it possible to leverage large amounts of data to gain insights that can inform decision-making. Investing in AI-powered tools like Google’s TensorFlow can provide data-driven insights that can direct decision-making related to rent pricing, marketing strategy, and property operations. Another example is Cody, an AI assistant. Cody is an intelligent AI assistant like ChatGPT, Bard, or GPT4 – with the added benefit of being able to train it on your business, your team, your processes, and your clients with your own knowledge base. Use Cody to support your team, answer questions, help with creative work, troubleshoot issues, and brainstorm ideas. RESEARCH AI is also revolutionizing the research process in the multifamily housing market. AI-powered tools such as AssetSonar can gather and analyze a broad range of data on properties and neighborhoods, including zoning and demographic data. These tools provide investors, operators, and developers accurate and up-to-date information that informs their investments and development decisions. One such example is turning your PDFs into chatbots, then simply asking your PDF questions to get answers summarized and delivered instantly. Some tools you might try are PDF Analyzer, ChattyPDF, or Ask Your PDF. For instance, why scour for details about K1’s when you can let a chatbot explain the intricate details in a simplified, quickly understood format? Or, simply use it for effortless organization and watch your document transform into a structured outline automatically. MARKETING AI technology also plays a significant role in the marketing of multifamily housing offerings. AI-powered chatbots can provide an excellent tenant experience, provide 24/7 support, and answer tenant questions. AI-powered chatbots and tools such as Rentlytics can provide insights into the customer journey and help operators identify the most effective marketing channels. When it comes to executing marketing strategies that include graphics, audio, video, social media and more, it is actually difficult to keep up with so many tools coming online. Every day there are more and more powerful tools, and considering some like Adobe are trained on LLMs that feature copyright protected libraries, it is worth considering where your tools are pulling their “influence” from so you don’t end up drawing off scraped and protected art that can come back to you such as copyrighted works, fonts, etc. LEASING AI technology streamlines the leasing process by reducing the workload of property managers and leasing agents. AI-powered leasing tools such as Leasera reduce friction such as application processes and digital approvals, speeding up the leasing process. AI algorithms can analyze vast amounts of data to develop scoring for tenant applications, even conversing with potential new applicants via chatbots and SMS to ‘nurture’ them along as leads, such as LEA, the AI leasing agent. PROPERTY MANAGEMENT (PROPTECH) AI-powered property management systems can help property managers automate tasks such as maintenance requests and payment bills. Platforms like CBRE provide built-in AI-powered chatbots that can help reduce tenant turnover rates. Property management systems powered by AI such as Rentigo generate automated rent payment reminders to help ensure on-time rent payment by tenants leading to reduced late payments and better cash flow management for property managers. Another way to use it is implementing communications tools such as Fathom, which plugs into ZOOM, Google Meetings, Microsoft Teams and other video platforms to annotate meetings, create transcripts, and even summarize meetings with different speakers noted and highlighted meeting points of importance. Look for more multifamily Proptech tools using AI to: Manage your real estate portfolio Organize your rental property operations Manage rent rolls and finances Manage leases and affordability compliance Communicate effectively with tenants, managers, and investors MORE MORE MORE! There are just so many AI tools coming online, multifamily operators need to experiment and see what will work best for themselves.  In multifamily … Read more

How to Evaluate Multifamily Properties for the Highest ROI

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When investing in real estate, it’s essential to do some upfront research. Many factors go into making a profit, so it’s important to be well-informed. Becoming an expert in multifamily real estate investing requires learning to evaluate multifamily properties. It’s important to learn how to evaluate multifamily properties for the highest ROI, the fastest. When you evaluate a multifamily property for the highest ROI, you will make more money with your investment, and you’ll invest in higher-quality multifamily properties with lower depreciation rates. Overview: How to Evaluate Multifamily Properties Multifamily properties are a great way to get into the real estate market. They offer the chance to earn a steady income, which can be a good investment if you know what you’re doing. If you’re looking at multifamily properties as an investment, it’s important to determine whether the property will be a good long-term investment or not. That’s why a lot of research and analysis goes into evaluating multifamily properties for potential buyers. Here’s how to do it: Identify Your Goals Before doing any evaluation, it’s important to know your goals for buying this property in the first place. For example, do you want to make money from renting out units? Are you looking for something that will provide passive income? Or are you looking for something that will give you some tax benefits? Knowing what kind of return you’re expecting on your investment will help narrow down which properties are worth further investigation, so start by identifying all of your goals before getting started. Start by looking at the numbers Have they been inflated by investors who have given the city high marks? Look at the crime rate and school district. Are there any recent foreclosures? What kind of businesses are in the area? These factors can affect the value of your investment property before you even make an offer on it. Once you have done your research and determined that this is a good investment opportunity, you need to look at what makes this particular property a good one for your needs (or someone else’s needs). For example, if there are several buildings like this one in the area and one is better than another, why buy that one instead? What makes it better than another one nearby? Is it newer? Has it been well maintained over time? Does it have more square footage than other similar units in town? Research rent comparables in the area You want to ensure that the rent you’re charging is competitive with other properties in your area. This is especially important when you’re looking at older buildings that have not been renovated recently since older buildings tend to attract lower rents than newer ones. Look at repair costs and maintenance issues. If you’re buying an older building, you may have more maintenance costs than if you bought something newer. If there are major repairs or renovations needed, this can affect your ROI significantly over time. The good news is that this can be partially mitigated by negotiating a lower purchase price on the building so that the costs don’t eat up all your profits immediately! Size of Units. The size of each unit should be considered as well. Smaller units may rent faster than larger units, but larger units could earn more per month than smaller ones (depending on how much competition there is). If you’re considering buying an entire building, make sure it doesn’t have any one-bedroom apartments available since these are often more complex to fill than two-bedroom or three-bedroom units. What To Consider Before Investing in Multifamily Real Estate Determine the Capitalization Rate The capitalization rate determines the amount of money you can expect to receive from rent. The formula for calculating this is: Capitalization Rate = Net Operating Income / Purchase Price In other words, if a property returns $5,000 in monthly rent and its purchase price is $250,000, your capitalization rate would be 20%. Every dollar you spend buying a property will generate 20 cents in income. A high capitalization rate means that you should be able to buy a property at a discount because it has many more years until it needs renovation or replacement than similar properties in the area. However, it also means that your profit margin may be lower than if you were buying a property with a lower capitalization rate (because fewer dollars will go into paying down mortgage debt). Determine How Much Equity You Can Expect To Earn Annually From A Property Evaluating multifamily properties for the highest ROI determines how much equity you can expect to earn annually from a property. This will tell you how much of your money you can put down on the deal and how much cash flow you can expect monthly. The Equity Yield Formula: Equity Yield = Net Operating Income (NOI) / Purchase Price Multifamily properties have an income-generating potential that single-family homes don’t have. For example, if you buy a duplex for $100,000 and rent each side for $500 per month, your annual income would be $10,000 — or 10% of the purchase price. But if you buy a triplex for $100,000 and rent out each unit for $500 per month, your annual income would be $15,000 — or 15% of the purchase price. Due Diligence Once you’ve found a property that looks promising, it’s important to do your due diligence. This involves researching the property and its location to ensure that all of your expectations for the property are met. You should also check out any local ordinances or zoning laws that may affect your ability to rent the property as planned. For example, if you’re looking for a low-income neighborhood with no water meter on the property, it may be too expensive for renters to install running water in their units. This could mean trouble when trying to lease up units in this neighborhood. Final Thought We hope this guide has helped you evaluate multifamily properties for the highest return … Read more

What To Consider Before Investing in Multifamily Real Estate

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Multifamily Real Estate investing is becoming increasingly popular, with investors clamoring to find a property multiple for renting a single-family home. The reason for this excitement is that multifamily properties offer an attractive investment that combines solid returns with lower levels of volatility than single-family homes and other real estate asset classes. What is a Multifamily Property? Multifamily properties can be defined as a building with more than one unit. The most common type of multifamily property is the apartment complex, but there are other types of multifamily properties such as condominiums, townhouses, and even student housing. Multifamily properties can be found in any market and can be either owner-occupied or rented out to tenants. They appeal to investors because they provide a stable income stream through monthly rent payments and also offer tax benefits for some forms of investment real estate. Multifamily properties are often owned by a single investor or by a partnership of two or more investors. These investors hire a property manager to oversee day-to-day operations, including tenant screening and maintenance requests. Pros and cons of multifamily investing Investing in multifamily properties can offer many advantages. Low startup costs – The cost to purchase a multifamily property is significantly lower than the cost of buying a single-family home. And once you’ve purchased your first property, the cost of acquiring additional units can be spread over several years as you build your portfolio. Low vacancy rates – The vacancy rate for multifamily properties is typically between 4% and 5%, according to Real Capital Analytics (RCA) industry experts. This is much lower than the vacancy rate for single-family homes, ranging from 10% to 30% during economic downturns. Rental income. Your rental income will be based on the rents you charge your tenants, which can vary depending on the location and type of property you own. For example, the average rent for a two-bedroom apartment in San Francisco is $3,400 per month, according to Zumper’s National Rent Report for January 2017. In contrast, the average rent for a two-bedroom apartment in Detroit is just $700 per month. Multifamily properties provide diversification. Since most multifamily properties have multiple units, they provide some level of diversification by spreading risk around several units rather than relying on one property alone for income. So, for example, if one unit becomes vacant due to a tenant moving out or being evicted, this won’t necessarily cause any issues with the other units in the building because they’re all covered by separate leases anyway (at least until they expire). Low correlation to stocks and bonds. Multifamily properties are less correlated with stocks and bonds than other real estate investments because they provide income rather than capital appreciation — although they also offer capital appreciation. In addition, they tend to be less correlated with the stock market than other real estate investments like office buildings or industrial properties because they tend to be located closer to where people live and work — this means higher demand for housing during times when people want to live closer to their jobs and vice versa. Lower maintenance: Less maintenance than single-family homes or retail spaces. Apartments have fewer repairs and lower turnover than single-family homes and retail space (both of which require repairs and cleaning). Risks of Multifamily Investment Properties Here are three of the most significant risks to look out for when considering a multifamily property: Tenant turnover rate: Tenant turnover rate refers to how often tenants move out of their units in a given period (typically one year). A high tenant turnover rate means that many of your tenants will be moving out soon — which means more vacancies and less income from those units while re-renting — and more work. Market risk. The market can be volatile and unpredictable, so you could lose money on your investment if the economy turns south or if a large amount of new supply in your area drives down rents. Construction risk. This is a big one! For example, suppose you’re buying an older property and need to renovate it or add amenities to attract tenants. In that case, you could lose tens of thousands of dollars if you don’t get the job done correctly or on time — or worse yet if something goes wrong during construction and causes damage to the property or other units in the building. Property Management for Multifamily Properties When it comes to managing these types of properties, there are two options: self-manage or hire a property manager. Self-managing your assets means doing everything yourself — from collecting rents and paying bills on time to fixing leaks in the bathroom tubs and repairing broken appliances. If this sounds like something you want to do on top of all your other responsibilities (like running your business), then self-managing might be the right choice for you.  Property management. You will need a property manager to handle everything from maintenance issues to tenant screening. If you cannot hire a professional manager, you’ll have to spend time handling these tasks yourself. This will take away from your time as an investor and could cause problems down the road if you don’t have enough time or experience managing tenants. Final Thought In the end, multifamily real estate investing is not something that every person or company should attempt. It is a highly specialized field with unique challenges and considerations. However, suppose you’re interested in embarking on this investment strategy or gaining a better understanding of the landscape. In that case, you should have the knowledge you need to succeed. With that in mind, begin your research today to make an informed decision in the future. To learn more about our current passive investment opportunities, please Schedule an investor introductory session

Midyear Multifamily Market Outlook

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As the Federal Reserve has increased interest rates and inflation has risen, the likelihood of a recession in the near future has grown. The sharp rise in interest rates has already impacted volume as borrowers and investors may have sidelined deals until volatility levels out. Despite the increased uncertainty, multifamily performance is expected to remain strong for the year. Multifamily fundamentals have begun to moderate in the second quarter – a trend which is expected to continue throughout the rest of the year – with growth projections still well above long-term averages: Gross income is projected to increase by 6.8% and the vacancy rate to remain unchanged at 4.8%. Rental growth has been exceptionally strong, up 16% over the year ending in June. Occupancy has remained above the long-term average. Tight rental markets indicate that the number of construction permits issued and the number of housing starts will have a limited impact on the market this year. Due to the volatility of Treasury rates, we expect total originations for the multifamily sector to contract slightly in 2022 to $440-$450 billion, but underlying multifamily fundamentals will continue to attract investors. Texas Multifamily Outlook – July 2022 According to most objective metrics and standards, multifamily assets in major Texas markets still represent strong investment propositions relative to other commercial sectors and the stock market. Houston After losing thousands of jobs to the flu pandemic, Houston recovered all of them by 2022, with multifamily construction directly benefiting from the bounce in economic growth. Rents rose 0.7% in April from three months earlier, to $1,293, while the occupancy rate for stabilized apartments in the 12 months ending in April was 94.1%. Average Rent: $1,293 (0.7%) Unemployment Rate (%) : 4.1% Average Occupancy Rate (%): 94.1% New Apartment Units Under Construction: 23,382 Dallas-Fort Worth In Dallas-Fort Worth, the pace of growth in apartment rents continued in the first half of 2022, driven by in-migration and company expansions and relocations. The average rent rose 1.2% on a trailing three-month basis through May, to $1,525. The occupancy rate was up 90 basis points in the 12 months ending in April. Average Rent: $1,525 (1.2%) Unemployment Rate (%) : 3.2% Average Occupancy Rate (%): 96.2% New Apartment Units Under Construction: 47,011 Austin The growth of the Austin metro area has been spurred by its reputation as an eclectic, creative community. The population grew by 28% in the last decade and housing demand is on the rise, which has led to a trend of rising rents. Although the rates softened during seasonally slow periods, rents have since picked up again and reached $1,744 on a trailing three-month basis through May. Occupancy rates are at 95.7%. Average Rent: $1,744 (0.8%) Unemployment Rate (%) : 2.5% Average Occupancy Rate (%): 96.2% New Apartment Units Under Construction: 42,118 According to research from the National Multifamily Housing Council (NMHC) and National Apartment Association, roughly 4.3 million new apartments will be necessary by 2035 to meet increasing demand. Texas, Florida, and California account for 40% of future demand and will collectively require 1.5 million apartments by 2035. Join Us For A Daily 60-second Coffee Break Series For Passive Investing In Commercial Real Estate With James Kandasamy, The Best-selling Real Estate Author And Mentor.

How the Multifamily Market May Crash like the Subprime Crisis

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Got your attention right? Despite many real estate investors and Gurus drumming up information on how hot the multifamily asset class is, there has been a subtle deadly weakness in the market since 2015. We are not talking about the rising interest rates or an increase in cap rate. There are major factors that may cause an upcoming crash.