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The Dollar Index: Risks and Opportunities for Passive Investors

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Passive Investors

We hope you’re having a fantastic week! In this edition of our monthly newsletter, we will be shedding light on the impact of the U.S. Dollar on passive real estate investing, along with providing you valuable insights and trends to help you make informed decisions in your investment journey. The U.S. dollar has long been the dominant global currency, influencing investment decisions across various asset classes, including passive real estate investing. The dollar’s strength or weakness directly impacts investment returns, property prices, and overall market stability. What is the U.S. Dollar and why does it matter? The U.S. dollar is the world’s primary reserve currency, meaning it is the currency that other countries hold in their reserves. Additionally, the U.S. dollar is the most traded currency globally and serves as the benchmark for many commodities, including gold and oil. The value of the U.S. dollar has a significant impact on the economy and global financial markets. When the dollar is strong, it increases the purchasing power of Americans and allows them to buy more goods and services. However, a strong dollar can also have negative effects on the economy, such as hurting exports and making it more expensive for foreigners to buy U.S. goods. The Impact of a Strong Dollar A strong U.S. dollar can have both positive and negative effects on passive real estate investing. On the one hand, a strong dollar can increase the purchasing power of foreign investors, making U.S. real estate assets more attractive. This can lead to increased demand for U.S. real estate assets, which in turn can drive up prices and increase returns for investors. On the other hand, a strong dollar can also make it more expensive for U.S. investors to invest in foreign real estate assets. This can limit the opportunities available to investors and reduce diversification options. Register For Our Passive Investor Educational Webinar Protecting Your Equity During Uncertain Times Strategies For Today’s Challenging Investing Environment! Jun 22, 2023, 07:00 PM Central Time (US and Canada) SAVE YOUR FREE SPOT As the graph above illustrates, there is a clear correlation between the U.S. dollar index and U.S. real estate prices, with periods of a stronger dollar generally coinciding with rising property prices. 📊 U.S. Dollar Strength and its Impact on Real Estate Investment A strong U.S. Dollar often leads to decreased demand from foreign investors, as the cost of acquiring U.S. real estate becomes more expensive for them. This, in turn, can translate to lower property prices, creating more opportunities for domestic investors. The graph above shows a clear inverse relationship between the U.S. Dollar Index and foreign real estate investments. When the dollar strengthens, foreign investment tends to decrease, and vice versa. 💡 Insights: For passive investors, this presents an opportunity to enter the market at a lower price point, as well as take advantage of potentially higher returns due to lower competition from foreign investors. Fluctuations in the U.S. Dollar can have a profound impact on passive real estate investing, both domestically and internationally. By staying informed of these trends and adapting your investment strategy accordingly, you can minimize risks and maximize returns. Get a Free Copy of my #1 Best-Seller Passive Investing In Commercial Real Estate GET IT NOW

Passive Real Estate Investing: Tax Benefits You Can’t Afford to Ignore

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Passive investing has become increasingly popular in recent years, particularly in the real estate market. Passive real estate investing allows investors to generate passive income without actively managing a property. This strategy has proven to be a great way to earn a steady stream of income and build wealth over time. However, one aspect that is often overlooked is the tax benefits that come with passive investing. In this article, we’ll explore the tax benefits of passive investing, and how you can maximize your returns. Understanding Passive Investing Passive investing is a strategy that involves investing in assets that generate a steady stream of income without requiring the investor to actively manage the asset. In the real estate market, this can include investing in rental properties, real estate investment trusts (REITs), or crowdfunding platforms. Unlike active investing, passive investing doesn’t require investors to have hands-on involvement in managing the property or making decisions about it. Passive Investors and Taxes Passive investors enjoy several tax benefits compared to active investors. For example, the income generated from passive investments is typically taxed at a lower rate than active income. Additionally, passive investors can take advantage of tax deductions and credits that aren’t available to active investors. Passive Real Estate Investing and Tax Benefits Real estate is a popular asset class for passive investors, and it also offers several tax benefits. Here are some of the tax benefits of passive real estate investing: Depreciation: Depreciation is a tax deduction that allows investors to write off the cost of the property over time. This deduction reduces the investor’s taxable income, which can result in significant tax savings. Capital Gains Tax: When you sell a property for a profit, you are required to pay capital gains tax. However, if you hold the property for more than a year, you can take advantage of lower long-term capital gains tax rates. 1031 Exchange: A 1031 exchange allows investors to defer capital gains tax when they sell a property and use the proceeds to purchase another property. This allows investors to reinvest their profits into another property without paying taxes on the gain. Best Passive Income Investments for Tax Benefits Here are some of the best passive income investments for tax benefits: Real Estate Investment Trusts (REITs): REITs typically generate income through rental income and capital appreciation of their properties. As a shareholder, you can earn a share of the rental income generated by the properties without having to own or manage them directly. REITs also offer several tax benefits, including deductions for depreciation and interest expenses. Crowdfunding Platforms: Crowdfunding platforms allow investors to pool their money together to invest in real estate properties. These platforms offer passive investors the opportunity to earn a share of the rental income without having to actively manage the property. Crowdfunding investments also offer tax benefits, including deductions for depreciation and expenses. Dividend Stocks: Dividend stocks are stocks that pay dividends to shareholders. These dividends are typically taxed at a lower rate than regular income, making them an attractive option for passive investors. Maximizing Your Returns To maximize your returns from passive investing, it’s important to understand the tax benefits that come with it. By taking advantage of these tax benefits, you can reduce your tax bill and increase your net returns. Additionally, it’s important to choose the right passive income investment that aligns with your financial goals and risk tolerance. Conclusion Passive investing offers several tax benefits that can help investors maximize their returns. By understanding the tax benefits of passive real estate investing and other passive income investments, investors can reduce their tax bill and increase their net returns.

3200-Units Foreclosure Key Takeaways for Operators and Passive Investors

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Passive Investors from Houston Multifamily Foreclosure As the whole Multifamily Industry knows, there was a foreclosure of 3200 Units with $229 million of debt in Houston by Arbor Realty from a private Deal Sponsor from Dallas. These properties were bought between August 2021 and April 2022. The Deal Sponsor defaulted on their mortgage payment. The investors from that deal have alerted their friends about the potential foreclosure two weeks before it came out on Twitter . This news eventually came out in Wall Street Journal.  As per Trepp Inc, these properties’ cash flow went from 3.8% to more than 8% due to the rapid interest rate hike by FED. While the interest rate hike by the Fed has caused this property to be further under distress, many other factors have caused these Deal Sponsors to face foreclosure. We have a written 10-series article that we wrote so that any passive investor can learn and avoid investing in this kind of Deal Sponsors. Bridge Loan with No Rate Caps As per the chart below from Howard Mark’s book “The Most Important Thing”, Non-Recourse Bridge Loan stacked with Preferred equity without a rate cap.   As you can see it’s considered the highest risk deal type. Preferred equity is a private institutional group that acts like a lender but holds a second position in the capital stack. Preferred equity usually charges a fixed 12-14% interest rate with 1%-2% when the deal is initiated and exited. Usually, preferred equity is used behind common equity (normal retail investors) to boost back-end profit. It’s also used when the sponsor can’t raise a large sum of equity from retail investors. The pitch to the investor is the deal has a lot f upside that even after paying the fixed return to the pref equity group, there will be a lot more upside to common equity.  I attended a webinar where the presenter declared using preferred equity is the way to do deals in 2021. To survive market fluctuations an operator needs to be disciplined and stick to their stringent underwriting criteria. However, when the buying spree seems to be forever, many operators start to do deals at any cost. This includes taking Bridge loans for a deal that does not have significant value-add. I call it a misuse of loan type. I see many cash-flowing deals with thin upsides were bought using bridge loans. Of course, when the Deal sponsor raises the capital, they declare their deals are value add. The question is how big is the upside? In the worst case, some Deal Sponsors did not even take a rate cap insurance.  After the year 2020 to mid-2022, the value of the multifamily assets has gone beyond its intrinsic value. Fannie Mae and Freddie Mac lenders have almost gone out of business as the only way to make any deal work is to get a bridge loan since it’s a forward-looking upside loan. Furthermore, many Deal sponsors didn’t realize that the rate is variable. When the interest rate skyrockets, most of them are caught unprepared. The smarter and more conservative one invested in rate caps insurance since it was affordable then. The aggressive or less sophisticated Deal Sponsors decided not to buy rate caps due to ignorance or they even can’t raise the capital for equity. Most lenders will require rate cap purchases as a mandatory requirement. In the Houston Foreclosure case, looks like the lender didn’t require the sponsors to buy rate caps. Furthermore, Bridge loans were used for Deals that is not for value add. At Achieve Investment Group, James Kandasamy Texas, we are proud to say that we only have 1 bridge loan (with a rate cap of course) out of our 15 multifamily deals that we have and have done. Even that bridge loan is a true Deep value add deal. We could have done many more deals from 2020 to 2022 by taking Bridge Loans for all kinds of think upside deals as many passive investor capital were easily available. We were well aware that Bridge loans pose risk and need to be used appropriately for true-value add deals. I wrote about this on page 68 of my 2019 Bestselling Book “Passive Investing in Commercial Estate”.    Action Item for Passive Investors For passive investors, it is important to consider passive real estate investing as a potential option, Make a list of your investment to identify bridge loans, whether there are rate caps, when the rate cap expires, and whether the deal has a preferred equity between You (common equity) and the Senior Lender. I am sure you will be surprised! 

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